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Exhibit 10.1.b   [Published CUSIP Number: ____] CREDIT AGREEMENT Dated as of May 11, 2006   among GREAT PLAINS ENERGY INCORPORATED, CERTAIN LENDERS, BANK OF AMERICA, N.A., as Administrative Agent, JPMORGAN CHASE BANK, N.A., as Syndication Agent, and BNP PARIBAS, THE BANK OF TOKYO-MITSUBISHI UFJ, LIMITED, CHICAGO BRANCH and WACHOVIA BANK N.A., as Co-Documentation Agents BANC OF AMERICA SECURITIES LLC and J.P. MORGAN SECURITIES INC. Joint Lead Arrangers and Joint Book Runners   --------------------------------------------------------------------------------   TABLE OF CONTENTS         Page ARTICLE I  DEFINITIONS 1   1.1 Definitions. 1   1.2 Accounting Principles. 14   1.3 Letter of Credit Amounts. 15 ARTICLE II  THE CREDITS 15   2.1 Commitment 15   2.2 Required Payments; Termination. 15   2.3 Ratable Loans. 15   2.4 Types of Advances; Minimum Amount. 16   2.5 Facility Fee; Utilization Fee. 16   2.6 Changes in Aggregate Commitment. 16   2.7 Optional Prepayments. 17   2.8 Method of Selecting Types and Interest Periods for New Advances. 17   2.9 Conversion and Continuation of Outstanding Advances. 18   2.10 Changes in Interest Rate, etc. 18   2.11 Rates Applicable After Default. 19   2.12 Method of Payment. 19   2.13 Noteless Agreement; Evidence of Indebtedness. 20   2.14 Telephonic Notices. 20   2.15 Interest Payment Dates; Interest and Fee Basis. 20   2.16 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. 21   2.17 Lending Installations. 21   2.18 Non-Receipt of Funds by the Administrative Agent. 21   2.19 Letters of Credit. 22 ARTICLE III  YIELD PROTECTION; TAXES 28   3.1 Yield Protection. 28   3.2 Changes in Capital Adequacy Regulations. 29   3.3 Availability of Types of Advances. 29   3.4 Funding Indemnification. 30   3.5 Taxes. 30   3.6 Lender Statements; Survival of Indemnity. 31 ARTICLE IV  CONDITIONS PRECEDENT 32   4.1 Initial Credit Extension. 32   4.2 Each Credit Extension. 33 ARTICLE V  REPRESENTATIONS AND WARRANTIES 34   5.1 Existence and Standing. 34   5.2 Authorization and Validity 34   5.3 No Conflict; Government Consent 34   5.4 Financial Statements 35   5.5 Material Adverse Change 35   5.6 Taxes 35   5.7 Litigation; etc. 35   5.8 ERISA. 36   i   --------------------------------------------------------------------------------   5.9 Accuracy of Information. 36   5.10 Regulation U. 36   5.11 Material Agreements. 36   5.12 Compliance With Laws. 36   5.13 Ownership of Properties. 37   5.14 Plan Assets; Prohibited Transactions. 37   5.15 Environmental Matters. 37   5.16 Investment Company Act. 37   5.17 Pari Passu Indebtedness. 37   5.18 Solvency. 37 ARTICLE VI  COVENANTS 38   6.1 Financial Reporting. 38   6.2 Permits, Etc. 40   6.3 Use of Proceeds. 40   6.4 Notice of Default. 40   6.5 Conduct of Business. 40   6.6 Taxes. 40   6.7 Insurance. 41   6.8 Compliance with Laws. 41   6.9 Maintenance of Properties; Books of Record. 41   6.10 Inspection. 41   6.11 Consolidations, Mergers and Sale of Assets. 42   6.12 Liens. 43   6.13 Affiliates. 46   6.14 ERISA. 46   6.15 Total Indebtedness to Total Capitalization 47   6.16 Restriction on Subsidiary Dividends. 47 ARTICLE VII  DEFAULTS 47 ARTICLES VIII  ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 49   8.1 Acceleration, Letter of Credit Account. 49   8.2 Amendments. 50   8.3 Preservation of Rights. 51 ARTICLE IX  GENERAL PROVISIONS 51   9.1 Survival of Representations. 51   9.2 Governmental Regulation. 51   9.3 Headings. 51   9.4 Entire Agreement. 51   9.5 Several Obligations; Benefits of this Agreement. 52   9.6 Expenses; Indemnification. 52   9.7 Numbers of Documents. 53   9.8 Accounting. 53   9.9 Severability of Provisions. 53   9.10 Nonliability of Lenders. 53   9.11 Limited Disclosure. 54   9.12 USA PATRIOT ACT NOTIFICATION. 54   9.13 Nonreliance. 55   ii   --------------------------------------------------------------------------------   9.14 No Advisory or Fiduciary Responsibility. 55 ARTICLE X THE ADMINISTRATIVE AGENT 56   10.1 Appointment and Authority. 56   10.2 Rights as a Lender. 56   10.3 Exculpatory Provisions. 56   10.4 Reliance by Administrative Agent. 57   10.5 Delegation of Duties. 57   10.6 Resignation of Administrative Agent. 58   10.7 Non-Reliance on Administrative Agent and Other Lenders. 59   10.8 No Other Duties, Etc. 59   10.9 Administrative Agent May File Proofs of Claim 59 ARTICLE XI  SETOFF; RATABLE PAYMENTS 60   11.1 Setoff. 60   11.2 Ratable Payments. 60 ARTICLE XII  BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 61   12.1 Successors and Assigns. 61   12.2 Replacement of Lenders. 64 ARTICLE XIII  NOTICES 65   13.1 Notices. 65   13.2 Change of Address. 65 ARTICLE XIV  COUNTERPARTS 65 ARTICLES XV  OTHER AGENTS 65 ARTICLE XVI  CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 66   16.1 CHOICE OF LAW. 66   16.2 CONSENT TO JURISDICTION. 66   16.3 WAIVER OF JURY TRIAL. 66 ARTICLE XVII  TERMINATION OF EXISTING CREDIT FACILITY 67           iii   -------------------------------------------------------------------------------- SCHEDULES       I II III IV V Commitments Existing Letters of Credit Pricing Schedule Processing & Recordation Fees Certain Addresses for Notices     EXHIBITS       A B C D Form of Compliance Certificate Form of Assignment and Assumption Form of Wire Transfer Instructions Form of Note   iv   -------------------------------------------------------------------------------- CREDIT AGREEMENT This Credit Agreement dated as of May 11, 2006 is among Great Plains Energy Incorporated, a Missouri corporation, the Lenders, JPMorgan Chase Bank, N.A., as Syndication Agent and Bank of America, N.A., as Administrative Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of such terms): “Additional Commitment Lender” is defined in Section 2.20(d). “Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent. “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent. “Advance” means a borrowing hereunder (or conversion or continuation thereof) consisting of the aggregate amount of the several Loans made on the same Borrowing Date (or date of conversion or continuation) by the Lenders to the Borrower of the same Type and, in the case of Eurodollar Advances, for the same Interest Period. “Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or by contract or otherwise. “Agents” means, collectively, the Administrative Agent and the Syndication Agent, and “Agent” means either of them. “Aggregate Commitment” means the aggregate of the Commitments of all Lenders, as changed from time to time pursuant to the terms hereof. The amount of the Aggregate Commitment in effect as of the Closing Date is SIX HUNDRED MILLION DOLLARS ($600,000,000). “Aggregate Outstanding Credit Exposure” means, at any time, the aggregate of the Outstanding Credit Exposure of all Lenders. -------------------------------------------------------------------------------- “Agreement” means this credit agreement, as it may be amended or modified and in effect from time to time. “Alternate Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Effective Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. “Applicable Margin” means, with respect to Advances of any Type at any time, the percentage rate per annum which is applicable at such time with respect to Advances of such Type as set forth in the Pricing Schedule. “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. “Approving Lenders” is defined in Section 2.20(e). “Arrangers” means Banc of America Securities LLC and J.P. Morgan Securities, Inc., and “Arranger” means either of them. “Article” means an article of this Agreement unless another document is specifically referenced. “Assignment Agreement” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 12.1(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit B or any other form approved by the Administrative Agent. “Attributable Indebtedness” means, on any date, (i) in respect of any Capitalized Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (ii) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capitalized Lease. “Authorized Officer” means any of the President, any Vice President, the Chief Financial Officer or the Treasurer of the Borrower, in each case acting singly. “Bank of America” means Bank of America, N.A. in its individual capacity and its successors. 2  -------------------------------------------------------------------------------- “BAS” means Banc of America Securities LLC. “Borrower” means Great Plains Energy Incorporated, a Missouri corporation, and its permitted successors and assigns. “Borrowing Date” means a date on which an Advance is made hereunder. “Borrowing Notice” is defined in Section 2.8.   “Business Day” means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York City for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York City for the conduct of substantially all of their commercial lending activities.   “Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.   “Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP.   “Change of Control” means an event or series of events by which: (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of the Borrower or its Subsidiaries, or any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of 33 1/3% or more of the equity interests of the Borrower; or (ii) during any period of 12 consecutive months (or such lesser period of time as shall have elapsed since the formation of the Borrower), a majority of the members of the board of directors or other equivalent governing body of the Borrower ceases to be composed of individuals (x) who were members of that board or equivalent governing body on the first day of such period, (y) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (x) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (z) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (x) and (y) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body.   3   -------------------------------------------------------------------------------- “Closing Date” means May 11, 2006. “Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. “Commitment” means, for each Lender, the obligation of such Lender to make Loans and to participate in Letters of Credit in an aggregate amount not exceeding the amount set forth on Schedule I hereto or as set forth in any Assignment Agreement relating to any assignment that has become effective pursuant to Section 12.1(b), as such amount may be modified from time to time pursuant to the terms hereof. “Consolidated Net Income” means, for any period, for the Borrower and its Consolidated Subsidiaries, the net income of the Borrower and its Consolidated Subsidiaries from continuing operations, excluding extraordinary items for that period. “Consolidated Subsidiaries” means all Subsidiaries of the Borrower that are (or should be) included when preparing the consolidated financial statements of the Borrower. “Consolidated Tangible Net Worth” means, as of any date of determination, for the Borrower and its Consolidated Subsidiaries, Shareholders’ Equity of the Borrower and its Consolidated Subsidiaries on that date minus the Intangible Assets of the Borrower and its Consolidated Subsidiaries on that date. “Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss. “Controlled Group” means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. “Conversion/Continuation Notice” is defined in Section 2.9. “Credit Extension” means the making of an Advance or the issuance of a Letter of Credit. “Default” means an event described in Article VII. “Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent and the Issuers, and (ii) unless a Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding   4   --------------------------------------------------------------------------------   the foregoing, “Eligible Assignee” shall not include the Borrower or any of the Borrower’s Affiliates or Subsidiaries. “Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. “Equity-Linked Securities” means (i) all securities issued by the Borrower or any Subsidiary that contain two distinct components: (a) medium-term debt and (b) a forward contract for the issuance of common stock of the Borrower or such Subsidiary prior to the maturity of, and in an amount not less than, such debt, including the securities commonly referred to by the tradenames “FELINE PRIDES”, “PEPS”, “HITS” and “DECS” and generally referred to as “equity units”; provided that such securities shall not contain any provision permitting them to be put to the Borrower or any Subsidiary prior to the settlement of the related purchase contract and (ii) all other securities issued by the Borrower or any Subsidiary that are similar to those described in clause (i). “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. “Eurodollar Advance” means an Advance which bears interest at the applicable Eurodollar Rate. “Eurodollar Rate” means for any Interest Period with respect to a Eurodollar Loan, a rate per annum (rounded to the nearest multiple of 1/16 of 1%) determined by the Administrative Agent pursuant to the following formula: Eurodollar Rate  =    Eurodollar Base Rate  1.00 - Eurodollar Reserve Percentage Where, “Eurodollar Base Rate” means, for such Interest Period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Base Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day   5   --------------------------------------------------------------------------------   funds in the approximate amount of the Eurodollar Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.     “Eurodollar Reserve Percentage” means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Eurodollar Rate for each outstanding Eurodollar Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. “Eurodollar Loan” means a Loan which bears interest at the applicable Eurodollar Rate. “Excluded Taxes” means, in the case of each Lender or applicable Lending Installation and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Administrative Agent is incorporated or organized or (ii) the jurisdiction in which the Administrative Agent’s or such Lender’s principal executive office or such Lender’s applicable Lending Installation is located. “Exhibit” refers to an exhibit to this Agreement, unless another document is specifically referenced. “Existing Credit Facility” means the credit agreement among the Borrower, JPMorgan Chase Bank, N.A., as administrative agent and the other lenders party thereto dated as of December 15, 2004, as amended or modified from time to time. “Existing Letters of Credit” means those letters of credit identified on Schedule II. “Facility Fee Rate” means, at any time, the percentage rate per annum at which facility fees are accruing at such time as set forth in the Pricing Schedule. “Facility Termination Date” means (a) the later of (i) May 11, 2011 and (ii) with respect to some or all of the Lenders if the facility termination date is extended pursuant to Section 2.20, such extended facility termination date or (b) any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. “Federal Funds Effective Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be   6   --------------------------------------------------------------------------------   such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent. “Fee Letter” means that certain fee letter dated April 6, 2006 among the Agents, the Arrangers, the Borrower and KCPL. “Floating Rate Advance” means an Advance which bears interest at the Alternate Base Rate. “Floating Rate Loan” means a Loan which bears interest at the Alternate Base Rate. “FRB” means the Board of Governors of the Federal Reserve System. “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. “GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements of the Financial Accounting Standards Board. “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. “including” means “including without limiting the generality of the following”. “Indebtedness” means, as to any Person at a particular time, all of the following, without duplication, to the extent recourse may be had to the assets or properties of such Person in respect thereof: (i) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (ii) any direct or contingent obligations of such Person in the aggregate in excess of $2,000,000 arising under letters of credit (including standby and commercial), banker’s acceptances, bank guaranties, surety bonds and similar instruments; (iii) net obligations of such Person under Swap Contracts; (iv) all obligations of such Person to pay the deferred purchase price of property or services (except trade accounts payable arising, and accrued expenses incurred, in the ordinary course of business), and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (v) Capitalized Lease Obligations and   7   --------------------------------------------------------------------------------   Synthetic Lease Obligations of such Person; and (vi) all Contingent Obligations of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is non-recourse to such Person. It is understood and agreed that Indebtedness (including Contingent Obligations) shall not include any obligations of the Borrower with respect to (i) subordinated, deferrable interest debt securities, and any related securities issued by a trust or other special purpose entity in connection therewith, as long as the maturity date of such debt is subsequent to the Facility Termination Date; provided that the amount of mandatory principal amortization or defeasance of such debt prior to the Facility Termination Date shall be included in this definition of Indebtedness; or (ii) Equity-Linked Securities until the mandatory redemption date therefor, provided that the principal amount of all outstanding Equity-Linked Securities in excess of 20% of Total Capitalization shall constitute Indebtedness. The amount of any Capitalized Lease Obligation or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. “Intangible Assets” means, assets that are considered to be intangible assets under GAAP, including, but not limited to, customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises and licenses. “Interest Period” means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter; provided that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day; provided that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. “Issuer” means each of Bank of America, JPMorgan and any other Lender approved by the Borrower and the Administrative Agent, in each case in its capacity as an issuer of Letters of Credit hereunder. Notwithstanding the foregoing, The Bank of Tokyo-Mitsubishi UFJ, Limited, Chicago Branch shall be the Issuer with respect to those Existing Letters of Credit identified on Part B of Schedule II. “Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application and any other document, agreement and instrument entered into by the applicable Issuer and the Borrower or in favor of the applicable Issuer and relating to such Letter of Credit. “JPMorgan” means JPMorgan Chase Bank, N.A. in its individual capacity, and its successors.   8 --------------------------------------------------------------------------------   “KCPL” means Kansas City Power & Light Company, a Missouri corporation. “KCPL Credit Agreement” means that certain Credit Agreement dated of the Closing Date among KCPL, the financial institutions party thereto, JPMorgan, as syndication agent and Bank of America, N.A., as administrative agent, as amended or modified from time to time. “LC Collateral Account” is defined in Section 2.19(k). “Lenders” means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. “Lending Installation” means, with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or affiliate of such Lender or the Administrative Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or the Administrative Agent pursuant to Section 2.17. “Letter of Credit” means any standby letter of credit issued pursuant to Section 2.19 and any Existing Letter of Credit. “Letter of Credit Application” is defined in Section 2.19(c). “Letter of Credit Fee” is defined in Section 2.19(d). “Letter of Credit Fee Rate” means, at any time, the percentage rate per annum applicable to Letter of Credit Fees at such time as set forth in the Pricing Schedule. “Letter of Credit Obligations” means, at any time, the sum, without duplication, of (i) the aggregate undrawn stated amount of all Letters of Credit at such time plus (ii) the aggregate unpaid amount of all Reimbursement Obligations at such time. “Lien” means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). “Loan” means, with respect to a Lender, such Lender’s loans made pursuant to Article II (or any conversion or continuation thereof). “Loan Documents” means this Agreement, each Note issued pursuant to Section 2.13, each Letter of Credit, each Letter of Credit Application and the Fee Letter. “Material Adverse Effect” means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agents, the Lenders or the Issuers thereunder.   9   --------------------------------------------------------------------------------   “Material Indebtedness” is defined in Section 7.5. “Modification” and “Modify” are defined in Section 2.19(a). “Moody’s” means Moody’s Investors Service, Inc. “Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. “Non-Extending Lender” is defined in Section 2.20(b). “Non-U.S. Lender” is defined in Section 3.5(iv). “Note” is defined in Section 2.13. “Notice Date” is defined in Section 2.20(b). “Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all Reimbursement Obligations and accrued and unpaid interest thereon, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to any Lender, any Issuer, either Agent or any indemnified party arising under any Loan Document. “Other Taxes” is defined in Section 3.5(ii). “Outstanding Credit Exposure” means, as to any Lender at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time, plus (ii) its Pro Rata Share of the Letter of Credit Obligations at such time. “Participant” is defined in Section 12.1(d). “Payment Date” means the last Business Day of each March, June, September and December. “PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto. “Person” means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. “Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.   10   --------------------------------------------------------------------------------   “Pricing Schedule” means Schedule III attached hereto identified as such. “Prime Rate” means a rate per annum equal to the prime rate of interest announced by Bank of America from time to time (which is not necessarily the lowest rate charged to any customer). The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. “Project Finance Subsidiary” means any Subsidiary that meets the following requirements: (i) it is primarily engaged, directly or indirectly, in the ownership, operation and/or financing of independent power production and related facilities and assets; and (ii) neither the Borrower nor any other Subsidiary (other than another Project Finance Subsidiary) has any liability, contingent or otherwise, for the Indebtedness or other obligations of such Subsidiary (other than non-recourse liability resulting from the pledge of stock of such Subsidiary). “Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned or leased by such Person. “Pro Rata Share” means, with respect to any Lender on any date of determination, the percentage which the amount of such Lender’s Commitment is of the Aggregate Commitment (or, if the Commitments have terminated, which such Lender’s Outstanding Credit Exposure is of the Aggregate Outstanding Credit Exposure) as of such date. For purposes of determining liability for any indemnity obligation under Section 2.19(j) or 9.6(iii), each Lender’s Pro Rata Share shall be determined as of the date the applicable Issuer or the Administrative Agent notifies the Lenders of such indemnity obligation (or, if such notice is given after termination of this Agreement, as of the date of such termination). “Register” is defined in Section 12.1(c). “Regulation D” means Regulation D of the FRB as from time to time in effect and any successor thereto or other regulation or official interpretation of the FRB relating to reserve requirements applicable to member banks of the Federal Reserve System. “Regulation U” means Regulation U of the FRB as from time to time in effect and any successor or other regulation or official interpretation of the FRB relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. “Reimbursement Obligations” means, at any time, the aggregate of all obligations of the Borrower then outstanding under Section 2.19 to reimburse the Issuers for amounts paid by the Issuers in respect of any one or more drawings under Letters of Credit.   11   --------------------------------------------------------------------------------   “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates. “Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event; provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. “Required Lenders” means Lenders in the aggregate having more than 50% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding more than 50% of the Aggregate Outstanding Credit Exposure. “Re-Transfer” is defined in Section 2.6(b). “S&P” means Standard and Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. “Schedule” refers to a specific schedule to this Agreement, unless another document is specifically referenced. “SEC” means the Securities and Exchange Commission. “Section” means a numbered section of this Agreement, unless another document is specifically referenced. “Shareholders’ Equity” means, as of any date of determination for the Borrower and its Consolidated Subsidiaries on a consolidated basis, shareholders’ equity as of that date determined in accordance with GAAP. “Significant Subsidiary” means, at any time, KCPL and each other Subsidiary which (i) as of the date of determination, owns consolidated assets equal to or greater than 15% of the consolidated assets of the Borrower and its Subsidiaries or (ii) which had consolidated net income from continuing operations (excluding extraordinary items) during the four most recently ended fiscal quarters equal to or greater than 15% of Consolidated Net Income during such period. “Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. “Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and   12   --------------------------------------------------------------------------------   one or more of its Subsidiaries, (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled; or (iii) any other Person the operations and/or financial results of which are required to be consolidated with those of such first Person in accordance with GAAP. Unless otherwise expressly stated, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower. “Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than 10% of the consolidated assets of the Borrower and its Consolidated Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Consolidated Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the consolidated net sales or of the Consolidated Net Income of the Borrower and its Consolidated Subsidiaries as reflected in the financial statements referred to in clause (i) above. “Swap Contract” means (i) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transaction, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (ii) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement. “Syndication Agent” means JPMorgan, in its capacity as syndication agent hereunder, and not in its individual capacity as a Lender, and any successor thereto. “Synthetic Lease Obligation” means the monetary obligation of a Person under (i) a so-called synthetic or off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). “Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes.   13   --------------------------------------------------------------------------------   “’34 Act Reports” means the periodic reports of the Borrower filed with the SEC on Forms 10-K, 10-Q and 8-K (or any successor forms thereto). “Total Capitalization” means Total Indebtedness of the Borrower and its Consolidated Subsidiaries plus the sum of (i) Shareholder’s Equity (without giving effect to the application of FASB Statement No. 133 or 149) and (ii) to the extent not otherwise included in Indebtedness or Shareholder’s Equity, preferred and preference stock and securities of the Borrower and its Subsidiaries included in a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries in accordance with GAAP. “Total Indebtedness” means all Indebtedness of the Borrower and its Consolidated Subsidiaries on a consolidated basis (and without duplication), excluding (i) Indebtedness arising under Swap Contracts entered into in the ordinary course of business to hedge bona fide transactions and business risks and not for speculation, (ii) Indebtedness of Project Finance Subsidiaries, (iii) Contingent Obligations incurred after May 15, 1996 with respect to obligations of Strategic Energy, L.L.C. in an aggregate amount not exceeding $400,000,000 and (iv) Indebtedness of KLT Investments Inc. incurred in connection with the acquisition and maintenance of its interests (whether direct or indirect) in low income housing projects. “Transfer” is defined in Section 2.6(b). “Type” means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. “Unmatured Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. “Utilization Fee Rate” means, at any time, the percentage rate per annum at which utilization fees are accruing at such time as set forth in the Pricing Schedule. “Wholly-Owned Subsidiary” of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. 1.2 Accounting Principles. Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied; provided that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Section 6 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend any covenant in Section 6 for such purpose), then the Borrower’s compliance with such covenant shall be determined on   14   -------------------------------------------------------------------------------- the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. 1.3 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.   ARTICLE II THE CREDITS 2.1 Commitment. From and including the date of this Agreement and prior to the Facility Termination Date, subject to the terms and conditions set forth in this Agreement, (a) each Lender severally agrees to make Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment and (b) each Issuer agrees to issue Letters of Credit for the account of the Borrower from time to time (and each Lender severally agrees to participate in each such Letter of Credit as more fully set forth in Section 2.19); provided (i) that the Aggregate Outstanding Credit Exposure shall not at any time exceed the Aggregate Commitment; and (ii) the Outstanding Credit Exposure of any Lender shall not at any time exceed the amount of such Lender’s Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitments shall expire on the Facility Termination Date. 2.2 Required Payments; Termination. The Borrower shall (a) repay the principal amount of all Advances made to it on the Facility Termination Date and (b) deposit into the LC Collateral Account on the Facility Termination Date an amount in immediately available funds equal to the aggregate stated amount of all Letters of Credit that will remain outstanding after the Facility Termination Date. 2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to their respective Pro Rata Shares.   15   --------------------------------------------------------------------------------   2.4 Types of Advances; Minimum Amount. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.8 and 2.9. Each Eurodollar Advance shall be in the amount of $5,000,000 or a higher integral multiple of $1,000,000, and each Floating Rate Advance shall be in the amount of $1,000,000 or an integral multiple thereof. 2.5 Facility Fee; Utilization Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender (a) a facility fee at a per annum rate equal to the Facility Fee Rate on such Lender’s Commitment (regardless of usage) from the date hereof to but excluding the Facility Termination Date, payable on each Payment Date and on the Facility Termination Date and, if applicable, thereafter on demand and (b) a utilization fee at a rate per annum equal to the Utilization Fee Rate on such Lender’s Outstanding Credit Exposure for any date on which the Aggregate Outstanding Credit Exposure exceeds 50% of the Aggregate Commitment such utilization fee to be payable on each Payment Date, on the Facility Termination Date and, if applicable, thereafter on demand. 2.6 Changes in Aggregate Commitment. (a) The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders (according to their respective Pro Rata Shares) in integral multiples of $5,000,000, upon at least three Business Days’ prior written notice to the Administrative Agent, which notice shall specify the amount of any such reduction; provided that the amount of the Aggregate Commitment may not be reduced below the Aggregate Outstanding Credit Exposure. All accrued facility fees and utilization fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. (b) (i) Subject to Section 4.2 of the KCPL Credit Agreement, the Borrower and KCPL may, by joint election in a written notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders) and the “Administrative Agent” under the KCPL Credit Agreement, transfer up to $200,000,000 of the unused Commitments to the Commitments (as such term is defined in the KCPL Credit Agreement) under the KCPL Credit Agreement (any such reduction, a “Transfer”) and (ii) subject to Section 4.2, the Borrower and KCPL may, by joint election in a written notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders) and the “Administrative Agent” under the KCPL Credit Agreement, re-transfer up to $200,000,000 of the unused Commitments (as such term is defined in the KCPL Credit Agreement) previously transferred from this Agreement to the KCPL Credit Agreement pursuant to subclause (b)(i) above back to the Commitments hereunder (any such addition, a “Re-Transfer”). For the avoidance of doubt, the parties acknowledge and agree that after giving effect to any Transfer or Re-Transfer contemplated in subclauses (i) and (ii) above, (x) the aggregate Commitments hereunder shall not exceed $600,000,000, (y) the aggregate Commitments under and as defined in the KCPL Credit Agreement shall not exceed $600,000,000 and (z) the aggregate commitments under both this Agreement and the KCPL Credit Agreement shall not exceed $1,000,000,000.   16   --------------------------------------------------------------------------------        (c) On the effective date of a Transfer, which shall be specified in the notice delivered pursuant to Section 2.6(b)(i) and which shall not be less than five (5) Business Days subsequent to the date of giving of such notice, then subject to the satisfaction of the conditions precedent specified in Section 4.2 of the KCPL Credit Agreement, (i) the Commitments hereunder shall be ratably decreased by the aggregate amount specified in such notice and (ii) the aggregate amount of the “Commitments” under and as defined in the KCPL Credit Agreement shall be ratably increased by such amount. Such Transfer and the consequent decreases and increases shall be irrevocable subject, however, to subsequent permissible Re-Transfers in accordance with the terms hereof. (d) On the effective date of a Re-Transfer, which shall be specified in the notice delivered pursuant to Section 2.6(b)(ii) and which shall not be less than five (5) Business Days subsequent to the date of giving of such notice, then subject to the satisfaction of the conditions precedent specified in Section 4.2, (i) the Commitments hereunder shall be ratably increased by the aggregate amount specified in such notice and (ii) the aggregate amount of the “Commitments” under and as defined in the KCPL Credit Agreement shall be ratably decreased by such amount. Such Re-Transfer and the consequent decreases and increases shall be irrevocable. 2.7 Optional Prepayments. (a) The Borrower may from time to time prepay Floating Rate Advances upon one Business Day’s prior notice to the Administrative Agent, without penalty or premium. Each partial prepayment of Floating Rate Advances shall be in an aggregate amount of $1,000,000 or an integral multiple thereof. (b) The Borrower may from time to time prepay Eurodollar Advances (subject to the payment of any funding indemnification amounts required by Section 3.4) upon three Business Days’ prior notice to the Administrative Agent, without penalty or premium. Each partial prepayment of Eurodollar Advances shall be in an aggregate amount of $5,000,000 or a higher integral multiple of $1,000,000. (c) All prepayments of Advances shall be applied ratably to the Loans of the Lenders in accordance with their respective Pro Rata Shares. 2.8 Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a “Borrowing Notice”) not later than noon (Charlotte, North Carolina time) on the Borrowing Date of each Floating Rate Advance and not later than noon (Charlotte, North Carolina time) three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, 17   --------------------------------------------------------------------------------   (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than 1:00 p.m. (Charlotte, North Carolina time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available to the Administrative Agent at its address specified pursuant to Article XIII. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent’s aforesaid address. 2.9 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.4, the Borrower may elect from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Administrative Agent irrevocable notice (a “Conversion/Continuation Notice”) of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 11:00 a.m. (Charlotte, North Carolina time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation, (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. 2.10 Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Alternate Base Rate for such day. Changes   18   -------------------------------------------------------------------------------- in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Administrative Agent as applicable to such Eurodollar Advance based upon the Borrower’s selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.11 Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum, (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Alternate Base Rate in effect from time to time plus 2% per annum and (iii) the Letter of Credit Fee Rate shall be increased by 2% per annum; provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above and the increase in the Letter of Credit Fee Rate set forth in clause (iii) above shall be applicable to all applicable Credit Extensions without any election or action on the part of the Administrative Agent or any Lender. 2.12 Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent’s address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by 1:00 p.m. (Charlotte, North Carolina time) on the date when due and shall be applied ratably by the Administrative Agent among the Lenders in accordance with their respective Pro Rata Shares. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender.   19   --------------------------------------------------------------------------------   2.13 Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, (c) the original stated amount of each Letter of Credit and the amount of Letter of Credit Obligations outstanding at any time and (d) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof. (iii) The entries maintained in the accounts maintained pursuant to clauses (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note substantially in the form of Exhibit D (a “Note”). In such event, the Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.1(b)) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 12.1(b), except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in clauses (i) and (ii) above. 2.14 Telephonic Notices. The Borrower hereby authorizes the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error. 2.15 Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, and at maturity. Interest   20   --------------------------------------------------------------------------------   accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which such Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. All computations of interest for Floating Rate Loans when the Alternate Base Rate is determined by the Prime Rate shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of interest and fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to 1:00 p.m. (Charlotte, North Carolina time) at the place of payment (it being understood that the Administrative Agent shall be deemed to have received a payment prior to 1:00 p.m. (Charlotte, North Carolina time) if (x) the Borrower has provided the Administrative Agent with evidence satisfactory to the Administrative Agent that the Borrower has initiated a wire transfer of such payment prior to such time and (y) the Administrative Agent actually receives such payment on the same Business Day on which such wire transfer was initiated). If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.16 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. The Administrative Agent will also promptly notify each Lender of any increase or reduction of the Aggregate Commitments pursuant to the terms hereof. 2.17 Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written notice to the Administrative Agent and the Borrower in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.18 Non-Receipt of Funds by the Administrative Agent. Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in   21   --------------------------------------------------------------------------------   the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. 2.19 Letters of Credit. (a) Issuance. Each Issuer hereby agrees, on the terms and conditions set forth in this Agreement, to issue Letters of Credit and to extend, increase, decrease or otherwise modify Letters of Credit (“Modify,” and each such action a “Modification”) from time to time from and including the date of this Agreement and prior to the Facility Termination Date upon the request of the Borrower; provided that immediately after each such Letter of Credit is issued or Modified, the Aggregate Outstanding Credit Exposure shall not exceed the Aggregate Commitment. No Letter of Credit shall have an expiry date later than the date that is five days prior to the scheduled Facility Termination Date. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof. (b) Participations. Upon the issuance or Modification by any Issuer of a Letter of Credit in accordance with this Section 2.19, such Issuer shall be deemed, without further action by any Person, to have unconditionally and irrevocably sold to each Lender, and each Lender shall be deemed, without further action by any Person, to have unconditionally and irrevocably purchased from such Issuer, a participation in such Letter of Credit (and each Modification thereof) and the related Letter of Credit Obligations in proportion to its Pro Rata Share. (c) Notice. Subject to Section 2.19(a), the Borrower shall give the applicable Issuer and the Administrative Agent notice prior to 11:00 a.m. (Charlotte, North Carolina time) at least three Business Days (or such lesser period of time as such Issuer may agree in its sole discretion) prior to the proposed date of issuance or Modification of each Letter of Credit, specifying the beneficiary, the proposed date of issuance (or Modification) and the expiry date of such Letter of Credit, and describing the proposed terms of such Letter of Credit and the nature of the transactions proposed to be supported thereby. Upon receipt of such notice, the applicable Issuer shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Lender, of the contents thereof and of the amount of such Lender’s participation in such proposed Letter of Credit. The issuance or Modification by an Issuer of any Letter of Credit shall, in addition to the conditions precedent set forth in Article IV (the satisfaction of which such Issuer shall have no duty to ascertain, it being understood, however, that such Issuer   22   --------------------------------------------------------------------------------   shall not issue any Letter of Credit if it has received written notice from the Borrower, the Administrative Agent or any Lender one day prior to the proposed date of issuance, that any such condition precedent has not been satisfied), be subject to the conditions precedent that such Letter of Credit shall be satisfactory to such Issuer and that the Borrower shall have executed and delivered such application agreement and/or such other instruments and agreements relating to such Letter of Credit as such Issuer shall have reasonably requested (each a “Letter of Credit Application”). In the event of any conflict between the terms of this Agreement and the terms of any Letter of Credit Application, the terms of this Agreement shall control.     (d) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent, for the account of the Lenders ratably in accordance with their respective Pro Rata Shares, with respect to each Letter of Credit, a letter of credit fee (the “Letter of Credit Fee”) at a per annum rate equal to the Letter of Credit Fee Rate in effect from time to time on the daily maximum amount available under such Letter of Credit, such fee to be payable in arrears on each Payment Date, on the Facility Termination Date and, if applicable, thereafter on demand. The Borrower shall also pay to each Issuer for its own account (x) a fronting fee in the amount agreed to by such Issuer and the Borrower from time to time, with such fee to be payable in arrears on each Payment Date, and (y) documentary and processing charges in connection with the issuance or Modification of and draws under Letters of Credit in accordance with such Issuer’s standard schedule for such charges as in effect from time to time. (e) Administration; Reimbursement by Lenders. Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the applicable Issuer shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each Lender of the amount to be paid by such Issuer as a result of such demand and the proposed payment date (the “Letter of Credit Payment Date”). The responsibility of any Issuer to the Borrower and each Lender shall be only to determine that the documents delivered under each Letter of Credit issued by such Issuer in connection with a demand for payment are in conformity in all material respects with such Letter of Credit. Each Issuer shall endeavor to exercise the same care in its issuance and administration of Letters of Credit as it does with respect to letters of credit in which no participations are granted, it being understood that in the absence of any gross negligence or willful misconduct by such Issuer, each Lender shall be unconditionally and irrevocably obligated, without regard to the occurrence of any Default or any condition precedent whatsoever, to reimburse such Issuer on demand for (i) such Lender’s Pro Rata Share of the amount of each payment made by such Issuer under each Letter of Credit to the extent such amount is not reimbursed by the Borrower pursuant to Section 2.19(f) below, plus (ii) interest on the foregoing amount, for each day from the date of the applicable payment by such Issuer to the date on which such Issuer is reimbursed by such Lender for its Pro Rata Share thereof, at a rate per annum equal to the Federal Funds Effective Rate or, beginning on third Business Day after demand for such amount by such Issuer, the rate applicable to Floating Rate Advances. (f) Reimbursement by Borrower. The Borrower shall be irrevocably and unconditionally obligated to reimburse each Issuer through the Administrative Agent on or before the applicable Letter of Credit Payment Date for any amount to be paid by such Issuer upon any drawing under any Letter of Credit, without presentment, demand, protest or other   23   --------------------------------------------------------------------------------   formalities of any kind; provided that the Borrower shall not be precluded from asserting any claim for direct (but not consequential) damages suffered by the Borrower which the Borrower proves were caused by (i) the willful misconduct or gross negligence of such Issuer in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (ii) such Issuer’s failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. All such amounts paid by an Issuer and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Floating Rate Advances. The Administrative Agent will pay to each Lender ratably in accordance with its Pro Rata Share all amounts received by it from the Borrower for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Letter of Credit, but only to the extent such Lender made payment to the applicable Issuer in respect of such Letter of Credit pursuant to Section 2.19(e). (g) Obligations Absolute. The Borrower’s obligations under this Section 2.19 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Issuer, any Lender or any beneficiary of a Letter of Credit. The Borrower further agrees with the Issuers and the Lenders that neither any Issuer nor any Lender shall be responsible for, and the Borrower’s Reimbursement Obligation in respect of any Letter of Credit shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, any of its Affiliates, the beneficiary of any Letter of Credit or any financing institution or other party to whom any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrower or of any of its Affiliates against the beneficiary of any Letter of Credit or any such transferee. No Issuer shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrower agrees that any action taken or omitted by any Issuer or any Lender under or in connection with any Letter of Credit and the related drafts and documents, if done without gross negligence or willful misconduct, shall be binding upon the Borrower and shall not put any Issuer or any Lender under any liability to the Borrower. Nothing in this Section 2.19(g) is intended to limit the right of the Borrower to make a claim against any Issuer for damages as contemplated by the proviso to the first sentence of Section 2.19(f). (h) Actions of Issuers. Each Issuer shall be entitled to rely, and shall be fully protected in relying, upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by such Issuer. Each Issuer shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Notwithstanding any other provision of this Section 2.19, each Issuer shall in all   24   -------------------------------------------------------------------------------- cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and any future holder of a participation in any Letter of Credit issued by such Issuer. (i) Indemnification. The Borrower agrees to indemnify and hold harmless each Lender, each Issuer and the Administrative Agent, and their respective directors, officers, agents and employees, from and against any and all claims and damages, losses, liabilities, costs or expenses which such Person may incur (or which may be claimed against such Person by any other Person whatsoever) by reason of or in connection with the issuance, execution and delivery or transfer of or payment or failure to pay under any Letter of Credit or any actual or proposed use of any Letter of Credit, including any claims, damages, losses, liabilities, costs or expenses which any Issuer may incur by reason of or in connection with (i) the failure of any other Lender to fulfill or comply with its obligations to such Issuer hereunder (but nothing herein contained shall affect any right the Borrower may have against any defaulting Lender) or (ii) by reason of or on account of such Issuer issuing any Letter of Credit which specifies that the term “Beneficiary” therein includes any successor by operation of law of the named Beneficiary, but which Letter of Credit does not require that any drawing by any such successor Beneficiary be accompanied by a copy of a legal document, satisfactory to such Issuer, evidencing the appointment of such successor Beneficiary; provided that the Borrower shall not be required to indemnify any Person for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of any Issuer in determining whether a request presented under any Letter of Credit issued by such Issuer complied with the terms of such Letter of Credit or (y) any Issuer’s failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.19(i) is intended to limit the obligations of the Borrower under any other provision of this Agreement. (j) Lenders’ Indemnification. Each Lender shall, ratably in accordance with its Pro Rata Share, indemnify each Issuer and its Affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and charges), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct or such Issuer’s failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit) that such indemnitees may suffer or incur in connection with this Section 2.19 or any action taken or omitted by such indemnitees hereunder. (k) LC Collateral Account. The Borrower agrees that it will establish on the Facility Termination Date (or on such earlier date as may be required pursuant to Section 8.1), and thereafter maintain so long as any Letter of Credit Obligation remains outstanding or any other amount is payable to any Issuer or the Lenders in respect of any Letter of Credit, a special collateral account pursuant to arrangements satisfactory to the Administrative Agent (the “LC Collateral Account”) at the Administrative Agent’s office at the address specified pursuant to Article XIII, in the name of the Borrower but under the sole dominion and control of the Administrative Agent, for the benefit of the Lenders, and in which the Borrower shall have no   25   --------------------------------------------------------------------------------   interest other than as set forth in Section 8.1. The Borrower hereby pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders and the Issuers, a security interest in all of the Borrower’s right, title and interest in and to all funds which may from time to time be on deposit in the LC Collateral Account, to secure the prompt and complete payment and performance of the Obligations. The Administrative Agent will invest any funds on deposit from time to time in the LC Collateral Account in certificates of deposit of Bank of America having a maturity not exceeding 30 days. If funds are deposited in the LC Collateral Account pursuant to Section 2.2(b) and the provisions of Section 8.1 are not applicable, then the Administrative Agent shall release from the LC Collateral Account to the Borrower, upon the request of the Borrower, an amount equal to the excess (if any) of all funds in the LC Collateral Account over the Letter of Credit Obligations.   (l) Issuers’ Obligation to Issue Letters of Credit. No Issuer shall be under any obligation to issue any Letter of Credit if:   (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuer from issuing such Letter of Credit, or any law applicable to such Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuer shall prohibit, or request that such Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such Issuer in good faith deems material to it;   (ii) the issuance of such Letter of Credit would violate one or more policies of such Issuer applicable to letters of credit generally; or (iii) except as otherwise agreed by the Administrative Agent and the applicable Issuer, such Letter of Credit is in an initial stated amount less than $250,000. (m) Rights as a Lender. In its capacity as a Lender, each Issuer shall have the same rights and obligations as any other Lender. 2.20 Extension of Facility Termination Date. (a) Request for Extension. The Borrower may by notice to the Administrative Agent (who shall promptly notify the Lenders) given not more than 60 days and not less than 45 days prior to any anniversary of the Closing Date, request that each Lender extend the Facility Termination Date for an additional one year from the then existing Facility Termination Date; provided, that the Borrower shall only be permitted to exercise this extension option two times during the term of the Agreement. (b) Lenders Election to Extend. Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not later than 15 days following the   26   --------------------------------------------------------------------------------  receipt of notice of such request from the Administrative Agent (the “Notice Date”), advise the Administrative Agent in writing whether or not such Lender agrees to such extension (and each Lender that determines not to so extend its Facility Termination Date (a “Non-Extending Lender”) shall notify the Administrative Agent of such fact promptly after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the Administrative Agent on or before the Notice Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to so agree. (c) Notification by Administrative Agent. The Administrative Agent shall notify the Borrower of each Lender’s determination under this Section no later than the date 15 days after the Notice Date (or, if such date is not a Business Day, on the next preceding Business Day). (d) Additional Commitment Lenders. The Borrower shall have the right on or before the applicable anniversary of the Closing Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 12.2, each of which Additional Commitment Lenders shall have entered into an Assignment Agreement pursuant to which such Additional Commitment Lender shall, undertake, a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date) and shall be a “Lender” for all purposes of this Agreement. (e) Minimum Extension Requirement. If all of the Lenders agree to any such request for extension of the Facility Termination Date then the Facility Termination for all Lenders shall be extended for the additional one year, as applicable. If there exists any Non-Extending Lenders then the Borrower shall (i) withdraw its extension request and the Facility Termination Date will remain unchanged or (ii) provided that the Required Lenders (but for the avoidance of doubt, not including any Additional Commitment Lenders) have agreed to the extension request (such Lenders agreeing to such extension, the “Approving Lenders”), then the Borrower may extend the Facility Termination Date solely as to the Approving Lenders and the Additional Commitment Lenders with a reduced amount of Aggregate Commitments during such extension period equal to the aggregate Commitments of the Approving Lenders and the Additional Commitment Lenders; it being understood that (A) the Facility Termination Date relating to any Non-Extending Lenders not replaced by an Additional Commitment Lender shall not be extended and the repayment of all obligations owed to them and the termination of their Commitments shall occur on the already existing Facility Termination Date and (B) the Facility Termination Date relating to the Approving Lenders and the Additional Commitment Lenders shall be extended for an additional year, as applicable. (f) Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, any extension of the Facility Termination Date pursuant to this Section shall not be effective with respect to any Lender unless: (i) no Default or Unmatured Default shall have occurred and be continuing on the date of such extension and after giving effect thereto;   27 --------------------------------------------------------------------------------   (ii) the representations and warranties contained in Article V are true and correct on and as of the date of such extension except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date; and (iii) on any Facility Termination Date, the Borrower shall prepay any Loans outstanding on such date (and pay any additional amounts required pursuant to Section 3.4) to the extent necessary to keep outstanding Loans ratable with any revised Pro Rata Shares of the respective Lenders effective as of such date. ARTICLE III YIELD PROTECTION; TAXES 3.1 Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender, any applicable Lending Installation or any Issuer with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender, any applicable Lending Installation or any Issuer to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans or Letters of Credit or participations therein, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender, any applicable Lending Installation or any Issuer (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender, any applicable Lending Installation or any Issuer of making, funding or maintaining its Eurodollar Loans or of issuing or participating in Letters of Credit or reduces any amount receivable by any Lender, any applicable Lending Installation or any Issuer in connection with its Eurodollar Loans or Letters of Credit, or requires any Lender, any applicable Lending Installation or any Issuer to make any payment calculated by reference to the amount of Eurodollar Loans or Letters of Credit held or interest received by it, by an amount deemed material by such Lender or such Issuer, as the case may be,   28   --------------------------------------------------------------------------------   and the result of any of the foregoing is to increase the cost to such Lender, the applicable Lending Installation or such Issuer of making or maintaining its Eurodollar Loans, Letters of Credit or Commitment or to reduce the return received by such Lender, the applicable Lending Installation or such Issuer in connection with such Eurodollar Loans, Letters of Credit or Commitment, then, within 15 days of demand by such Lender or such Issuer, the Borrower shall pay such Lender or such Issuer such additional amount or amounts as will compensate such Lender or such Issuer for such increased cost or reduction in amount received. 3.2 Changes in Capital Adequacy Regulations. If a Lender or an Issuer determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender, such Issuer or any corporation controlling such Lender or such Issuer is increased as a result of a Change, then, within 15 days of demand by such Lender or such Issuer, the Borrower shall pay such Lender or such Issuer the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender or such Issuer determines is attributable to this Agreement, its Outstanding Credit Exposure or its Commitment to make Loans or to issue or participate in Letters of Credit hereunder (after taking into account such Lender’s policies as to capital adequacy). “Change” means (i) any change after the date of this Agreement in (or in the interpretation of) the Risk-Based Capital Guidelines or (ii) any adoption of or change in (or any change in the interpretation of) any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender, any Lending Installation, any Issuer or any corporation controlling any Lender or any Issuer. “Risk-Based Capital Guidelines” means (x) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (y) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled “International Convergence of Capital Measurements and Capital Standards,” including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3 Availability of Types of Advances. If (i) any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, (ii) the Required Lenders determine that (a) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (b) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance or (iii) the Administrative Agent determines that adequate and reasonable means do not exist for determining the Eurodollar Base Rate, then the Administrative Agent shall suspend the availability of the affected Type of Advance and, in the case of clause (i), require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.4. 29   --------------------------------------------------------------------------------   3.4 Funding Indemnification. If any conversion, prepayment or payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made, paid, continued or converted on the date or in the amount specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5 Taxes. (i) All payments by the Borrower to or for the account of any Lender, any Issuer or the Administrative Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender, any Issuer or the Administrative Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender, such Issuer or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or Letter of Credit Application or from the execution or delivery of, or otherwise with respect to, this Agreement, any Note or any Letter of Credit Application (“Other Taxes”). (iii) The Borrower hereby agrees to indemnify the Administrative Agent, each Lender and each Issuer for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Administrative Agent, such Lender or such Issuer and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Administrative Agent, such Lender or such Issuer makes demand therefor pursuant to Section 3.6. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a “Non-U.S. Lender”) agrees that it will, not less than ten Business Days after the date of this Agreement (or, if later, the date it becomes a party hereto), (i) deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower   30   --------------------------------------------------------------------------------   and the Administrative Agent a United States Internal Revenue Form W-8BEN or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv) above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv) above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.   3.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible and upon the request of the Borrower, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender or each Issuer, as applicable, shall deliver a written statement of such Lender or such Issuer to the Borrower (with a copy to the Administrative Agent) as to any amount due under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender or such Issuer determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such   31   --------------------------------------------------------------------------------   Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender or any Issuer shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT 4.1 Initial Credit Extension. The Lenders and the Issuers shall not be required to make the initial Credit Extension hereunder until the Borrower has furnished the Administrative Agent with (a) all fees required to be paid to the Lenders on the date hereof, (b) evidence that, prior to or concurrently with the initial Credit Extension hereunder, all obligations under the Existing Credit Facility have been paid in full and all commitments to lend thereunder have been terminated and (c) all of the following, in form and substance satisfactory to each Agent and each Lender, and in sufficient copies for each Lender: (i) Copies of the articles or certificate of incorporation of the Borrower, together with all amendments, certified by the Secretary or an Assistant Secretary of the Borrower, and a certificate of good standing, certified by the appropriate governmental officer in its jurisdiction of incorporation, as well as any other information that any Lender may request that is required by Section 326 of the USA PATRIOT ACT or necessary for the Administrative Agent or any Lender to verify the identity of the Borrower as required by Section 326 of the USA PATRIOT ACT. (ii) Copies, certified by the Secretary or an Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors’ resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which the Borrower is a party. (iii) An incumbency certificate, executed by the Secretary or an Assistant Secretary of the Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of the Borrower authorized to sign the Loan Documents to which the Borrower is a party, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. (iv) A certificate, signed by the Chief Accounting Officer or the Chief Financial Officer of the Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. 32   --------------------------------------------------------------------------------   (v) A written opinion of the Borrower’s counsel, addressed to the Administrative Agent and the Lenders in a form reasonably satisfactory to the Administrative Agent and its counsel. (vi) Executed counterparts of this Agreement executed by the Borrower and each Lender. (vii) Any Notes requested by a Lender pursuant to Section 2.13 payable to the order of each such requesting Lender. (viii) If the initial Credit Extension will be the issuance of a Letter of Credit, a properly completed Letter of Credit Application. (ix) Evidence of the effectiveness of the KCPL Credit Agreement, having terms substantially similar to the terms hereof. (x) Written money transfer instructions, in substantially the form of Exhibit C, addressed to the Administrative Agent and signed by an Authorized Officer who has executed and delivered an incumbency certificate in accordance with the terms hereof, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested. (xi) Such other documents as any Lender or its counsel may have reasonably requested. 4.2 Each Credit Extension. The Lenders shall not be required to make any Credit Extension (other than a Credit Extension that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Credit Extensions) or increase its Commitment pursuant to any Re-Transfer, unless on the date of such Credit Extension or Re-Transfer: (i) No Default or Unmatured Default exists or would result from such Credit Extension. (ii) The representations and warranties contained in Article V are true and correct as of the date of such Credit Extension except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date; provided that this clause (ii) shall not apply to the representations and warranties set forth in Section 5.5 (as it relates to clause (i) or (ii) of the definition of “Material Adverse Effect”), clause (a) of the first sentence of Section 5.7 and the second sentence of Section 5.7 with respect to any borrowing hereunder which is not part of the Initial Credit Extension.   33   --------------------------------------------------------------------------------   Each delivery of a Borrowing Notice and each request for the issuance of a Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender may require delivery of a duly completed compliance certificate in substantially the form of Exhibit A as a condition to making a Credit Extension.   ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: 5.1 Existence and Standing. Each of the Borrower and its Significant Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2 Authorization and Validity. The Borrower has the power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally. 5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or (ii) the Borrower’s articles or certificate of incorporation or by-laws or (iii) the provisions of any indenture, instrument or agreement to which the Borrower is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower, is required to be obtained by the Borrower in connection with the execution and   34   --------------------------------------------------------------------------------   delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by the Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4 Financial Statements. The June 30, 2005, September 30, 2005, December 31, 2005 and March 31, 2006 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with GAAP and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such dates and the consolidated results of their operations for the periods then ended subject, in the case of the June 30, 2005, September 30, 2005 and March 31, 2006 financial statements, to normal year-end adjustments. 5.5 Material Adverse Change. Since December 31, 2005, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, it being understood that the divestiture of KLT Gas Inc. and its Subsidiaries will be deemed not to have a Material Adverse Effect. 5.6 Taxes. The Borrower and its Significant Subsidiaries have filed all United States federal tax returns and all other material tax returns which are required to be filed and have paid all taxes due and payable pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Significant Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with GAAP and as to which no Lien exists. No tax liens have been filed and no material claims are being asserted against the Borrower or any Significant Subsidiary with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Significant Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7 Litigation; etc. Except as set forth in the Borrower’s ‘34 Act Reports, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which (a) could reasonably be expected to have a Material Adverse Effect or (b) seeks to prevent, enjoin or delay the making of any Credit Extension. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, the Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4.   35   --------------------------------------------------------------------------------   5.8 ERISA. The Borrower and each other member of the Controlled Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance with the presently applicable provisions of ERISA and the Code with respect to each Plan, except to the extent that noncompliance, individually or in the aggregate, has not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Borrower nor any other member of the Controlled Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan, or made any amendment to any Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 5.9 Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.10 Regulation U. The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (as defined in Regulation U), or extending credit for the purpose of purchasing or carrying margin stock. Margin stock constitutes less than 25% of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder. 5.11 Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which is reasonably likely to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 5.12 Compliance With Laws. The Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect.   36   --------------------------------------------------------------------------------   5.13 Ownership of Properties. On the date of this Agreement, the Borrower and its Significant Subsidiaries will have good title, free of all Liens other than those permitted by Section 6.12, to all of the Property and assets reflected in the Borrower’s most recent consolidated financial statements provided to the Administrative Agent as owned by the Borrower and its Subsidiaries. 5.14 Plan Assets; Prohibited Transactions. To the Borrower’s knowledge, the Borrower is not an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of another entity’s employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.15 Environmental Matters. Except as set forth in the Borrower’s ‘34 Act Reports, there are no known risks and liabilities accruing to the Borrower or any of its Subsidiaries due to Environmental Laws that could reasonably be expected to have a Material Adverse Effect. 5.16 Investment Company Act. Neither the Borrower nor any Subsidiary is or is required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended. 5.17 Pari Passu Indebtedness. The Indebtedness under the Loan Documents ranks at least pari passu with all other unsecured Indebtedness of the Borrower. 5.18 Solvency. As of the date hereof and after giving effect to the consummation of the transactions contemplated by the Loan Documents, the Borrower and each Significant Subsidiary is solvent. For purposes of the preceding sentence, solvent means (a) the fair saleable value (on a going concern basis) of the Borrower’s assets or a Significant Subsidiary’s assets, as applicable, exceed its liabilities, contingent or otherwise, fairly valued, (b) such Person will be able to pay its debts as they become due and (c) such Person will not be left with unreasonably small capital as is necessary to satisfy all of its current and reasonably anticipated obligations giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such   37   --------------------------------------------------------------------------------   time, represents the amount that can reasonably be expected to become an actual or matured liability. The Borrower is not entering into the Loan Documents with the actual intent to hinder, delay or defraud its current or future creditors, nor does the Borrower intend to or believe that it will incur, as a result of entering into this Agreement and the other Loan Documents, debts beyond its ability to repay.     ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1 Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within 90 days after the close of each of its fiscal years, an unqualified audit report certified by an independent registered public accounting firm which is a member of the “Big Four,” prepared in accordance with GAAP on a consolidated basis for itself and its Consolidated Subsidiaries, including balance sheets as of the end of such period and related statements of income, common shareholders’ equity and cash flows, accompanied by any management letter prepared by said accountants. (ii) Within 45 days after the close of the first three quarterly periods of each of its fiscal years, for itself and its Consolidated Subsidiaries, either (a) consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Accounting Officer or Chief Financial Officer or (b) if the Borrower is then a “registrant” within the meaning of Rule 1-01 of Regulation S-X of the SEC and required to file a report on Form 10-Q with the SEC, a copy of the Borrower’s report on Form 10-Q for such quarterly period. (iii) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of Exhibit A signed by its Chief Accounting Officer or Chief     Financial Officer setting forth calculations of the financial covenants contained in Section 6 and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within 10 days after the Borrower or any member of the Controlled Group knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Accounting Officer or Chief   38   --------------------------------------------------------------------------------   Financial Officer of the Borrower, describing said Reportable Event and the action which the Borrower or member of the Controlled Group proposes to take with respect thereto. (v) As soon as possible and in any event within two days after receipt of notice by the Borrower or any member of the Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan, a copy of such notice. (vi) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (vii) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower files with the SEC. (viii) As soon as possible, and in any event within three days after an Authorized Officer of the Borrower shall have knowledge thereof, notice of any change by Moody’s or S&P in the senior unsecured debt rating of the Borrower. (ix) Such other information (including non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request. The statements and reports required to be furnished by the Borrower pursuant to clauses (ii), (vi) and (vii) above shall be deemed furnished for such purpose upon becoming publicly available on the SEC’s EDGAR web page. The Borrower hereby acknowledges that (a) the Administrative Agent and/or BAS will make available to the Lenders and Issuers materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a “Public Lender”). The Borrower hereby agrees that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Agents, the Arrangers, the Issuers and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Specified Information, they shall be treated as set forth in Section 9.11(a)); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and BAS shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.” Notwithstanding the foregoing, the Borrower shall be under no obligation to mark any Borrower Materials “PUBLIC.”   39   --------------------------------------------------------------------------------   6.2 Permits, Etc. The Borrower will, and will cause each Significant Subsidiary to, take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent failure to do so could not reasonably be expected to have a Material Adverse Effect; and preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.3 Use of Proceeds. The Borrower will use the proceeds of the Credit Extensions (i) to repay the Existing Credit Facility and (ii) for the general corporate and working capital purposes of the Borrower and its Subsidiaries, including support for the Borrower’s commercial paper. The Borrower will not use any of the proceeds of the Credit Extensions to purchase or carry any margin stock (as defined in Regulation U) or to extend credit for the purpose of purchasing or carrying margin stock; provided that the Borrower may repurchase its own stock or Equity-Linked Securities (or components thereof) so long as such stock or Equity-Linked Securities are immediately retired. The Borrower will not permit margin stock to constitute 25% or more of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder. 6.4 Notice of Default. The Borrower will, and will cause each Subsidiary to, give prompt notice in writing to the Administrative Agent and the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.5 Conduct of Business. The Borrower will, and will cause each Significant Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 6.6 Taxes. The Borrower will, and will cause each Significant Subsidiary to, timely file United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or   40   --------------------------------------------------------------------------------   Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with GAAP. 6.7 Insurance. The Borrower will, and will cause each Significant Subsidiary to, maintain with financially sound and reputable insurance companies that are not Affiliates of the Borrower or its Subsidiaries (other than any captive insurance company) insurance on all their Properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. Such insurance may be subject to co-insurance, deductibility or similar clauses which, in effect, result in self-insurance of certain losses; provided that such self-insurance is in accord with the customary industry practices for Persons in the same or similar businesses and adequate insurance reserves are maintained in connection with such self-insurance to the extent required by GAAP. 6.8 Compliance with Laws. The Borrower will, and will cause each Significant Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including all Environmental Laws, the failure to comply with which could reasonably be expected to have a Material Adverse Effect. 6.9 Maintenance of Properties; Books of Record. The Borrower will, and will cause each Significant Subsidiary to, (i) do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times and (ii) keep proper books of record and account, in which full and correct entries shall be made of all material financial transactions and the assets and business of the Borrower and each Significant Subsidiary in accordance with GAAP; provided that nothing in this Section shall prevent the Borrower or any Significant Subsidiary from discontinuing the operation or maintenance of any of its Property or equipment if such discontinuance is, in the judgment of such Person, desirable in the conduct of its business. 6.10 Inspection. The Borrower will, and if a Default or Unmatured Default exists, will cause each Subsidiary to, permit the Administrative Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of such Person, to examine and make copies of the books of accounts and other financial records of such Person, and to discuss the affairs, finances and accounts of such Person with, and to be advised as to the same by, such Person’s officers at such reasonable times and intervals as the Administrative Agent or any Lender may designate. After the occurrence and during the   41   --------------------------------------------------------------------------------   continuance of a Default, any such inspection shall be at the Borrower’s expense; at all other times, the Borrower shall not be liable to pay the expenses of the Administrative Agent or any Lender in connection with such inspections. 6.11 Consolidations, Mergers and Sale of Assets. The Borrower will not, nor will it permit any Significant Subsidiary (other than any Project Finance Subsidiary) to, sell, lease, transfer, or otherwise dispose of all or substantially all of its assets (whether by a single transaction or a number of related transactions and whether at one time or over a period of time) or consolidate with or merge into any Person or permit any Person to merge into it, except (i) A Wholly-Owned Subsidiary may be merged into the Borrower. (ii) Any Significant Subsidiary may sell all or substantially all of its assets to, or consolidate or merge into, another Significant Subsidiary; provided that, immediately before and after such merger, consolidation or sale, no Default or Unmatured Default shall exist. (iii) Strategic Energy, L.L.C. may sell or transfer accounts receivable and contracts that generate accounts receivable, and KCPL may sell or transfer accounts receivable, in each case pursuant to one or more securitization transactions. (iv) The Borrower may sell all or substantially all of its assets to, or consolidate with or merge into, any other corporation, or permit another corporation to merge into it; provided that (a) the surviving corporation, if such surviving corporation is not the Borrower, or the transferee corporation in the case of a sale of all or substantially all of the Borrower’s assets (1) shall be a corporation organized and existing under the laws of the United States of America or a state thereof or the District of Columbia, (2) shall expressly assume in a writing satisfactory to the Administrative Agent the due and punctual payment of the Obligations and the due and punctual performance of and compliance with all of the terms of this Agreement and the other Loan Documents to be performed or complied with by the Borrower and (3) shall deliver all documents required to be delivered pursuant to Sections 4.1(i), (ii), (iii), (v) and (ix), (b) immediately before and after such merger, consolidation or sale, there shall not exist any Default or Unmatured Default and (c) the surviving corporation of such merger or consolidation, or the transferee corporation of the assets of the Borrower, as applicable, has, both immediately before and after such merger, consolidation or sale, a Moody’s Rating of Baa3 or better or an S&P Rating of BBB - or better. Notwithstanding the foregoing, the Borrower and its Consolidated Subsidiaries (excluding Project Finance Subsidiaries) will not convey, transfer, lease or otherwise dispose of (whether in one transaction or a series of transactions, but excluding (a) sales of inventory in the ordinary course of business, (b) transactions permitted by clauses (i) through (iv) above, (c) transfers by KCPL of assets related to, or ownership interests in, Iatan 2 to co-owners of Iatan 2 pursuant to the co-ownership, co-operating or other similar agreements of the co-owners of Iatan   42   --------------------------------------------------------------------------------   2 and (d) sales of the capital stock or assets of KLT Gas Inc. and Subsidiaries thereof) in the aggregate within any 12-month period, more than 20% of the aggregate book value of the assets of the Borrower and its Consolidated Subsidiaries (excluding Project Finance Subsidiaries) as calculated as of the end of the most recent fiscal quarter. 6.12 Liens. The Borrower will not, nor will it permit any Significant Subsidiary (other than any Project Finance Subsidiary) to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Significant Subsidiaries (other than any Project Finance Subsidiary), except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. (ii) Liens imposed by law, such as carriers’, warehousemen’s, mechanics’ and landlords’ liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii) Liens arising out of pledges or deposits in the ordinary course of business under worker’s compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation, other than any Lien imposed under ERISA. (iv) Liens incidental to the normal conduct of the Borrower or any Significant Subsidiary or the ownership or leasing of its Property or the conduct of the ordinary course of its business, including (a) zoning restrictions, easements, building restrictions, rights of way, reservations, restrictions on the use of real property and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which are not substantial in amount and do not in any material way affect the marketability of the same, (b) rights of lessees and lessors under leases, (c) rights of collecting banks having rights of setoff, revocation, refund or chargeback with respect to money or instruments of the Borrower or any Significant Subsidiary on deposit with or in the possession of such banks, (d) Liens or deposits to secure the performance of statutory obligations, tenders, bids, contracts, leases, progress payments, performance or return-of-money bonds, surety and appeal bonds, performance or other similar bonds, letters of credit, or other obligations of a similar nature incurred in the ordinary course of business, and (e) Liens required by any contract or statute in order to permit the Borrower or Significant Subsidiary to perform any contract or subcontract made by it with or pursuant to the requirements of a governmental entity, in each case which are not incurred in connection with the borrowing of money, the obtaining of advances of credit or the payment of the deferred   43   --------------------------------------------------------------------------------   purchase price of Property and which do not in the aggregate impair the use of Property in the operation of the business of the Borrower and its Significant Subsidiaries taken as a whole. (v) Liens arising under the General Mortgage Indenture and Deed of Trust Dated December 1, 1986 from KCPL to UMB, N.A. (vi) Liens on Property of the Borrower or KCPL existing on the date hereof and any renewal or extension thereof; provided that the Property covered thereby is not increased and any renewal or extension of the obligations secured or benefited thereby is permitted by this Agreement. (vii) Judgment Liens which secure payment of legal obligations that would not constitute a Default under Section 7.9. (viii) Liens on Property acquired by the Borrower or a Significant Subsidiary after the date hereof, existing on such Property at the time of acquisition thereof (and not created in anticipation thereof); provided that in any such case no such Lien shall extend to or cover any other Property of the Borrower or such Significant Subsidiary, as the case may be. (ix) Liens on the Property, revenues and/or assets of any Person that exist at the time such Person becomes a Significant Subsidiary and the continuation of such Liens in connection with any refinancing or restructuring of the obligations secured by such Liens. (x) Liens on Property securing Indebtedness incurred or assumed at the time of, or within 12 months after, the acquisition of such Property for the purpose of financing all or any part of the cost of acquiring such Property; provided that (a) such Lien attaches to such Property concurrently with or within 12 months after the acquisition thereof, (b) such Lien attaches solely to the Property so acquired in such transaction and (c) the principal amount of the Indebtedness secured thereby does not exceed the cost or fair market value determined at the date of incurrence, whichever is lower, of the Property being acquired on the date of acquisition. (xi) Liens on any improvements to Property securing Indebtedness incurred to provide funds for all or part of the cost of such improvements in a principal amount not exceeding the cost of construction of such improvements and incurred within 12 months after completion of such improvements or construction, provided that such Liens do not extend to or cover any property of the Borrower or any Significant Subsidiary other than such improvements. (xii) Liens to government entities granted to secure pollution control or industrial revenue bond financings, which Liens in each financing transaction cover only Property the acquisition or construction of which was financed by such financings and Property related thereto.   44   --------------------------------------------------------------------------------   (xiii) Liens on or over gas, oil, coal, fissionable material, or other fuel or fuel products as security for any obligations incurred by such Person (or any special purpose entity formed by such Person) for the sole purpose of financing the acquisition or storage of such fuel or fuel products or, with respect to nuclear fuel, the processing, reprocessing, sorting, storage and disposal thereof. (xiv) Liens on (including Liens arising out of the sale of) accounts receivable and/or contracts which will give rise to accounts receivable of KCPL and Strategic Energy, L.L.C.; and other Liens on (including Liens arising out of the sale of) accounts receivable and/or contracts which will give rise to accounts receivable of the Borrower or any Subsidiary in an aggregate amount not at any time exceeding $10,000,000. (xv) Liens on Property of KLT Gas Inc. and its Subsidiaries in favor of operators and non-operators under joint operating agreements, pooling orders or agreements, unitization agreements or similar contractual arrangements arising in the ordinary course of the business of such Person relating to the development or operation of oil and gas Properties to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings if adequate reserves are maintained on the books of such Person in accordance with GAAP. (xvi) Liens on Property of KLT Gas Inc. and its Subsidiaries under production sales agreements, division orders, operating agreements and other agreements customary in the oil and gas business for processing, production and selling hydrocarbons; provided that such Liens do not secure obligations to deliver hydrocarbons at some future date without receiving full payment therefor within 90 days of delivery. (xvii) Liens on Property or assets of a Significant Subsidiary securing obligations owing to the Borrower or any Significant Subsidiary (other than a Project Finance Subsidiary). (xviii) Liens on the stock or other equity interests of any Project Finance Subsidiary to secure obligations of such Project Finance Subsidiary (provided that the agreement under which any such Lien is created shall expressly state that it is non-recourse to the pledgor). (xix) Liens on Property of Strategic Energy, L.L.C. and its Subsidiaries securing Indebtedness of Strategic Energy, L.L.C. under a credit facility providing for revolving credit advances to Strategic Energy, L.L.C. in an aggregate amount not exceeding $175,000,000. (xx) Liens on Property of KCPL arising in connection with utility co-ownership, co-operating and similar agreements that are consistent with the utilities business and ancillary operations.   (xxi) Liens on assets held by entities which are required to be included in the Borrower’s consolidated financial statements solely as a result of the   45   --------------------------------------------------------------------------------         application of Financial Accounting Standards Board Interpretation No. 46R, as it may be amended or supplemented.   (xxii) Liens securing Swap Contracts permitted to be incurred under this Agreement.   (xxiii) Liens securing any extension, renewal, replacement or refinancing of Indebtedness secured by any Lien referred to in the foregoing clauses (viii), (ix), (x), (xi), (xii), (xiii) and (xx); provided that (A) such new Lien shall be limited to all or part of the same Property that secured the original Lien (plus improvements on such Property) and (B) the amount secured by such Lien at such time is not increased to any amount greater than the amount outstanding at the time of such renewal, replacement or refinancing.   (xxiv) Liens which would otherwise not be permitted by clauses (i) through (xxiii) securing additional Indebtedness of the Borrower or a Significant Subsidiary (other than a Project Finance Subsidiary); provided that after giving effect thereto the aggregate unpaid principal amount of Indebtedness (including Capitalized Lease Obligations) of the Borrower and its Significant Subsidiaries (other than any Project Finance Subsidiary) (including prepayment premiums and penalties) secured by Liens permitted by this clause (xix) shall not exceed the greater of (a) $50,000,000 and (b) 10% of Consolidated Tangible Net Worth.   6.13 Affiliates. Except to the extent required by applicable law with respect to transactions among the Borrower and its Subsidiaries (excluding any Project Finance Subsidiary), the Borrower will not, and will not permit any Subsidiary (other than any Project Finance Subsidiary) to, enter into any transaction (including the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.14 ERISA. The Borrower will not, nor will it permit any Significant Subsidiary to, (i) voluntarily terminate any Plan, so as to result in any material liability of the Borrower or any Significant Subsidiary to the PBGC or (ii) enter into any Prohibited Transaction (as defined in Section 4975 of the Code and in Section 406 of ERISA) involving any Plan which results in any liability of the Borrower or any Significant Subsidiary that could reasonably be expected, individually or in the aggregate, to cause a Material Adverse Effect or (iii) cause any occurrence of any Reportable Event which results in any liability of the Borrower or any Significant Subsidiary to the PBGC that could reasonably be expected, individually or in the aggregate, to cause a Material Adverse Effect or (iv) allow or suffer to exist any other event or condition known to the Borrower which results in any material liability of the Borrower or any Significant Subsidiary to the PBGC.   46   --------------------------------------------------------------------------------   6.15 Total Indebtedness to Total Capitalization. The Borrower shall at all times cause the ratio of (i) Total Indebtedness to (ii) Total Capitalization to be less than or equal to 0.65 to 1.0. 6.16 Restrictions on Subsidiary Dividends. The Borrower will not, nor will it permit any Significant Subsidiary (other than any Project Finance Subsidiary) to, be a party to any agreement prohibiting or restricting the ability of such Significant Subsidiary to declare or pay dividends to the Borrower; provided, that (a) the foregoing provisions of this Section 6.16 shall not prohibit the Borrower or any Significant Subsidiary from entering into any debt instrument containing a total debt to capitalization covenant and (b) Strategic Energy, L.L.C. may be a party to a credit agreement restricting its ability to pay dividends to the Borrower if a breach of any financial covenant in such agreement exists or would result from such payment so long as any such financial covenant is customary for similarly-situated companies.     ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1 Any representation or warranty made or deemed made by or on behalf of the Borrower to the Lenders or the Administrative Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2 Nonpayment of principal of any Loan when due, nonpayment of any Reimbursement Obligations within one Business Day after the same becomes due, or nonpayment of interest upon any Loan or of any fee or other obligation under any of the Loan Documents within three Business Days after the same becomes due. 7.3 The breach by the Borrower of any of the terms or provisions of Section 6.3, 6.10 (with respect to the Borrower and its Significant Subsidiaries only), 6.11, 6.12, 6.13, 6.15 or 6.16. 7.4 The breach by the Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within 30 days after the earlier of (a) the Borrower becoming aware of such breach and (b) receipt by the Borrower of written notice from the Administrative Agent or any Lender; provided that if such breach is capable of cure but (i) cannot be cured by payment of money and (ii) cannot be cured by diligent efforts within such 30-day period, but such diligent efforts shall be properly commenced within such 30-day period and the Borrower is diligently   47   --------------------------------------------------------------------------------   pursuing, and shall continue to pursue diligently, remedy of such failure, the cure period shall be extended for an additional 90 days, but in no event beyond the Facility Termination Date. 7.5 Failure of the Borrower or any of its Significant Subsidiaries to pay when due any Indebtedness aggregating in excess of $25,000,000 (“Material Indebtedness”); or the default by the Borrower or any of its Significant Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any such Material Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Material Indebtedness to cause, such Material Indebtedness to become due prior to its stated maturity; or any Material Indebtedness of the Borrower or any of its Significant Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Significant Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6 The Borrower or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate, partnership or limited liability company action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7 Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days. 7.8 Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9 The Borrower or any of its Significant Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge (i) any judgment or order for the payment of money in excess of $25,000,000 (either singly or in the aggregate with other such judgments) or (ii) any   48   --------------------------------------------------------------------------------   non-monetary final judgment that has, or could reasonably be expected to have, a Material Adverse Effect, in either case which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10 A Change of Control shall occur. 7.11 A Reportable Event shall have occurred with respect to a Plan which could reasonably be expected to have a Material Adverse Effect and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender, such Reportable Event shall still exist. 7.12 Any authorization or approval or other action by any governmental authority or regulatory body required for the execution, delivery or performance of this Agreement or any other Loan Document by the Borrower shall fail to have been obtained or be terminated, revoked or rescinded or shall otherwise no longer be in full force and effect, and such occurrence shall (i) adversely affect the enforceability of the Loan Documents against the Borrower and (ii) to the extent that such occurrence can be cured, shall continue for five days. 7.13 The Borrower shall fail to own, directly or indirectly, all of the outstanding stock of KCPL which, in the absence of any contingency, has the right to vote in an election of directors of KCPL.     ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1 Acceleration; Letter of Credit Account. (a) If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder and the obligation and power of the Issuers to issue Letters of Credit shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent, any Lender or any Issuer and the Borrower will be and become thereby unconditionally obligated, without any further notice, act or demand, to pay to the Administrative Agent an amount in immediately available funds, which funds shall be held in the LC Collateral Account, equal to the excess of (i) the amount of Letter of Credit Obligations at such time over (ii) the amount on deposit in the LC Collateral Account at such time which is free and clear of all rights and claims of third parties and has not been applied against the Obligations (such difference, the “Collateral Shortfall Amount”). If any other Default occurs, the Administrative Agent may with the consent, or shall at the request, of the Required Lenders, (x) terminate or suspend the obligations of the Lenders to make Loans hereunder and the obligation and power of the Issuers to issue Letters of Credit, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives, and (y) upon notice to the Borrower and in addition to the continuing right to demand   49   --------------------------------------------------------------------------------   payment of all amounts payable under this Agreement, make demand on the Borrower to pay, and the Borrower will, forthwith upon such demand and without any further notice or act, pay to the Administrative Agent in immediately available funds the Collateral Shortfall Amount, which funds shall be deposited in the LC Collateral Account. If (a) within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and (b) before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided that no such supplemental agreement shall: (i) Extend the final maturity of any Loan or the expiry date of any Letter of Credit to a date after the Facility Termination Date or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon, without the consent of each Lender directly affected thereby. (ii) Reduce the percentage specified in the definition of Required Lenders, without the consent of each Lender directly affected thereby. (iii) Increase the amount of the Commitment of any Lender without the consent of such Lender (except as provided for in Section 2.6), or extend the Facility Termination Date (except as provided for in Section 2.20), reduce the amount or extend the payment date for, the mandatory payments required under Section 2.2 or permit the Borrower to assign its rights under this Agreement, without the consent of each Lender directly affected thereby. (iv) Amend this Section 8.2 without the consent of each Lender directly affected thereby. (v) Release any funds from the LC Collateral Account, except to the extent such release is expressly permitted hereunder without the consent of each Lender directly affected thereby. No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent, and no amendment of any provision of this Agreement relating to any Issuer shall be effective without the written   50   --------------------------------------------------------------------------------   consent of such Issuer. The Administrative Agent may waive payment of the fee required under Section 12.1(b) without obtaining the consent of any other party to this Agreement. 8.3 Preservation of Rights. No delay or omission of the Lenders, the Issuers or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Credit Extension notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Credit Extension shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent, the Lenders and the Issuers until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive the making of the Credit Extensions herein contemplated. 9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent, the Lenders and the Issuers and supersede all prior agreements and understandings among the Borrower, the Administrative Agent, the Lenders and the Issuers relating to the subject matter thereof.   51   --------------------------------------------------------------------------------   9.5 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns; provided that the parties hereto expressly agree that each Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.10 and 10.7 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6 Expenses; Indemnification. (i) The Borrower shall reimburse the Agents and the Arrangers for any reasonable costs and expenses (including fees and charges of outside counsel for the Agents) paid or incurred by the Agents or the Arrangers in connection with the preparation, negotiation, execution, delivery, syndication, distribution (including via the internet), review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse each Agent, each Arranger, each Lender and each Issuer for any reasonable costs, internal charges and expenses (including fees and charges of attorneys for such Agent, such Arranger, such Lender and such Issuer, which attorneys may be employees of such Agent, such Arranger, such Lender or such Issuer) paid or incurred by either Agent, either Arranger, any Lender or any Issuer in connection with the collection and enforcement, attempted enforcement, and preservation of rights and remedies under, any of the Loan Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Obligations and during any legal proceeding). (ii) The Borrower hereby further agrees to indemnify each Agent, each Arranger, each Lender, each Issuer, their respective affiliates and the directors, officers and employees of the foregoing against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all expenses of litigation or preparation therefor whether or not either Agent, either Arranger, any Lender or any Issuer or any affiliate is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Credit Extension hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification. In the case of any investigation, litigation or proceeding to which the indemnity in this Section applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by a third party, by the Borrower or by any affiliate of the Borrower. The obligations of the Borrower under this Section 9.6 shall survive the payment of the Obligations and termination of this Agreement.   52   -------------------------------------------------------------------------------- (iii) To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (i) or (ii) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), any Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), such Issuer or such Related Party, as the case may be, such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or any Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or any Issuer in connection with such capacity. 9.7 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 9.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. 9.9 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10 Nonliability of Lenders. The relationship between the Borrower on the one hand and the Lenders, the Issuers and the Agents on the other hand shall be solely that of borrower and lender. None of either Agent, either Arranger, any Lender or any Issuer shall have any fiduciary responsibilities to the Borrower. None of either Agent, either Arranger, any Lender or any Issuer undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations. The Borrower agrees that none of either Agent, either Arranger, any Lender or any Issuer shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party   53   --------------------------------------------------------------------------------   from which recovery is sought. None of either Agent, either Arranger, any Lender, any Issuer or any Related Party of any of the foregoing Persons shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect, consequential or punitive damages suffered by the Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. None of either Agent, either Arranger, any Lender, any Issuer or any Related Party of any of the foregoing Persons shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby except to the extent such recipient receives such information due to the gross negligence of the party from which recovery is sought. 9.11 Limited Disclosure. (a) Neither the Administrative Agent nor any Lender may disclose to any Person any Specified Information (as defined below) except (i) to its, and its Affiliates’, officers, employees, agents, accountants, legal counsel, advisors and other representatives who have a need to know such Specified Information (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Specified Information and instructed to keep such Specified Information confidential) or (ii) with the Borrower’s prior consent. “Specified Information” means information that the Borrower furnishes to the Administrative Agent or any Lender that is designated in writing as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Administrative Agent or such Lender from a source other than the Borrower. (b) The provisions of clause (a) above shall not apply to Specified Information (i) that is a matter of general public knowledge or has heretofore been or is hereafter published in any source generally available to the public, (ii) that is required to be disclosed by law, regulation or judicial order, (iii) that is requested by any regulatory body with jurisdiction over the Administrative Agent or any Lender, or (iv) that is disclosed (A) to legal counsel, accountants and other professional advisors to such Lender, (B) in connection with the exercise of any right or remedy hereunder or under any Note or any suit or other litigation or proceeding relating to this Agreement or any Note, (C) to a rating agency if required by such agency in connection with a rating relating to Credit Extensions hereunder or (D) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this Section 9.11. 9.12 USA PATRIOT ACT NOTIFICATION. The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit or other financial services product. What this means for the Borrower: When the Borrower opens an account, the Lenders will ask for the Borrower’s name, tax identification   54   --------------------------------------------------------------------------------   number, business address and other information that will allow the Administrative Agent and the Lenders to identify the Borrower. The Administrative Agent and the Lenders may also ask to see the Borrower’s legal organizational documents or other identifying documents. 9.13 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the FRB) for the repayment of the Loans provided for herein. 9.14 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Agents and the Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each Agent and Arranger is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) no Agent or Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any Agent or Arranger has advised or is currently advising the Borrower or any of its Affiliates on other matters) and no Agent or Arranger has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Agents and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and no Agent or Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Agents and the Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against any Agent and any Arranger with respect to any breach or alleged breach of agency or fiduciary duty. 55   -------------------------------------------------------------------------------- ARTICLE X THE ADMINISTRATIVE AGENT 10.1 Appointment and Authority. Each of the Lenders and the Issuers hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuers, and the Borrower shall have no rights as a third party beneficiary of any of such provisions. 10.2 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrowers or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders. 10.3 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent: (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Unmatured Default has occurred and is continuing; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to   56   --------------------------------------------------------------------------------   or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 8.1 and 8.2) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default or Unmatured Default unless and until notice describing such Default or Unmatured Default is given to the Administrative Agent by the Borrower, a Lender or an Issuer. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Unmatured Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. 10.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or such Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or such Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. 10.5 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through   57   --------------------------------------------------------------------------------   their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. 10.6 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuers and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the Issuers, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and each Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 9.6 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent. Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as an Issuer. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Issuer, (b) the retiring Issuer shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents, and (c) the successor Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring Issuer to effectively assume the obligations of the retiring Issuer with respect to such Letters of Credit.   58   --------------------------------------------------------------------------------   10.7 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and each Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and each Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. 10.8 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Bookrunners or Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or an Issuer hereunder. 10.9 Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, Letter of Credit Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuers and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuers and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuers and the Administrative Agent under Sections 2.5, 2.19(d), and 9.6) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuers, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements   59   --------------------------------------------------------------------------------   and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.5 and 9.6. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or any Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Outstanding Credit Exposure (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5 and payments made to any Issuer in respect of Reimbursement Obligations so long as the Lenders have not funded their participations therein) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Aggregate Outstanding Credit Exposure held by the other Lenders so that after such purchase each Lender will hold its Pro Rata Share of the Aggregate Outstanding Credit Exposure. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in accordance with their respective Pro Rata Shares. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.   60   -------------------------------------------------------------------------------- ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (d) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuers and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b) participations in Letter of Credit Obligations) at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment Agreement with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment Agreement, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met; (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;   61   --------------------------------------------------------------------------------   (iii) any assignment of a Commitment must be approved by the Administrative Agent and the Issuers unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); (iv) such Lender shall at the same time enter into an Assignment Agreement (as defined in the KCPL Credit Agreement) with the same Eligible Assignee(s) in an amount representing an equal proportion of such Lender’s Commitment (as defined in the KCPL Credit Agreement) under the KCPL Credit Agreement; and (v) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment Agreement, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule IV, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment Agreement, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.1, 3.4, 3.5, and 9.6 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and Letter of Credit Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by each of the Borrower and the Issuers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.   62   --------------------------------------------------------------------------------   (d) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in Letter of Credit Obligations) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the Issuers shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the proviso to Section 8.2 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.1, 3.4 and 3.5 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.1 as though it were a Lender, provided such Participant agrees to be subject to Section 11.2 as though it were a Lender. (e) A Participant shall not be entitled to receive any greater payment under Section 3.1 or 3.5 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.5 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.5(iv) as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (g) The words “execution,” “signed,” “signature,” and words of like import in any Assignment Agreement shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.   63   --------------------------------------------------------------------------------   (h)  Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, upon 30 days’ notice to the Borrower and the Lenders, resign as an Issuer. In the event of any such resignation as an Issuer, the Borrower shall be entitled to appoint from among the Lenders another Issuer hereunder; provided, however, that no failure by the Borrower to appoint any such Issuer shall affect the resignation of Bank of America as an Issuer. If Bank of America resigns as an Issuer, it shall retain all the rights, powers, privileges and duties of an Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as Issuer and all Letter of Credit Obligations with respect thereto (including the right to require the Lenders to fund risk participations pursuant to Section 2.19(e)). 12.2 Replacement of Lenders. If (i) any Lender requests compensation under Section 3.1, (ii) the Borrower is required to pay any additional amount to any Lender or any governmental authority for the account of any Lender pursuant to Section 3.4 or (iii) any Lender is a Non-Extending Lender pursuant to Section 2.20(b), then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 12.1(b)), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment), provided that: (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 12.1(b); (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents from such Eligible Assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (c) in the case of any such assignment resulting from a claim for compensation under Section 3.1 or payments required to be made pursuant to Section 3.4, such assignment will result in a reduction in such compensation or payments thereafter; and (d) such assignment does not conflict with applicable Laws. A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.   64   --------------------------------------------------------------------------------   ARTICLE XIII NOTICES 13.1 Notices. Except as otherwise permitted by Section 2.14 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (i) in the case of the Borrower or the Administrative Agent, at its address or facsimile number set forth on Schedule V, (ii) in the case of any Lender, at its address or facsimile number specified in its Administrative Questionnaire or (iii) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower in accordance with the provisions of this Section 13.1. Each such notice, request or other communication shall be effective (a) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. 13.2 Change of Address. The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by facsimile transmission or telephone that it has taken such action. ARTICLE XV OTHER AGENTS No Lender identified on the cover page, the signature pages or otherwise in this Agreement, or in any document related hereto, as being the “Syndication Agent” or a   65   --------------------------------------------------------------------------------   “Co-Documentation Agent” shall have any right, power, obligation, liability, responsibility or duty under this Agreement in such capacity other than those applicable to all Lenders. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent or any Co-Documentation Agent in deciding to enter into this Agreement or in taking or refraining from taking any action hereunder or pursuant hereto. ARTICLE XVI CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 16.1 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 16.2 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY ISSUER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK CITY, NEW YORK. 16.3 WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH ISSUER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,   66   --------------------------------------------------------------------------------   OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. ARTICLE XVII TERMINATION OF EXISTING CREDIT FACILITY Lenders which are parties to the Existing Credit Facility (and which constitute “Required Lenders” under and as defined in the Existing Credit Facility) hereby waive any advance notice requirement for terminating the commitments under the Existing Credit Facility, and the Borrower and the applicable Lenders agree that the Existing Credit Facility and the commitments thereunder shall be terminated on the date hereof (except for any provisions thereof which by their terms survive termination thereof).   67   -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Borrower, the Lenders, the Issuers and the Agents have executed this Agreement as of the date first above written.   GREAT PLAINS ENERGY INCORPORATED   By:  /s/Michael W. Cline Name:  Michael W. Cline Title:  Treasurer and Chief Risk Officer   --------------------------------------------------------------------------------   BANK OF AMERICA, N.A., as Administrative Agent   By:  /s/Kevin Wagley Name:  Kevin Wagley Title:  Senior Vice President   --------------------------------------------------------------------------------     BANK OF AMERICA, N.A., as an Issuer and as a Lender   By:  /s/Kevin Wagley Name:  Kevin Wagley Title:  Senior Vice President --------------------------------------------------------------------------------   JPMORGAN CHASE BANK, N.A., as Syndication Agent, as an Issuer and as a Lender   By:  /s/Nancy R. Barwig Name:  Nancy R. Barwig Title:   Vice President   --------------------------------------------------------------------------------   BNP PARIBAS, as a Lender   By:  /s/Francis J. Delaney Name:  Francis J. Delaney Title:  Managing Director   By:  /s/Andrew Platt Name:  Andrew Platt Title:   Director   --------------------------------------------------------------------------------   THE BANK OF TOKYO-MITSUBISHI UFJ, LIMITED, CHICAGO BRANCH, as a Lender   By:  /s/Tsuguyuki Umene Name:  Tsuguyuki Umene Title:  Deputy General Manager   --------------------------------------------------------------------------------   WACHOVIA BANK N.A., as a Lender   By:  /s/Allison Newman Name:  Allison Newman Title:  Vice President   --------------------------------------------------------------------------------   BANK OF NEW YORK, as a Lender   By:  /s/John-Paul Marotta Name:  John-Paul Marotta Title:  Managing Director   --------------------------------------------------------------------------------   KEYBANK NATIONAL ASSOCIATION, as a Lender   By:  /s/Keven D. Smith Name:  Keven D. Smith Title:  Senior Vice President   --------------------------------------------------------------------------------   THE BANK OF NOVA SCOTIA, as a Lender   By:  /s/Thane Rattew Name:  Thane Rattew Title:  Managing Director   --------------------------------------------------------------------------------   UMB BANK, N.A., as a Lender   By:  /s/Robert P. Elbert Name:  Robert P. Elbert Title:  Senior Vice President   --------------------------------------------------------------------------------   COMMERCE BANK, N.A., as a Lender   By:  /s/R. David Emley, Jr. Name:  David Emley, Jr. Title:   Vice President

Exhibit 10.3   LANDLORD CONSENT TO SUBLEASE   THIS LANDLORD CONSENT TO SUBLEASE (“Consent Agreement”) is entered into as of the 12th day of January, 2006, by and among 3800 GOLF ROAD LLC, a Delaware limited liability company (“Landlord”), SARA LEE COFFEE & TEA NORTH AMERICA, a division of Sara Lee/DE International BV, a corporation organized under the laws of the Netherlands (“Sublandlord”), and HOUGHTON MIFFLIN CO., a Massachusetts corporation (“Subtenant”).   RECITALS:   A. Landlord, as landlord, and Sublandlord, as tenant, are parties to that certain lease agreement dated July 13, 2004 (the “Lease”) pursuant to which Landlord has leased to Sublandlord certain premises containing approximately 116,693 rentable square feet on the 1st and 2nd floors (the “Premises”) of the building commonly known as 3800 Golf Road, Rolling Meadows, Illinois (the “Building”).   B. Sublandlord and Subtenant have entered into (or are about to enter into) that certain sublease agreement dated January 12, 2006 attached hereto as Exhibit A (the “Sublease”) pursuant to which Sublandlord has agreed to sublease to Subtenant the entire Premises (the “Sublet Premises”).   C. Sublandlord and Subtenant have requested Landlord’s consent to the Sublease.   D. Landlord has agreed to give such consent upon the terms and conditions contained in this Agreement.   NOW THEREFORE, in consideration of the foregoing preambles which by this reference are incorporated herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord hereby consents to the Sublease subject to the following terms and conditions, all of which are hereby acknowledged and agreed to by Sublandlord and Subtenant:   1. Recitals. The foregoing recitals are hereby incorporated by reference. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Lease.   2. Landlord’s Consent. Subject to the terms and conditions of this Consent Agreement, Landlord hereby consents to the subletting of the Sublet Premises by Sublandlord to Subtenant pursuant to the Sublease.   3. Sublease Agreement. Sublandlord and Subtenant hereby represent that a true and complete copy of the Sublease is attached hereto and made a part hereof as Exhibit A, and Sublandlord and Subtenant agree that the Sublease shall not be modified without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.   4. Representations.   Landlord hereby represents and warrants, as of the date hereof, that (i) Landlord has full power and authority to enter into this Consent Agreement, (ii) the Lease is in full force and effect, (iii) to the best of Landlord’s knowledge, Sublandlord is not in default thereunder; and (iv) Landlord has received no notice that it is in default under the Lease nor has Landlord any knowledge of the existence of any condition or the occurrence of any event which, if not timely acted upon, would result in Landlord’s default under the Lease.   1 -------------------------------------------------------------------------------- 5. Landlord Confirmation of Lease Information. Landlord hereby represents and warrants, as of the date hereof, as follows:   a. The After-Hours HVAC charge is presently $50 per hour.   b. There are no charges applicable to the freight elevator which are payable in connection with Subtenant’s use thereof during either (a) normal business hours or (b) after-hours.   c. There are no Required Removables (as defined in the Lease) or Alterations to be removed from the Premises upon the expiration or sooner termination of the Lease and neither Sublandlord nor Subtenant shall be required to remove any improvements or Alterations existing in the Premises as of the date hereof.   d. The existing Security Devices have been removed from the Premises.   6. Additional Rights of Subtenant. Landlord hereby agrees and consents to the following exercise of rights by Subtenant under the Lease:   a. Subtenant shall be permitted to exercise all rights of Sublandlord, as tenant, under Section 8.7 of the Lease with respect to Roof Equipment, which rights shall be subject to the requirements of the Lease, including but not limited to Section 8.7. In no event shall Subtenant pay a construction management fee to Landlord, but shall be responsible for Landlord’s costs to the extent permitted by the Lease, including but not limited to Section 8.3.   b. Subtenant shall be permitted to exercise all rights of Sublandlord, as tenant, under Section 8.8 of the Lease, including but not limited to Sublandlord’s rights with respect to both the Building Generator (as defined in Section 8.8) and Tenant’s Generator (as defined in Section 8.8). In no event shall Subtenant pay a construction management fee to Landlord, but shall be responsible for Landlord’s costs to the extent permitted by the Lease, including but not limited to Section 8.3.   c. Landlord hereby consents to Subtenant’s installation of roof condenser units in connection with Subtenant’s construction of its server room within the Sublet Premises, all in accordance with Article 8 of the Lease. In no event shall Subtenant pay a construction management fee to Landlord, but shall be responsible for Landlord’s costs to the extent permitted by the Lease, including but not limited to Section 8.3.   d. Landlord agrees to convey to Sublandlord Landlord’s FF&E in accordance with the terms of Section 1.8 of the Lease.   e. Subtenant only has the right to self insure with respect to the maximum deductible. The maximum deductible set forth in Section 10.3.2 (c) of the Lease shall be increased to $250,000 provided that Subtenant provides evidence reasonably acceptable to Landlord that Subtenant has satisfied the net worth standard set forth in Section 10.6 of the Lease relating to self-insurance. Landlord may request such evidence on an annual basis or more frequently if Subtenant is in default under the Sublease. Documents publicly filed with the SEC are deemed sufficient evidence of such net worth.   7. No Release. Nothing contained in the Sublease or this Consent Agreement shall be construed as relieving or releasing Sublandlord from any of its obligations under the Lease, it being expressly understood and agreed that Sublandlord shall remain liable for such obligations notwithstanding anything contained in the Sublease or this Consent Agreement or any subsequent assignment(s), sublease(s) or transfer(s) of the interest of the tenant under the Lease. Sublandlord shall be responsible for the collection of all rent due it from Subtenant, and for the performance of all the other terms and conditions of the Sublease.   2 -------------------------------------------------------------------------------- 8. No Transfer. Subtenant shall not further sublease the Sublet Premises, assign its interest as the Subtenant under the Sublease or otherwise transfer its interest in the Sublet Premises or the Sublease to any person or entity, except to the extent otherwise permitted by Landlord in accordance with the assignment and subletting provisions of the Lease.   9. Lease. The parties agree that the Sublease is subject and subordinate to all the terms of the Lease, except as expressly provided in this Consent Agreement.   10. Non-Disturbance of Subtenant. In the event that the Lease is terminated by Landlord because of a default by Sublandlord under the Lease (other than such a default which is caused by a default by Subtenant under the Sublease), Landlord shall notify Subtenant in writing (“Landlord’s Notice”) within fifteen (15) business days after such termination. Subtenant shall then have the option, exercisable solely by giving Landlord notice of exercise of such option no later than five (5) business days after receiving Landlord’s Notice, to enter into a Direct Lease (defined below) with Landlord; provided, that Subtenant shall have no such option if it is then in default under the Sublease. If Subtenant fails to give such notice of exercise to Landlord in timely fashion, Subtenant shall have no right to enter into a Direct Lease with Landlord and the Sublease shall immediately terminate. If Subtenant timely exercises such option, Landlord and Subtenant shall within thirty (30) business days after the date of such exercise enter into a direct lease of the Premises between Landlord, as landlord, and Subtenant, as tenant (the “Direct Lease”). The Direct Lease shall be based on the Rent (as defined in the Lease) and all other economic terms of the Lease and the non-economic terms of the redacted Master Lease as attached to Exhibit A of the Sublease, and otherwise in a form reasonably determined by Landlord. The effective date of the Direct Lease, for rent commencement and other purposes, shall be contemporaneous with the termination of the Lease.   11. Sublandlord Notice Address. Landlord may continue to send notices to Sublandlord at the address(es) provided in, and in accordance with the terms of, the Lease and shall send copies of any notices to be sent to Subtenant to Houghton Mifflin Company, 222 Berkeley Street, Boston, MA 02116, Attn: VP Real Estate and General Counsel, with a copy to the Premises.   12. Authority. Each party to this Consent Agreement hereby represents that the individual executing this Consent Agreement on behalf of such party has the authority to execute and deliver the same on behalf of the party hereto for which such individual is acting.   13. Counterparts. This Consent Agreement may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories to the original or the same counterpart provided that all parties are furnished a copy or copies thereof reflecting the signature of all parties.   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Landlord, Sublandlord and Subtenant have executed this Consent Agreement as of the date set forth above.   WITNESS/ATTEST:       LANDLORD:         3800 GOLF ROAD LLC,         a Delaware limited liability company             By:   /s/ John S. Grassi             Name:   John S. Grassi             Title:   President /s/ Julie Herman         Name (print): Julie Herman             /s/ Peter kahn             Name (print):   Peter kahn             WITNESS/ATTEST:       SUBLANDLORD: _______________________________       SARA LEE COFFEE & TEA NORTH AMERICA, a division of Sara Lee/DE International BV, a corporation organized under the laws of the Netherlands Name (print): _____________________       By:   /s/ J. Randall White _______________________________       Name:   J. Randall White Name (print): _____________________       Title:   SVP-Sara Lee Corporation WITNESS/ATTEST:       SUBTENANT: /s/ Denise Del Signore                                   HOUGHTON MIFFLIN CO., a Massachusetts corporation Name (print): Denise Del Signore                 By:   /s/ Paul D. Weaver /s/ Diana Cooper                                              Name:    Paul D. Weaver Name (print): Diana Cooper                         Title:   Vice President   4

EXHIBIT 10.9 NATIONAL INSTRUMENTS CORPORATION RESTRICTED STOCK UNIT AWARD AGREEMENT (PERFORMANCE VESTING) Grant Number: «RSU_Number»         National Instruments Corporation (the “Company”) hereby grants you, «First» «Middle» «Last» (the “Participant”), an award of restricted stock units (“Restricted Stock Units”) under the National Instruments Corporation 2005 Incentive Plan (the “Plan”). Subject to the provisions of Appendix A (attached) and of the Plan, the principal features of this Award are as follows: Date of Grant: Number of Restricted Stock Units:                 «RSU_Shares» Vesting Commencement Date:                        May 1, 200[__] Vesting of Restricted Stock Units:                 The Restricted Stock Units will vest according to the following schedule: Subject to any accelerated vesting provisions in the Plan, the Restricted Stock Units will vest as follows:   Ten percent (10%) of the Restricted Stock Units will vest on each anniversary of the Vesting Commencement Date, subject to Participant continuing to be an Employee through such dates, and satisfying the Full-Time Employment Requirement for an Eligible Vesting Year.   Restricted Stock Units will not vest during any Eligible Vesting Year if for six months or more during such Eligible Vesting Year (i) Participant is on a Nonstatutory Leave of Absence, and/or (ii) Participant is not a Full-Time Employee (the “Full-Time Employment Requirement”).   In the event that no Restricted Stock Units vest during an Eligible Vesting Year for failure to satisfy the Full-Time Employment Requirement (the “Forgone Annual Units”), then the Forgone Annual Units that fail to so vest will be eligible to vest in a subsequent Eligible Vesting Year during which the Full-Time Employment Requirement is satisfied; provided, however, that no more than one Eligible Vesting Year’s worth of Forgone Annual Units will be able to vest in any such subsequent Eligible Vesting Year; provided, further, that any Restricted Stock Units that fail to vest hereunder by the fifteenth (15th) anniversary of the Vesting Commencement Date will not be eligible to vest thereafter and will automatically be forfeited at no cost to the Company and the Participant will have no further rights with respect thereto.   In addition to the vesting provided for above, each Eligible Vesting Year beginning with the Vesting Commencement Date, a number of Restricted Stock Units will become vested based upon the Company’s achievement of certain performance goals for the Fiscal Year that ends during an applicable Eligible Vesting Year as follows: ¦Total Number of ¦Restricted Stock ¦Units subject to ¦this Award x 0.1¦      ¦      ¦      ¦ X ¦Earnings ¦Attainment for ¦applicable ¦Fiscal Year x Sales Attainment ¦ for applicable        ¦ Fiscal Year            ¦   In order to be eligible for vesting acceleration pursuant to these performance-based vesting provisions for any Eligible Vesting Year, Participant must be an Employee through the end of such Eligible Vesting Year and must satisfy the Full-Time Employment Requirement for such Eligible Vesting Year.   For these purposes, an “Eligible Vesting Year” means the period between May 1 through the following April 30 of each year from the Vesting Commencement Date through the fifteenth (15th) anniversary of the Vesting Commencement Date.   For these purposes, “Full-Time Employee” means that Participant works in a position of employment with the Company or any Subsidiary of the Company in which Participant is regularly scheduled to work forty (40) or more hours per week or a normal full-time work week pursuant to Applicable Law.   For these purposes, “Nonstatutory Leave of Absence” means any unpaid leave of absence approved by the Company that the Company is not required to provide to Participant pursuant to Applicable Law. Unless otherwise defined herein or in Appendix A, capitalized terms herein or in Appendix A will have the defined meanings ascribed to them in the Plan. IMPORTANT: The Company’s obligation to deliver Shares pursuant to this Award of Restricted Stock Units is subject to all of the terms and conditions contained in Appendix A and the Plan. Before the Company delivers any Shares pursuant to this Restricted Stock Unit Award Agreement, you must click on the link to each of the documents required for acceptance, including, without limitation, the Restricted Stock Unit Award Agreement and Appendix A thereto, the Plan, and, if applicable, the Restricted Stock Unit Award Tax Obligations and the Data Privacy Consent (collectively, the “Award Documents”) and review each. PLEASE BE SURE TO READ APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.         By clicking the “ACCEPT” button, you agree to the following:         You acknowledge and agree that:     (a)        you have been able to access and view the Award Documents and understand that all rights and obligations with respect to this Award are set forth in such documents;     (b)        you agree to all terms and conditions contained in the Award Documents;     (c)        the Award Documents set forth the entire understanding between the Company and you regarding this Award and your right to acquire Shares thereunder;     (d)        if you are employed in or are otherwise subject to taxation in Finland, Norway, Switzerland or the United Kingdom on the date of this Award, you have previously executed an Agreement for the Transfer of Employer’s Share Award Tax Liability to the Employee, and you understand that this Award is subject to the terms of the Agreement for the Transfer of Employer’s Share Award Tax Liability; and     (e)        you have previously executed an Employee Confidentiality Agreement as consideration for this Award. -------------------------------------------------------------------------------- APPENDIX A TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS     1.        Grant. The Company hereby grants to the Participant under the Plan an Award for a number of Restricted Stock Units set forth in the Restricted Stock Unit Agreement, subject to all of the terms and conditions of the Restricted Stock Unit Agreement, including this Appendix A (collectively, the “Award Agreement”), and the Plan.     2.        Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive a Share on the date it becomes vested. Unless and until the Restricted Stock Units will have vested in the manner set forth in Sections 3 and 4, the Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.     3.        Vesting Schedule. Except as provided in Sections 4 and 5, and subject to Section 6, the Restricted Stock Units awarded by this Award Agreement will vest in the Participant according to the vesting schedule set forth in the Award Agreement. In the event any Restricted Stock Units have not vested by the fifteenth (15th) anniversary of the Vesting Commencement Date, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and the Participant will have no further rights thereunder.     4.        Acceleration of Vesting upon Death or Disability. In the event Participant ceases to be an Employee as the result of Participant’s death or “Disability” prior to the fifteenth (15th) anniversary of the Vesting Commencement Date, 100% of the Restricted Stock Units that have not vested as of such date will immediately vest. For these purposes, “Disability” will have the meaning given to such term in the employment agreement between Participant and the Company; provided, however, that if Participant has no employment agreement, “Disability” will mean a total and permanent disability as defined in Section 22(e)(3) of the Code as determined by the Administrator and in accordance with the Plan.     5.        Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator.     6.        Forfeiture upon Termination of Continuous Service. If Participant ceases to be an Employee for any reason other than death or Disability, the then-unvested Restricted Stock Units (after taking into any accelerated vesting that may occur as the result of any such termination) awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and the Participant will have no further rights thereunder.     7.        Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3, 4 or 5 will be paid to the Participant (or in the event of the Participant’s death, to his or her estate) in whole Shares, and no fractional Shares shall be issued. As determined by the Administrator, any fraction of a Share shall be paid in cash based on the Fair Market Value of a Share.     8.        Payments after Death or Disability. Any distribution or delivery to be made to the Participant under this Agreement will, if the Participant is then deceased or Disabled, be made to the Participant’s legal representatives, guardian, heirs, legatees or distributees, as applicable. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.     9.        Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no Shares will be delivered to the Participant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by the Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares so deliverable.     10.        Rights as Stockholder. Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued (including in book entry), recorded on the records of the Company or its transfer agents or registrars, and, if applicable, delivered to the Participant.     11.        No Effect on Employment or Service. The Participant’s employment or other service with the Company and its Subsidiaries is on an at-will basis only. Accordingly, the terms of the Participant’s employment or service with the Company and its Subsidiaries will be determined from time to time by the Company or the Subsidiary employing the Participant (as the case may be), and the Company or the Subsidiary will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment or service of the Participant at any time for any reason whatsoever, with or without good cause.     12.        Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company at 11500 N. Mopac Expressway, Building A, Austin, Texas 78759, Attn: Stock Administrator, or at such other address as the Company may hereafter designate in writing.     13.        Grant is Not Transferable. Except to the limited extent provided in Section 8, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.     14.        Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.     15.        Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of shares to the Participant (or his or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company. The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.     16.        Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.     17.        Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Board or its Committee administering the Plan will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.     18.        Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.     19.        Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.

Exhibit 10.42   FORM OF PROMISSORY NOTE   (Date)   FOR VALUE RECEIVED,                     a Corporation located at the address stated below (“Maker”) promises, jointly and severally if more than one, to pay to the order of General Electric Capital Corporation or any subsequent holder hereof (each, a “Payee”) at its office located at 83 Wooster Heights Road, Danbury, CT 06810 or at such other place as Payee or the holder hereof may designate, the principal sum of                      with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of                      per annum, to be paid in lawful money of the United States, in                      installments of principal and interest as follows:   Periodic Installment --------------------------------------------------------------------------------    Amount --------------------------------------------------------------------------------          each (“Periodic Installment”) and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on                      and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a “Payment Date”). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date.   The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such time or at any prior or subsequent time.   The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.   This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a “Security Agreement”).   Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment).   Notwithstanding anything to the contrary contained herein or in the Security Agreement, Maker may not prepay in full or in part any indebtedness hereunder without the express written consent of Payee in its sole discretion.   It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or -------------------------------------------------------------------------------- hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.   The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an “Obligor”) who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee’s actual attorneys’ fees. Maker and each Obligor agrees that fees not in excess of twenty percent (20%) of the amount then due shall be deemed reasonable.   THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.   This Note and other Debt Documents constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied.   No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.   Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. --------------------------------------------------------------------------------         Company Name         By:     (Witness)                     Name:     (Print name)                     Title:     (Address)                         Federal Tax ID #: Address:

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Exhibit 10.4   Exhibit D AMENDED AND RESTATED SECURITY AGREEMENT 1. Identification. This Amended and Restated Security Agreement (the “Agreement”), dated as of December 7, 2006, is entered into by and between USTelematics, Inc., a Delaware corporation (“Parent”), the Subsidiaries of the Parent identified on Annex I hereto (each, a “Guarantor” and, together with Parent, each, a “Debtor” and, collectively, the “Debtors”), and Axiom Capital Management, Inc., as collateral agent acting in the manner and to the extent described in the Collateral Agent Agreement defined below (the “Collateral Agent”), for the benefit of the parties identified on Schedule A hereto (collectively, the “Lenders”). This Agreement amends and restates in its entirety the Security Agreement dated as of April 14, 2006 by and between the Debtors and the Collateral Agent for the benefit of the Lenders identified therein. 2. Recitals. 2.1 The Lenders have made, are making and will be making loans to Parent (the “Loans”). It is beneficial to each Debtor that the Loans were made and are being made. 2.2 The Loans are and will be evidenced by certain convertible debentures (each a “Debenture”) issued by Parent on or about the date of and after the date of this Agreement pursuant to a securities purchase agreement (“Securities Purchase Agreement”) to which Parent and Lenders are parties. The Debentures are further identified on Schedule A hereto and were and will be executed by Parent as “Borrower” or “Debtor” for the benefit of each Lender as the “Holder” or “Lender” thereof. Schedule A hereto may be amended to include such other Lenders who become parties hereto and sign this Agreement, the Collateral Agent Agreement and any other agreement reasonably requested by the Collateral Agent, who will have purchased Debentures pursuant to the Securities Purchase Agreement. 2.3 In consideration of the Loans made and to be made by Lenders to Parent and for other good and valuable consideration, and as security for the performance by Parent of its obligations under the Debentures and as security for the repayment of the Loans and all other sums due from Debtors to Lenders arising under the Transaction Documents (as defined in the Securities Purchase Agreement), and any other agreement between or among them (collectively, the “Obligations”), each Debtor, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral (as such term is hereinafter defined), on the terms and conditions hereinafter set forth. 2.4 The Lenders have appointed Axiom Capital Management, Inc. as Collateral Agent pursuant to that certain Collateral Agent Agreement dated at or about December 6, 2006, 2006 (“Collateral Agent Agreement”), among the Lenders and Collateral Agent.   1 -------------------------------------------------------------------------------- 2.5 The following defined terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory and Proceeds. 3. Grant of General Security Interest in Collateral. 3.1  As security for the Obligations of Debtors, each Debtor hereby grants the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral. 3.2 “Collateral” shall mean all of the following property of Debtors: (A) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of all Accounts, Goods, real or personal property, all present and future books and records relating to the foregoing and all products and Proceeds of the foregoing, and as set forth below: (i) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of all: Accounts, interests in goods represented by Accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper; investment property; General Intangibles (including but not limited to, tax and duty claims and refunds, registered and unregistered patents, trademarks, service marks, certificates, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment, real estate and fixtures); Documents; Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys, deposits; securities, bank accounts, deposit accounts, credits and other property now or hereafter owned or held in any capacity by Debtors, as well as agreements or property securing or relating to any of the items referred to above; (ii) Goods: All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of goods, including, but not limited to: (a)  All Inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Debtors’ business; finished goods, timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to any Debtor by its customers or repossessed by any Debtor and all of Debtors’ right, title and interest in and to the foregoing (including all of a Debtor’s rights as a seller of goods); (b) All Equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto (including, but not limited to Debtors’ rights to acquire any of the foregoing, whether by exercise of a purchase option or otherwise);   2 -------------------------------------------------------------------------------- (iii) Property: All now owned and hereafter acquired right, title and interests of Debtors in, to and in respect of any other personal property in or upon which a Debtor has or may hereafter have a security interest, lien or right of setoff;  (iv) Books and Records: All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Debtors, any computer service bureau or other third party; and (v) Products and Proceeds: All products and Proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing. (B) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of the following: (i) the shares of stock, partnership interests, member interests or other equity interests at any time and from time to time acquired by Debtors of any and all entities now or hereafter existing, (such entities, being hereinafter referred to collectively as the “Pledged Issuers” and individually as a “Pledged Issuer”), the certificates representing such shares, partnership interests, member interests or other interests, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, partnership interests, member interests or other interests; (ii) all additional shares of stock, partnership interests, member interests or other equity interests from time to time acquired by Debtors, of any Pledged Issuer, the certificates representing such additional shares, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, interests or equity; and (iii) all security entitlements of Debtors in, and all Proceeds of any and all of the foregoing in each case, whether now owned or hereafter acquired by a Debtor and howsoever its interest therein may arise or appear (whether by ownership, security interest, lien, claim or otherwise). Notwithstanding anything to the contrary contained herein or any Transaction Document, Collateral shall not include any personal property which is, or at the time of a Debtor’s acquisition thereof shall be subject to a purchase money mortgage or other purchase money lien or security interest, but only to the extent of the initial dollar amount such purchase money mortgage or lien.   3 -------------------------------------------------------------------------------- 3.3 The Collateral Agent is hereby specifically authorized, after the Maturity Date (defined in the Debentures) accelerated or otherwise, or after an Event of Default (as defined herein) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Collateral Agent and to take any and all action deemed advisable to the Collateral Agent to remove any transfer restrictions affecting the Collateral. 4. Perfection of Security Interest. 4.1 Each Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1 Financing Statements. The Collateral Agent is instructed to prepare and file at each Debtor’s cost and expense, financing statements in such jurisdictions deemed advisable to the Collateral Agent, including but not limited to the State of Delaware. The Financing Statements are deemed to have been filed for the benefit of the Collateral Agent and Lenders identified on Schedule A hereto. 4.2 The Parent shall deliver to Collateral Agent promptly stock certificates representing all of the shares of outstanding capital stock of each Guarantor (the “Securities”). All such certificates shall be held by or on behalf of Collateral Agent pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to Collateral Agent. 4.3  All other certificates and instruments constituting Collateral from time to time required to be pledged to Collateral Agent pursuant to the terms hereof (the “Additional Collateral”) shall be delivered to Collateral Agent promptly upon receipt thereof by or on behalf of Debtors. All such certificates and instruments shall be held by or on behalf of Collateral Agent pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to Collateral Agent. If any Collateral consists of uncertificated securities, unless the immediately following sentence is applicable thereto, Debtors shall cause Collateral Agent (or its custodian, nominee or other designee) to become the registered holder thereof, or cause each issuer of such securities to agree that it will comply with instructions originated by Collateral Agent with respect to such securities without further consent by Debtors. If any Collateral consists of security entitlements, Debtors shall transfer such security entitlements to Collateral Agent (or its custodian, nominee or other designee) or cause the applicable securities intermediary to agree that it will comply with entitlement orders by Collateral Agent without further consent by Debtors. 4.4 Within five (5) days after the receipt by a Debtor of any Additional Collateral, a Pledge Amendment, duly executed by such Debtor, in substantially the form of Annex I hereto (a “Pledge Amendment”), shall be delivered to Collateral Agent in respect of the Additional Collateral to be pledged pursuant to this Agreement. Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all certificates or instruments listed on any Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder constitute Collateral. 4.5 If a Debtor shall receive, by virtue of Debtor being or having been an owner of any Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Collateral, or otherwise, (iii) dividends payable in cash (except such dividends permitted to be retained by Debtor pursuant to Section 5.1 hereof) or in securities or other property or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, Debtor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust for the benefit of Collateral Agent, shall segregate it from Debtor’s other property and shall deliver it forthwith to Collateral Agent, in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Collateral Agent as Collateral and as further collateral security for the Obligations. 4 -------------------------------------------------------------------------------- 5. Distribution. 5.1 So long as no Event of Default exists, Debtors shall be entitled to exercise all voting power and receive payments pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Lenders and does not impair the Collateral. 5.2. At any time an Event of Default exists or has occurred, all rights of Debtors, upon notice given by Collateral Agent, to exercise the voting power and receive payments, which it would otherwise be entitled to pursuant to Section 5.1, shall cease and all such rights shall thereupon become vested in Collateral Agent, which shall thereupon have the sole right to exercise such voting power and receive such payments. 5.3 All dividends, distributions, interest and other payments which are received by Debtors contrary to the provisions of Section 5.2 shall be received in trust for the benefit of Collateral Agent as security and Collateral for payment of the Obligations, shall be segregated from other funds of Debtors, and shall be forthwith paid over to Collateral Agent as Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Collateral Agent as Collateral and as further collateral security for the Obligations. 6. Further Action By Debtors; Covenants and Warranties. 6.1 Collateral Agent at all times shall have a perfected security interest in the Collateral, the Securities, and the Additional Collateral (the “Perfected Collateral”). Each Debtor has and will continue to have full title to the Collateral free from any other liens, leases, encumbrances, judgments or other claims. Collateral Agent’s security interest in the Collateral constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of Collateral Agent. Each Debtor will do all acts and things, and will execute and file all instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by Collateral Agent to establish, maintain and continue the perfected security interest of Collateral Agent in the Perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by Collateral Agent from time to time to establish and determine the validity and the continuing priority of the security interest of Collateral Agent, and also pay all other claims and charges that, in the opinion of Collateral Agent, exercised in good faith, are reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or Collateral Agent’s or Lenders’ security interests therein.   5 -------------------------------------------------------------------------------- 6.2 Other than in the ordinary course of business, for fair value and in cash, and except for Collateral which is substituted by assets of identical or greater value (with the consent of the Collateral Agent) or which has become obsolete or is of inconsequential value, each Debtor will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of Collateral Agent other than a transfer of the Collateral to a wholly-owned subsidiary or to another Debtor on prior notice to Collateral Agent, and provided the Collateral remains subject to the security interest herein described. Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that Collateral Agent consents to any sale of the Collateral, except as provided herein. Sales of Collateral in the ordinary course of business shall be free of the security interest of Lenders and Collateral Agent and Lenders and Collateral Agent shall promptly execute such documents (including without limitation releases and termination statements) as may be required by Debtors to evidence or effectuate the same. 6.3 Each Debtor will, at all reasonable times during regular business hours and upon reasonable notice, allow Collateral Agent or its representatives free and complete access to the Collateral and all of such Debtor’s records which in any way relate to the Collateral, for such inspection and examination as Collateral Agent reasonably deems necessary. 6.4 Each Debtor, at its sole cost and expense, will protect and defend this Security Agreement, all of the rights of Collateral Agent and Lenders hereunder, and the Collateral against the claims and demands of all other persons. 6.5 Debtors will promptly notify Collateral Agent of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that are reasonably likely to affect or impair any of the rights of Collateral Agent under this Security Agreement in any material respect. 6.6 Each Debtor, at its own expense, will obtain and maintain in force insurance policies covering losses or damage to those items of Collateral which constitute physical personal property, which insurance shall be of the types customarily insured against by companies in the same or similar business, similarly situated, in such amounts (with such deductible amounts) as is customary for such companies under the same or similar circumstances, similarly situated. Debtors shall make the Collateral Agent a loss payee thereon to the extent of its interest in the Collateral. Collateral Agent is hereby irrevocably (until the Obligations are paid in full) appointed each Debtor’s attorney-in-fact to endorse any check or draft that may be payable to such Debtor as proceeds of such insurance so that Collateral Agent may collect the proceeds payable for any loss under such insurance. The proceeds of such insurance, less any costs and expenses incurred or paid by Collateral Agent in the collection thereof, shall be applied either toward the cost of the repair or replacement of the items damaged or destroyed, or on account of any sums secured hereby, whether or not then due or payable.   6 -------------------------------------------------------------------------------- 6.7 Collateral Agent may, at its option, and without any obligation to do so, pay, perform and discharge any and all amounts, costs, expenses and liabilities herein agreed to be paid or performed by Debtor. Upon Debtor’s failure to do so, all amounts expended by Collateral Agent in so doing shall become part of the Obligations secured hereby, and shall be immediately due and payable by Debtor to Collateral Agent upon demand and shall bear interest at the lesser of 15% per annum or the highest legal amount from the dates of such expenditures until paid. 6.8 Upon the request of Collateral Agent, Debtors will furnish to Collateral Agent within five (5) business days thereafter, or to any proposed assignee of this Security Agreement, a written statement in form reasonably satisfactory to Collateral Agent, duly acknowledged, certifying the amount of the principal and interest and any other sum then owing under the Obligations, whether to its knowledge any claims, offsets or defenses exist against the Obligations or against this Security Agreement, or any of the terms and provisions of any other agreement of Debtors securing the Obligations. In connection with any assignment by Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause the insurance policies required hereby to be carried by such Debtor, if any, to be endorsed in form satisfactory to Collateral Agent or to such assignee, with loss payable clauses in favor of such assignee, and to cause such endorsements to be delivered to Collateral Agent within ten (10) calendar days after request therefor by Collateral Agent. 6.9 Each Debtor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other reasonable assurances or instruments and take further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require to perfect its security interest hereunder. 6.10 Debtors represent and warrant that they are the true and lawful exclusive owners of the Collateral, free and clear of any liens and encumbrances. 6.11 Each Debtor hereby agrees not to divest itself of any right under the Collateral except as permitted herein absent prior written approval of the Collateral Agent, except to a subsidiary organized and located in the United States on prior notice to Collateral Agent provided the Collateral remains subject to the security interest herein described.   6.12 Each Debtor shall cause each Subsidiary of such Debtor in existence on the date hereof and each Subsidiary not in existence on the date hereof to execute and deliver to Collateral Agent promptly and in any event within 10 days after the formation, acquisition or change in status thereof (A) a guaranty guaranteeing the Obligations and (B) if requested by Collateral Agent, a security and pledge agreement substantially in the form of this Agreement together with (x) certificates evidencing all of the capital stock of each Subsidiary of and any entity owned by such Subsidiary, (y) undated stock powers executed in blank with signatures guaranteed, and (z) such opinion of counsel and such approving certificate of such Subsidiary as Collateral Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares and (C) such other agreements, instruments, approvals, legal opinions or other documents reasonably requested by Collateral Agent in order to create, perfect, establish the first priority of or otherwise protect any lien purported to be covered by any such pledge and security agreement or otherwise to effect the intent that all property and assets of such Subsidiary shall become Collateral for the Obligations. For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity) of which more than 50% of (A) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity. Annex I annexed hereto contains a list of all Subsidiaries of the Debtors as of the date of this Agreement.   7 -------------------------------------------------------------------------------- 6.13 Without limiting the generality of the other obligations of the Borrower hereunder, the  Borrower  shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all intellectual property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Collateral Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material intellectual property.   7. Power of Attorney. At any time an Event of Default exists or has occurred, each Debtor hereby irrevocably constitutes and appoints the Collateral Agent as the true and lawful attorney of such Debtor, with full power of substitution, in the place and stead of such Debtor and in the name of such Debtor or otherwise, at any time or times, in the discretion of the Collateral Agent, to take any action and to execute any instrument or document which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement. This power of attorney is coupled with an interest and is irrevocable until the Obligations are satisfied. 8. Performance By The Collateral Agent. If a Debtor fails to perform any material covenant, agreement, duty or obligation of such Debtor under this Agreement, the Collateral Agent may, after any applicable cure period, at any time or times in its discretion, take action to effect performance of such obligation. All reasonable expenses of the Collateral Agent incurred in connection with the foregoing authorization shall be payable by Debtors as provided in Paragraph 12.1 hereof. No discretionary right, remedy or power granted to the Collateral Agent under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Collateral Agent with respect thereto, such rights, remedies and powers being solely for the protection of the Collateral Agent. 9. Event of Default. An event of default (“Event of Default”) shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined and described in this Agreement, in the Debentures, the Securities Purchase Agreement, and any other agreement to which Debtor and a Lender are parties. Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may dispose of Collateral as provided below. A default by Debtor of any of its material obligations pursuant to this Agreement and any of the Transaction Documents (as defined in the Securities Purchase Agreement) shall be an Event of Default hereunder and an “Event of Default” as defined in the Debentures, and Securities Purchase Agreement.   8 -------------------------------------------------------------------------------- 10. Disposition of Collateral. Upon and after any Event of Default which is then continuing, 10.1 The Collateral Agent may exercise its rights with respect to each and every component of the Collateral, without regard to the existence of any other security or source of payment for the Obligations. In addition to other rights and remedies provided for herein or otherwise available to it, the Collateral Agent shall have all of the rights and remedies of a lender on default under the Uniform Commercial Code then in effect in the State of New York. 10.2 If any notice to Debtors of the sale or other disposition of Collateral is required by then applicable law, five business (5) days prior written notice (which Debtors agree is reasonable notice within the meaning of Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtors of the time and place of any sale of Collateral which Debtors hereby agree may be by private sale. The rights granted in this Section are in addition to any and all rights available to Collateral Agent under the Uniform Commercial Code. 10.3 The Collateral Agent is authorized, at any such sale, if the Collateral Agent deems it advisable to do so, in order to comply with any applicable securities laws, to restrict the prospective bidders or purchasers to persons who will represent and agree, among other things, that they are purchasing the Collateral for their own account for investment, and not with a view to the distribution or resale thereof, or otherwise to restrict such sale in such other manner as the Collateral Agent deems advisable to ensure such compliance. Sales made subject to such restrictions shall be deemed to have been made in a commercially reasonable manner. 10.4 All proceeds received by the Collateral Agent for the benefit of the Lenders in respect of any sale, collection or other enforcement or disposition of Collateral, shall be applied (after deduction of any amounts payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro rata among the Lenders in proportion to their interests in the Obligations. Upon payment in full of all Obligations, Debtors shall be entitled to the return of all Collateral, including cash, which has not been used or applied toward the payment of Obligations or used or applied to any and all costs or expenses of the Collateral Agent incurred in connection with the liquidation of the Collateral (unless another person is legally entitled thereto). Any assignment of Collateral by the Collateral Agent to Debtors shall be without representation or warranty of any nature whatsoever and wholly without recourse. To the extent allowed by law, each Lender may purchase the Collateral and pay for such purchase by offsetting up to such Lender’s pro rata portion of the purchase price with sums owed to such Lender by Debtors arising under the Obligations or any other source.   9 -------------------------------------------------------------------------------- 11. Waiver of Automatic Stay. Debtor acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against Debtor, or if any of the Collateral should become the subject of any bankruptcy or insolvency proceeding, then the Collateral Agent should be entitled to, among other relief to which the Collateral Agent or Lenders may be entitled under the Debentures, Securities Purchase Agreement and any other agreement to which the Debtor, Lenders or Collateral Agent are parties, (collectively “Loan Documents”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. DEBTOR EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, DEBTOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding initiated by or against Debtor, and further agrees not to file any opposition to any motion for relief from stay filed by the Collateral Agent. Debtor represents, acknowledges and agrees that this provision is a specific and material aspect of this Agreement, and that the Collateral Agent would not agree to the terms of this Agreement if this waiver were not a part of this Agreement. Debtor further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Collateral Agent nor any person acting on behalf of the Collateral Agent has made any representations to induce this waiver, that Debtor has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of this waiver by independent legal counsel selected by Debtor and that Debtor has had the opportunity to discuss this waiver with counsel. Debtor further agrees that any bankruptcy or insolvency proceeding initiated by Debtor will only be brought in the Federal Court within the Southern District of New York. 12. Miscellaneous. 12.1 Expenses. Debtors shall pay to the Collateral Agent, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys’ fees, legal expenses and brokers’ fees, which the Collateral Agent may incur in connection with (a) sale, collection or other enforcement or disposition of Collateral; (b) exercise or enforcement of any of the rights, remedies or powers of the Collateral Agent hereunder or with respect to any or all of the Obligations upon breach or threatened breach; or (c) failure by Debtors to perform and observe any agreements of Debtors contained herein which are performed by the Collateral Agent. 12.2 Waivers, Amendment and Remedies. No course of dealing by the Collateral Agent and no failure by the Collateral Agent to exercise, or delay by the Collateral Agent in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Collateral Agent. No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by Debtors therefrom, shall, in any event, be effective unless contained in a writing signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Collateral Agent, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Collateral Agent from time to time in such order as the Collateral Agent may elect.   10 -------------------------------------------------------------------------------- 12.3 Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:   To Debtors: USTelematics, Inc.   335 Richert Drive   Wood Dale, IL 60191   Attn: Howard Leventhal, CEO & President   Fax: (312) 896-9235     With a copy by telecopier   only to: Alan W. Peryam, LLC   1120 Lincoln Street, Suite 1000   Denver, CO 80203   Fax: (303) 866-0999     To Lenders: To the addresses and telecopier numbers set forth   on Schedule A     To the Collateral Agent: Axiom Capital Management, Inc.   ________________________________   ________________________________   ________________________________   Any party may change its address by written notice in accordance with this paragraph. 12.4 Term; Binding Effect. This Agreement shall (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon each Debtor, and its successors and permitted assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit of the Lenders and their respective successors and assigns.   11 -------------------------------------------------------------------------------- 12.5 Captions. The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions hereof and have no legal or other significance whatsoever. 12.6 Governing Law; Venue; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction, except to the extent that the perfection of the security interest granted hereby in respect of any item of Collateral may be governed by the law of another jurisdiction. Any legal action or proceeding against a Debtor with respect to this Agreement may be brought in the courts in the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Debtor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Debtor hereby irrevocably waives any objection which they 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 Agreement brought in the aforesaid courts 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. If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect any other provisions which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable and the remaining, valid provisions shall remain of full force and effect. 12.7 Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein. 12.8 Counterparts/Execution. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile signature and delivered by facsimile transmission. 13. Intercreditor Terms. As between the Lenders, any distribution under paragraph 10.4 shall be made proportionately based upon the remaining principal amount (plus accrued and unpaid interest) to each as to the total amount then owed to the Lenders as a whole. The rights of each Lender hereunder are pari passu to the rights of the other Lenders hereunder. Any recovery hereunder shall be shared ratably among the Lenders according to the then remaining principal amount owed to each (plus accrued and unpaid interest) as to the total amount then owed to the Lenders as a whole. 14. Termination; Release. When the Obligations have been indefeasibly paid and performed in full or all outstanding Debentures have been converted to common stock pursuant to the terms of the Debentures and the Securities Purchase Agreements, this Agreement shall terminate, and the Collateral Agent, at the request and sole expense of the Debtors, will execute and deliver to the Debtors the proper instruments (including UCC termination statements) acknowledging the termination of the Security Agreement, and duly assign, transfer and deliver to the Debtors, without recourse, representation or warranty of any kind whatsoever, such of the Collateral, including, without limitation, Securities and any Additional Collateral, as may be in the possession of the Collateral Agent.   12 -------------------------------------------------------------------------------- 15. Collateral Agent. 15.1 Collateral Agent Powers. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Lenders) in the Collateral and shall not impose any duty on it to exercise any such powers. 15.2 Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any Collateral in its possession; provided, however, that the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral if it takes such action for that purposes as any owner thereof reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Collateral Agent, to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. [THIS SPACE INTENTIONALLY LEFT BLANK] 13 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above.   “DEBTOR”     “THE COLLATERAL AGENT”   USTELEMATICS, INC. a Delaware corporation         Axiom Capital Management, Inc.  By:     By: -------------------------------------------------------------------------------- Its:     -------------------------------------------------------------------------------- Its: --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- “SUBSIDIARY”         “SUBSIDIARY” By:     By: -------------------------------------------------------------------------------- Its:     -------------------------------------------------------------------------------- Its: --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   APPROVED BY “LENDERS”:       --------------------------------------------------------------------------------       --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   This Security Agreement may be signed by facsimile signature and delivered by confirmed facsimile transmission.   14 -------------------------------------------------------------------------------- SCHEDULE A TO SECURITY AGREEMENT LENDER   PRINCIPAL AMOUNT OF DEBENTURE                                                     TOTALS         15 -------------------------------------------------------------------------------- ANNEX I   TO   SECURITY AGREEMENT   PLEDGE AMENDMENT   This Pledge Amendment, dated December __ 2006, is delivered pursuant to Section 4.3 of the Amended and Restated Security Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Amended and Restated Security Agreement, dated December ___, 2006, as it may heretofore have been or hereafter may be amended, restated, supplemented or otherwise modified from time to time and that the shares listed on this Pledge Amendment shall be hereby pledged and assigned to Collateral Agent and become part of the Collateral referred to in such Security Agreement and shall secure all of the Obligations referred to in such Security Agreement.   NAME OF ISSUER   JURISDICTION OF INCORPORATION   PERCENT OWNED BY PARENT   NUMBER OF SHARES   CLASS   CERTIFICATE NUMBER(S)                                                                                                                                                                                                               USTELEMATICS, INC.               By:       -------------------------------------------------------------------------------- Howard E. Leventhal Chief Executive Officer, President  16 --------------------------------------------------------------------------------  

Exhibit 10.32 OFFER AGREEMENT June 9, 2005 Brett Bachman Dear Brett, I am pleased to extend to you an offer to join Vignette Corporation starting July 1, 2005 or sooner at your discretion. Your position will be Senior Vice President, Products and Strategy reporting to Thomas E. Hogan based in Austin, Texas. The challenge in front of us is both exciting and tremendous and we believe that you will bring the skills and attitude that will become a critical part of Vignette’s success. We are eager to have you be part of our team. This offer expires on June 24 , 2005. Your compensation will include the following:     •   A bi-weekly salary of $10,576.92 (which when calculated on an annual basis equals $275,000.00).     •   Subject to you joining Vignette Corporation, we have proposed for you to receive 750,000 stock options through the Vignette Corporation Stock Option Plan. Please note that on May 27, Vignette’s shareholders approved a one for 10 reverse stock split. This reverse split is expected to be effective on June 10, 2005. As a result, the proposed option grant will be automatically converted to a grant to receive 75,000 options. Your grant will be subject to a separate agreement and offer which has to be approved by the Compensation Committee of Vignette’s Board and does not form part of your contract of employment. Once this has been approved, the necessary documents will be sent to you.     •   Subject to you joining Vignette Corporation, we have proposed for you to receive 150,000 shares of restricted stock through the Vignette Corporation Stock Option Plan. Please note that on May 27, Vignette’s shareholders approved a one for 10 reverse stock split. This reverse split is expected to be effective on June 10, 2005. As a result, the proposed option grant will be automatically converted to a grant to receive 15,000 restricted shares. Your grant will be subject to a separate agreement and offer which has to be approved by the Compensation Committee of Vignette’s Board and does not form part of your contract of employment. Once this has been approved, the necessary documents will be sent to you. --------------------------------------------------------------------------------   •   Eligibility for bonus in the Executive Performance Bonus Plan, targeted at $100,000.00 annually. This bonus is paid out semi-annually at the discretion of the Company, based on the individual and company performance goals. Payment of this bonus may not occur if the company does not meet its financial goals.     •   A relocation package of $140,000 to assist you in your move to Austin, Texas. This package will include a house hunting trip for you and your family, movement of your personal goods, home sale and purchase assistance and up to sixty days of temporary lodging.     •   Eligibility for all of the benefits provided to Vignette’s employees, which currently include:     •   Major medical, dental, vision, short term disability and life insurance coverage for you     •   The option to purchase major medical, dental, vision, accident and life insurance coverage for your eligible dependents     •   Participation in Vignette’s 401(k) plan upon completion of the plan’s eligibility requirements     •   Participation in Vignette’s Employee Stock Purchase Plan     •   Nine paid holidays and two weeks accrued paid vacation per year Should your employment with Vignette be terminated without “Cause” or for “Good Reason,” during the first twenty four months of service, you will receive severance payments in the equivalent of six months base salary, with payment contingent upon execution of a Separation Agreement approved by Vignette which will include appropriate releases and restrictive covenants. “Cause” for purposes of this Agreement shall be defined as your termination as a direct result of any of the following events which remains uncured after 15 days from the date of notice of such breach is provided to you or which cannot by its nature be cured: (a) material misconduct that results in material harm to the business of the Company; (b) material and repeated failure to perform duties assigned by your manager, which failure is not a result of a disability and results in material harm to the business of the Company; (c) any material breach of the Company’s policies or of the Proprietary Inventions Agreement which results in material harm to the business of the Company. “Good Reason” for purposes of this Agreement shall be defined as your resignation as a direct result of any of the following events: (i) a decrease in your Base Salary as set forth in this agreement of more than ten percent (10%); (ii) a substantial change in your job duties, position or title; (iii) any material breach by the Company of any provision of this Agreement, which breach is not cured within fifteen (15) days following written notice of such breach from you; (iv) the occurrence of a Change of Control (as defined below) of the Company; Change of Control for purposes of this Letter Agreement shall be defined as(x) the acquisition of fifty percent (50%) or more of the beneficial ownership interests, or fifty percent (50%) or more of the voting power, of the Company, either directly or indirectly, in one or a series of related transactions, by merger, purchase or otherwise, by any person or group of persons acting in concert (including, without limitation, any one or more -------------------------------------------------------------------------------- individuals, corporations, partnerships, trusts, limited liability companies or other entities); (y) the disposition or transfer, whether by sale, merger, consolidation, reorganization, recapitalization, redemption, liquidation or any other transaction, of fifty percent (50%) or more by value of the assets of the Company in one or a series of related or unrelated transactions over time. This offer of employment is contingent upon your execution of this Letter, Employment Application, PRSI Background Check, and satisfaction of the requirements of an I-9 Employment Eligibility Verification Form. Please understand that employment remains “at will”, and neither this letter nor the Plan create an employment contract with you. Also, please understand that the terms of the Plan (as modified by Vignette from time to time) will govern your compensation, and will control to the extent there is any conflict with the terms of this letter. I am looking forward to having you as a member of the Vignette team. Sincerely,       Thomas E. Hogan President and Chief Executive Officer Vignette Corporation

  Exhibit 10.2 LETTER OF INCENTIVE OPTION GRANT ORTHOLOGIC CORP. STOCK OPTION PLAN January 16, 2006 Les M. Taeger 1918 E. Coconino Drive Chandler, AZ 85249 RE: OrthoLogic Corp. 1997 Stock Option Plan Dear Les, In order to provide additional incentive to selected employees, OrthoLogic Corp. (the “Company”) adopted the OrthoLogic 1997 Stock Option Plan (the “Stock Option Plan”). By means of this letter (the “Letter of Grant”), the Company is offering you an incentive stock option pursuant to the Stock Option Plan. The Company’s sale of its common shares underlying the option granted to you hereby has been registered with the U.S. Securities and Exchange Commission. A copy of the prospectus supplement, including a copy of the Stock Option Plan relating to that registration is enclosed. The option granted to you hereunder shall be subject to all of the terms and conditions of the Stock Option Plan, which you should carefully review. In addition, such option is subject to the following terms and conditions:      1. Grant of Option. The Company hereby grants to you, pursuant to the Stock Option Plan, the option to purchase from the Company upon the terms and conditions and at the times hereinafter set forth, an aggregate of 150,000 shares of the Company’s $0.0005 par value common stock (the “Shares”) at a purchase price of $5.15 per share. The date of grant of this option is January 16, 2006 (hereinafter referred to as the “Option Date”). This option is an incentive stock option within the meaning of the Internal Revenue Code of 1986, as amended (the code), except if required by applicable tax rules, to the extent that the aggregate fair market value (determined as of the date these options are granted) of Shares exercisable for the first time by you during any calendar year (when aggregated, if appropriate, with shares subject to other incentive stock option grants made under the Stock Option Plan and any other plan maintained by the Company or any ISO Group member as defined in the Stock Option Plan) exceeds $100,000 (or such other limit as is prescribed by the Internal Revenue Code, as amended), the option granted hereby as to such excess Shares shall be treated as a nonqualified stock option pursuant to Code Section 422(d).   --------------------------------------------------------------------------------   Les M. Taeger 1/16/2006 Page 2      2. Exercise Term of Option. Unless earlier terminated as described in Section 7, the option will vest and may be exercised for the purchase of Shares as described in the following schedule:       Total     Number of Shares   Vesting Schedule 150,000   3,125 shares will vest on the Option Date and on the 16th of each calendar month thereafter until the option is fully exercisable            3. Nontransferability. This option shall not be transferable otherwise than by will or by the laws of descent and distribution, and the options shall be exercisable only by (a) you, during your lifetime (except as contemplated by the next clause); or (b) your legal representative or a person who acquired the right to exercise these options by request or inheritance, during the one-year period referred to in Section 7(iv) hereof. Any attempted transfer in violation of this restriction shall be void.      4. Other Conditions and Limitations. a) Any Shares issued upon exercise of this option shall not be issued unless the issuance and delivery of Shares pursuant thereto shall comply with all relevant provisions of law including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, any applicable state securities or “Blue Sky” law or laws (or an exemption from such provision is available), and the requirements of any stock exchange or national market system of a national securities association upon which the Shares may then be listed and shall be further subject to the approval of counsel for the Company with respect to such compliance. b) No transfer of any Shares issued upon the exercise of the option will be permitted by the Company, unless any request for transfer is accompanied by evidence satisfactory to the Company that the proposed transfer will not result in a violation of any applicable law, rule or regulation, whether federal or state, including in the discretion of the Company an opinion of counsel reasonably acceptable to the Company. c) Inability of the Company to obtain approval from any regulatory body having jurisdictional authority 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 to the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained.   --------------------------------------------------------------------------------   Les M. Taeger 1/16/2006 Page 3 d) Unless the Shares are subject to a then effective registration statement under the Securities Act of 1933, upon exercise of this option (in whole or in part) and the issuance of the Shares, the Company shall instruct its transfer agent to enter stop transfer orders with respect to Shares, and all certificates representing the Shares shall bear on the face thereof substantially the following legend: “The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration.”      5. Exercise of Option. You may exercise the option only by giving the President of the Company written notice (including the number of Shares that you are intending to acquire, accompanied by the full exercise price), by personal hand delivery, by professional overnight delivery service, or by registered or certified mail, postage prepaid with return receipt requested, at the following address: President OrthoLogic Corp. 1275 West Washington Phoenix, Arizona 85281 Payment of the option price shall be made either in (i) cash or by check, or (ii) at your request and with the written approval of the Company, (a) by delivering shares of the Company’s common stock which have been beneficially owned by you for a period of at least six months prior to the time of exercise (“Delivered Stock”) or (b) a combination of cash and Delivered Stock. Payment in the form of Delivered Stock shall be in the amount of the fair market value of the stock at the date of exercise, determined pursuant to the Stock Option Plan. As provided in the Stock Option Plan, the Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures.      6. Valuation and Withholding. If required by applicable regulations, the Company shall, at the time of issuance of any Shares purchased pursuant to the Stock Option Plan, provide you with a statement of valuation of the Shares issued. The Company shall be entitled to withhold amounts from your compensation or otherwise to receive an amount adequate to provide for any applicable federal, state and local income taxes (or require you to remit such amount as a condition of issuance). The Company may, in its discretion, satisfy any such withholding requirement, in whole or in part, by withholding from the shares to be issued the number of shares that would satisfy the withholding amount due.   --------------------------------------------------------------------------------   Les M. Taeger 1/16/2006 Page 4      7. Termination of Option. Notwithstanding anything to the contrary, this option can become exercisable only while you are an employee of the Company, and shall not be exercisable after the earliest of (i) the tenth anniversary of the Option Date; (ii) three months after the date your employment with the Company terminates, if such termination is for any reason other than permanent disability, death, or cause; (iii) the date your employment terminates, if such termination is for cause, as determined by the Company in its sole discretion; or (iv) one year after the date your employment with the Company terminates, if such termination is the result of death or permanent disability.      8. Notice of Disposition of Shares. If you dispose of any Shares acquired on the exercise of this option within either (a) two years after the Option Date or (b) one year after the date of exercise of this option, you must notify the Company within seven days of such disposition.      9. Miscellaneous. You will have no rights as a stockholder with respect to the Shares until the exercise of the option and payment of the full purchase price therefor in accordance with the terms of the Stock Option Plan and this Letter of Grant. Nothing herein contained shall impose any obligation on the Company or any parent or subsidiary of the Company or on you with respect to your continued employment by the Company or any parent or subsidiary of the Company. Nothing herein contained shall impose any obligation upon you to exercise this option. While the option granted hereunder is intended to qualify as an incentive stock option under Code Section 422A, the Company cannot assure you that such option will, in fact, qualify as incentive stock options, and makes no representation as to the tax treatment to you upon receipt or exercise of the option or sale or other disposition of the Shares covered by the option.      10. Governing Law. This Letter of Grant shall be subject to and construed in accordance with the law of the State of Arizona, except as may be required by the Delaware General Corporation Law or the federal securities laws. Venue for any action arising from or relating to this Agreement shall lie exclusively in Superior Court, Maricopa County, Arizona or the United States District Court for the District of Arizona, Phoenix Division.      11. Relationship to the Stock Option Plan. The option contained in this Letter of Grant is subject to the terms, conditions and definitions of the Stock Option Plan. To the extent that the terms, conditions and definitions of this Letter of Grant are inconsistent with the terms, conditions and definitions of the Stock Option Plan, the terms, conditions and definitions of the Stock Option Plan shall govern. You hereby accept this option subject to all terms and provisions of the Stock Option Plan. You agree to accept as binding, conclusive and final all decisions or interpretations of the Board or any committee appointed by the Board upon any questions arising under the Stock Option Plan. You agree to consult your independent tax advisors with respect to the income tax consequences to you, if any, of participating in the Stock Option Plan and authorize the Company to withhold in accordance with applicable law from any compensation otherwise payable to you any taxes required to be withheld by federal, state or local law as a result of your participation in the Stock Option Plan.   --------------------------------------------------------------------------------   Les M. Taeger 1/16/2006 Page 5      12. Communication. No notice or other communication under this Letter of Grant shall be effective unless the same is in writing and is personally hand-delivered, or is sent by professional overnight delivery service or mailed by registered or certified mail, postage prepaid and with return receipt requested, addressed to:   a)   the Company at the address set forth in Section 5 above, or such other address as the Company has designated in writing to you, in accordance with the provisions hereof, or     b)   you at the address set forth at the beginning of this letter, or such other address as you have designated in writing to the Company, in accordance with the provisions hereof. You should execute the enclosed copy of this Letter of Grant and return it to the Company as soon as possible. The additional copy is for your records. Very truly yours, OrthoLogic Corp.           /s/ James M. Pusey           By:   James M. Pusey         President and Chief Executive Officer               JMP/bd                       ACCEPTED AND AGREED TO:               /s/ Les M. Taeger           Les M. Taeger Optionee               Date:   1/16/06            

Exhibit 10.9 Execution Version AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AMENDMENT NO. 1, dated as of August 12, 2004 (this “Amendment”), to the Amended and Restated Loan and Security Agreement, dated as of September 12, 2003 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Loan Agreement”; and as amended hereby and as further amended, restated, supplemented or otherwise modified and in effect from time to time, the “Loan Agreement”), by and between TAXI MEDALLION LOAN TRUST I (the “Borrower”) and MERRILL LYNCH COMMERCIAL FINANCE CORP. (the “Lender”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Loan Agreement. RECITALS The Borrower and the Lender are parties to the Existing Loan Agreement. The Borrower and the Lender have agreed, subject to the terms and conditions of this Amendment, that the Existing Loan Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Loan Agreement. Accordingly, the Borrower and the Lender hereby agree, in consideration of the mutual premises and mutual obligations set forth herein, that the Existing Loan Agreement is hereby amended as follows: SECTION 1. Amendments. (a) Section 1 of the Existing Loan Agreement is hereby amended by deleting clause (a)(vi) from the definition of “Collateral Value” and inserting in lieu thereof the following new clause (a)(vi): “(vi) (A) the aggregate Collateral Value of all Eligible Medallion Loans which consist of Category II Medallion Loans (other than Category II Medallion Loans which have either (x) a maturity date that is not more than one (1) calendar year after any date of determination or (y) have a floating rate of interest that will be reset within one (1) calendar year after such date of determination (any such Category II Medallion Loan, a “Category II-A Medallion Loan”)) shall not exceed $40,000,000 and (B) the aggregate Collateral Value of all Eligible Medallion Loans which consist of Category II-A Medallion Loans shall not exceed $40,000,000;”. (b) The form of Borrowing Base Certificate attached as Exhibit B to the Existing Loan Agreement is hereby deleted in its entirety and the form of Borrowing Base Certificate attached as Exhibit B hereto is inserted in lieu thereof. -------------------------------------------------------------------------------- SECTION 2. Conditions Precedent. This Amendment shall become effective on the first date (the “Amendment Effective Date”) on which all of the following conditions precedent shall have been satisfied: (a) The Lender shall have received counterparts of this Amendment executed by a duly authorized officer of the Borrower; and (b) (i) The Borrower shall be in compliance with all of the terms and provisions set forth in the Existing Loan Agreement and the other Loan Documents on its part to be observed or performed, (ii) the representations and warranties made and restated by the Borrower pursuant to Section 3 of this Amendment shall be true and complete in all material respects on and as of such date with the same force and effect as if made on and as of such date, and (iii) no Default or Event of Default shall have occurred and be continuing on such date. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants to the Lender that it is in compliance with all the terms and provisions set forth in the Loan Documents on its part to be observed or performed and that no Default or Event of Default has occurred or is continuing, and hereby confirms and reaffirms each of the representations and warranties contained in Article VI of the Loan Agreement. SECTION 4. Limited Effect. Except as expressly amended and modified by this Amendment, the Existing Loan Agreement and each other Loan Document shall continue to be, and shall remain, in full force and effect in accordance with its terms; provided, however, that upon the Amendment Effective Date, all references therein and herein to the “Loan Documents” shall be deemed to include, in any event, this Amendment and each reference to the Loan Agreement in any of the Loan Documents shall be deemed to be a reference to the Loan Agreement as amended hereby. SECTION 5. Counterparts. This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed signature page of this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of an executed original counterpart of this Amendment. SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [SIGNATURES FOLLOW]   -2- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Amendment to be executed on its behalf by its officer hereunto duly authorized, as of the date first above written.   BORROWER TAXI MEDALLION LOAN TRUST I By:   /s/ Andrew M. Murstein   Name:   Andrew M. Murstein   Title:   President LENDER MERRILL LYNCH COMMERCIAL FINANCE CORP. By:   /s/ Joshua A. Green   Name:   Joshua A. Green   Title:   Director AMENDMENT No. 1

Exhibit 10.1   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT   THIS CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (the ”Amendment”), dated effective as of November 14, 2005 is among HORIZON HEALTH CORPORATION, a Delaware Corporation (the “Parent”), HORIZON MENTAL HEALTH MANAGEMENT, INC., a Texas Corporation (the “Borrower”), each of the banks or other lending institutions party hereto, and JPMORGAN CHASE BANK, N.A. (formerly known as JPMorgan Chase Bank, who was formerly known as The Chase Manhattan Bank, who was the successor in interest by merger to Chase Bank of Texas, National Association, formerly known as Texas Commerce Bank National Association), as the agent (the “Agent”).   RECITALS:   A. The Parent, the Borrower, the Agent, and certain banks and other lending institutions have entered into that certain Third Amended and Restated Credit Agreement dated as of June 10, 2005 (as the same may be further amended or otherwise modified, herein the “Agreement”).   B. On August 1, 2005, HHC River Park, Inc. and PsychManagement Group, LLC joined the Agreement as Obligated Parties.   C. On or about August 19, 2005, Employee Assistance Programs International, LLC, Florida Psychiatric Associates, LLC, Horizon Behavioral Services of Florida, LLC, and Occupational Health Consultants of America, Inc. merged with and into Horizon Behavioral Services, Inc.   D. The Borrower and the other Obligated Parties have advised the Agent and the Banks that the Borrower desires to purchase certain of the assets of Focus Healthcare, LLC, Lighthouse Care Centers, LLC, and related entities through existing Obligated Parties or Subsidiaries of the Parent who will become Obligated Parties (the “Focus Acquisition”). The total consideration to be paid by the Obligated Parties in connection with the Focus Acquisition shall not exceed $100,000,000.   E. On September 14, 2005, Parent formed a new Subsidiary, HHC Services, LLC, a Texas limited liability company (“HHC Services”), to acquire an ownership interest in an aircraft. On September 30, 2005, HHC Services entered into that Purchase & Interim Lease Agreement with CitationShares Sales, Inc. pursuant to which HHC Services acquired an ownership interest in an aircraft. In accordance with the Agreement, the Borrower and the other Obligated Parties have requested that the Required Banks consent to:   1) HHC Services executing and delivering a Subsidiary Joinder Agreement and granting the Agent a Lien on certain of its assets on or before December 15, 2005 which is later than the deadline specified for such joinder in Section 8.10(b) of the Agreement;   2) HHC Services not pledging its ownership interest in any aircraft, now owned or hereafter acquired, which HHC Services does not wholly-own, as required by Section 8.10(b) of the Agreement and the Subsidiary Security Agreement; and   3) Parent pledging its membership interest in HHC Services on or before December 15, 2005 which is later than the deadline specified for such pledge in Section 8.10(c) of the Agreement.   The specifically described provisions of the Agreement described in this paragraph, are herein referred to as the “Applicable Covenants.”   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 1 -------------------------------------------------------------------------------- F. The Parent and the Borrower have requested that the Agent and the Banks amend certain provisions of the Agreement and consent to the departure from the Applicable Covenants. Subject to satisfaction of the conditions set forth herein, the Agent and the Banks party hereto are willing to amend the Agreement as herein set forth.   NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows effective as of the date hereof unless otherwise indicated:   ARTICLE I.   Definitions   Section 1.1. Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby.   ARTICLE II.   Amendments   Section 2.1. Amendment to Section 1.1 – Definitions. Section 1.1 of the Agreement is amended to add the following definition, in proper alphabetical order, thereto:   “Focus Acquisition” means the purchase of certain assets of Focus Healthcare, LLC, Lighthouse Care Centers, LLC, and related entities through existing Obligated Parties or Subsidiaries of the Parent who will become Obligated Parties pursuant to Section 8.10(b) for an aggregate purchase price not to exceed $100,000,000.   Section 2.2. Amendment to Section 3.2 – Determinations of Margins and Fees. The table set forth in Section 3.2 of the Agreement is amended in its entirety to read as follows:   Indebtedness to Adjusted EBITDA Ratio   Eurodollar Rate         Margin           Base         Margin           Commitment Fee         Rate         Less than 1.25 to 1.00   1.25%     .25%   .200% Greater than or equal to 1.25 to 1.00 but less than 1.75 to 1.00   1.50%     .50%   .250% Greater than or equal to 1.75 to 1.00 but less than 2.25 to 1.00   1.75%     .75%   .300% Greater than or equal to 2.25 but less than 2.75 to 1.00   2.00%   1.00%   .375% Greater than or equal to 2.75 to 1.00 but less than 3.00 to 1.00   2.25%   1.25%   .500% Greater than or equal to 3.00 to 1.00   2.50%   1.50%   .500%   Section 2.3. Amendment to Section 9.1 – Debt. Clause (h) of Section 9.1 of the Agreement is amended in its entirety to read as follows:   (h) Debt of any Person (or any of such Person’s subsidiaries) existing at the time such Person becomes a Subsidiary (or is merged into or consolidated with Parent or any of the Subsidiaries), but only to the extent that such Debt was not incurred in   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 2 -------------------------------------------------------------------------------- connection with, as a result of or in contemplation of such Person becoming a Subsidiary (or being merged into or consolidated with Parent or any Subsidiary); provided, however, that (i) in no event shall the aggregate amount of such Debt outstanding at any time that is Capital Lease Obligations exceed Ten Million Dollars ($10,000,000); (ii) in no event shall the aggregate amount of such Debt outstanding at any time that is not (A) Capital Lease Obligations or (B) Debt assumed in connection with the Focus Acquisition exceed Five Million Dollars ($5,000,000); and (iii) immediately after such acquired Person becomes a Subsidiary (or is merged into or consolidated with Parent or any Subsidiary), no Default exists;   Section 2.4. Amendment to Section 9.5 – Investments. Subclauses (ii) and (iii) of Section 9.5(a) of the Agreement are amended in their respective entireties to read as follows:   (ii) Indebtedness to Adjusted EBITDA. The ratio of Indebtedness outstanding as of the date of determination (which shall not be more than thirty (30) days prior to the acquisition date) to Adjusted EBITDA (as defined in Section 10.3) for the most recent four (4) Fiscal Quarter period then ended as of such date is less than the lesser of (A) the Indebtedness to Adjusted EBITDA Ratio then in effect under Section 10.3 reduced by 0.25 and (B) an Indebtedness to Adjusted EBITDA Ratio of 3.00 to 1.00, calculated on a pro forma basis as if the acquisition had occurred as of the first day of such four (4) Fiscal Quarters and including in the ratio calculation any Debt incurred or assumed in connection therewith as if the Target were a “Prior Target” for purposes of calculating Adjusted EBITDA;   (iii) Purchase Price. The ratio of Indebtedness outstanding as of the date of determination (which shall not be more than thirty (30) days prior to the acquisition date) to Adjusted EBITDA (as defined in Section 10.3) for the most recent four (4) Fiscal Quarter period then ended as of such date calculated on a pro forma basis as if the acquisition had occurred as of the first day of such four (4) Fiscal Quarters and including in the ratio calculation any Debt incurred or assumed in connection therewith as if the Target were a “Prior Target” for purposes of calculating Adjusted EBITDA is: (A) less than or equal to 2.00 to 1.00; or (B) is more than 2.00 to 1.00 but less than the Indebtedness to Adjusted EBITDA Ratio then in effect under Section 10.3 reduced by 0.25, and (1) the Required Banks shall have provided their prior approval, (2) the proposed acquisition is the Focus Acquisition, or (3) after giving effect to such acquisition, the aggregate of the Purchase Prices for all Permitted Acquisitions (other than the Focus Acquisition) that have occurred during the then current Fiscal Year (including the Purchase Price for the acquisition in question) is less than Twenty-Five Million Dollars ($25,000,000) (as used above, the phrase “Purchase Price” means, as of any date of determination and with respect to a proposed acquisition, the purchase price to be paid for the Target or its assets, including all cash consideration paid (whether classified as purchase price, non-compete, consulting or post-closing performance based payments or otherwise) or to be paid (based on the estimated amount thereof), the value of all other assets to be transferred by the purchaser in connection with such acquisition to the seller (but specifically excluding any stock of Parent issued to the seller which shall not be part of the Purchase Price for purposes of this clause (iii)) all valued in accordance with the applicable purchase agreement and the outstanding principal amount of all Debt of the Target or the seller assumed or acquired in connection with such acquisition);   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 3 -------------------------------------------------------------------------------- Section 2.5. Amendment to Section 10.2 – Fixed Charge Coverage. Clause (s) of the definition of “Consolidated Net Income” contained in Section 10.2 of the Agreement is amended in its entirety to read as follows:   (s) the one time loss related to the reorganization of certain employees, locations and services of Employee Assistance Programs International, LLC in an amount not to exceed $5,700,000;   Section 2.6. Amendment to Section 10.3 – Indebtedness to Adjusted EBITDA. The first sentence of Section 10.3 of the Agreement is amended in its entirety to read as follows:   As of the last day of each Fiscal Quarter, Parent shall not permit the ratio of Indebtedness outstanding as of such day to Adjusted EBITDA for the four (4) Fiscal Quarter period then ended to exceed: (a) 3.00 to 1.00 for the Fiscal Quarter ended November 30, 2005; (b) 3.50 to 1.00 for the Fiscal Quarter ended February 28, 2006; (c) 3.25 to 1.00 for the Fiscal Quarter ended May 31, 2006; and (d) 3.00 to 1.00 for the Fiscal Quarter ended August 31, 2006 and all Fiscal Quarters thereafter.   Section 2.7. Amendment to Exhibit C – Compliance Certificate. Exhibit C to the Agreement is amended in its entirety to read as set forth on Exhibit A attached hereto.   ARTICLE III.   Consent   Section 3.1. Consent. Subject to the satisfaction of the conditions precedent described in Article IV hereof, each of the undersigned Banks consent to the Obligated Parties’ departure from the Applicable Covenants as specifically described above for purposes described herein and agree that such departure will not result in an Event of Default under the Agreement.   Section 3.2. Limitations on Consent. The consent set forth herein shall not be deemed a consent to the departure from or waiver of (a) the Applicable Covenants for any purpose other than as described herein, (b) any other covenant or condition in any Loan Document or (c) any Event of Default that otherwise may arise as a result of the formation of HHC Services and its acquisition of aircraft. The failure to comply with the Applicable Covenants for any other purpose at any other time shall constitute an Event of Default.   Section 3.3. Joinder of HHC Services; Pledge by Parent. To induce the Banks to agree to the terms of Section 3.1, the Parent, on or before December 15, 2005, shall (a) cause HHC Services to execute and deliver a Subsidiary Joinder Agreement and such other documentation as the Agent may request to evidence, perfect, or otherwise implement the guaranty and security for repayment of the Obligations contemplated by a Guaranty and the Subsidiary Security Agreement; provided, however, in accordance with the terms hereof, HHC Services will not be required to pledge its ownership interest in any aircraft, now owned or hereafter acquired, that is not wholly-owned by HHC Services, and (b) execute and deliver to Agent an amendment to the Parent’s Pledge Agreement describing as collateral thereunder the membership interests in HHC Services.   ARTICLE IV.   Conditions Precedent   Section 4.1. Conditions. The effectiveness of Article II and Article III of this Amendment is subject to the satisfaction of the following conditions precedent:   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 4 -------------------------------------------------------------------------------- (a) The Agent shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, in form and substance satisfactory to the Agent:   (i) Amendment. This Amendment duly executed by the Borrower, the other Obligated Parties and the Required Banks; and   (ii) Additional Information. Such additional documentation, approvals, opinions, and information as Agent or its legal counsel Jenkens & Gilchrist, a Professional Corporation, may request;   (b) The representations and warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date;   (c) No Default shall have occurred and be continuing; and   (d) All proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to the Agent and its legal counsel Jenkens & Gilchrist, a Professional Corporation.   ARTICLE V.   Miscellaneous   Section 5.1. Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect.   Section 5.2. Representations and Warranties. Borrower hereby represents and warrants to the Agent and the Banks as follows: (a) after giving effect to this Amendment, no Default exists; (b) after giving effect to this Amendment, the representations and warranties set forth in the Loan Documents are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of such date except with respect to any representations and warranties limited by their terms to a specific date; and (c) the execution, delivery, and performance of this Amendment has been duly authorized by all necessary action on the part of Parent, Borrower, and each Obligated Party and does not and will not (i) violate any provision of law applicable to the Borrower, the Parent, or any Obligated Party, the certificate of incorporation, bylaws, partnership agreement, membership agreement, or other applicable governing document of the Borrower, the Parent, or any Obligated Party or any order, judgment, or decree of any court or agency of government binding upon the Borrower, the Parent, or any Obligated Party, (ii) conflict with, result in a breach of or constitute (with due notice of lapse of time or both) a default under any material contractual obligation of the Borrower, the Parent, or any Obligated Party, (iii) result in or require the creation or imposition of any material lien upon any of the assets of the Borrower, the Parent, or any Obligated Party, or (iv) require any approval or consent of any Person under any material contractual obligation of the Borrower, the Parent, or any Obligated Party.   IN ADDITION, TO INDUCE THE AGENT AND THE BANKS TO AGREE TO THE TERMS OF THIS AMENDMENT, THE BORROWER, THE PARENT, AND EACH OBLIGATED PARTY (BY ITS EXECUTION BELOW) REPRESENTS AND WARRANTS THAT AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT:   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 5 -------------------------------------------------------------------------------- (a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AMENDMENT AND   (b) RELEASE. RELEASES AND DISCHARGES THE AGENT AND THE BANKS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND ATTORNEYS (COLLECTIVELY THE “RELEASED PARTIES”) FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH THE BORROWER OR ANY OBLIGATED PARTY EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.   Section 5.3. Survival of Representations and Warranties. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Agent or any Bank or any closing shall affect the representations and warranties or the right of the Agent or any Bank to rely upon them.   Section 5.4. Reference to Agreement. Each of the Loan Documents, including the Agreement, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement as amended hereby.   Section 5.5. Expenses of Agent. As provided in the Agreement, the Borrower agrees to pay on demand all costs and expenses incurred by the Agent in connection with the preparation, negotiation, and execution of this Amendment, including without limitation, the costs and fees of the Agent’s legal counsel.   Section 5.6. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.   Section 5.7. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America.   Section 5.8. Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of the Agent, each Bank and the Borrower and their respective successors and assigns, except the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Banks.   Section 5.9. Counterparts. This Amendment may be executed in one or more counterparts and on telecopy counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement.   Section 5.10. Effect of Waiver. No consent or waiver, express or implied, by the Agent or any Bank to or for any breach of or deviation from any covenant, condition or duty by the Borrower or any Obligated Party shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty.   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 6 -------------------------------------------------------------------------------- Section 5.11. Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.   Section 5.12. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.   Section 5.13. Required Banks. The Agreement and the Consent Letter may be modified as provided in this Amendment with the agreement of the Required Banks which means Banks having fifty—one percent (51%) or more of the sum of the total Revolving Commitments (such percentage applicable to a Bank, herein such Bank’s “Required Bank Percentage”). For purposes of determining the effectiveness of this Amendment, each Bank’s Required Bank Percentage is set forth on Schedule 5.13 hereto.   Executed as of the date first written above.   PARENT AND BORROWER: HORIZON HEALTH CORPORATION HORIZON MENTAL HEALTH MANAGEMENT, INC. By:   /s/ David K. Meyercord Name:   David K. Meyercord     Authorized Officer for both Parent and Borrower   AGENT AND BANKS: JPMORGAN CHASE BANK, N.A. (formerly known as JPMorgan Chase Bank, who was formerly The Chase Manhattan Bank, who was successor-in- interest by merger to the Chase Bank of Texas, National Association who was formerly known as TEXAS COMMERCE BANK NATIONAL ASSOCIATION), individually as a Bank, as Agent, and as Issuing Bank By:   /s/ Denise Parks Name:   Denise Parks Title:   Senior Vice President   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 7 -------------------------------------------------------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION By:   /s/ Daniel Penkar Name:   Daniel Penkar Title:   Senior Vice President     WELLS FARGO BANK, N.A. (formerly Wells Fargo Bank Texas, National Association) By:   /s/ Linda G. Davis Name:   Linda G. Davis Title:   Vice President     KEYBANK NATIONAL ASSOCIATION By:   /s/ Joanne Beamanti Name:   Joanne Beamanti Title:   Senior Vice President     WACHOVIA BANK, NATIONAL ASSOCIATION By:   /s/ Gideon Oosthuizen Name:   Gideon Oosthuizen Title:   Vice President     AMEGY BANK, N.A. By:   /s/ Lisa Armstrong Name:   Lisa Armstrong Title:   Vice President   CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 8 -------------------------------------------------------------------------------- OBLIGATED PARTY CONSENT   Each Obligated Party (i) consents and agrees to this First Amendment to Third Amended and Restated Credit Agreement; (ii) agrees that the Guaranty, Subsidiary Security Agreement, and the Subsidiary Pledge Agreement to which it is a party shall remain in full force and effect and shall continue to be the legal, valid, and binding obligation of such Obligated Party enforceable against it in accordance with its terms; (iii) agrees that the “Obligations” as defined in the Agreement as amended hereby (including, without limitation, all obligations, indebtedness, and liabilities arising in connection with the Letters of Credit and the increase in the Revolving Commitments contemplated hereby) are “Obligations” as defined in the Guaranty; and (iv) agrees that any reference to the “Borrower” in the Guaranty, Subsidiary Security Agreement or Subsidiary Pledge Agreement shall mean Horizon Mental Health Management, Inc. as the “Borrower” hereunder successor by assumption to the obligations of the Parent.   OBLIGATED PARTIES: MENTAL HEALTH OUTCOMES, INC. HORIZON HEALTH PHYSICAL REHABILITATION SERVICES, INC. (formerly Specialty Rehab Management, Inc.) HHMC PARTNERS, INC. HORIZON BEHAVIORAL SERVICES, INC. (successor in interest by merger to Horizon Behavioral Services IPA, Inc., Horizon Behavioral Services of New Jersey, Inc., Horizon Behavioral Services of New York, Inc., Horizon Behavioral Services of California, Inc., Employee Assistance Programs International, LLC, Florida Psychiatric Associates, LLC, Horizon Behavioral Services of Florida, LLC, and Occupational Health Consultants of America, Inc.) HMHM OF TENNESSEE, INC. EMPLOYEE ASSISTANCE SERVICES, INC. HHC INDIANA, INC. HHC OHIO, INC. HHC POPLAR SPRINGS, INC. HHC RIVER PARK, INC. PSYCHMANAGEMENT GROUP, INC. By:   /s/ David K. Meyercord Name:        David K. Meyercord     Authorized Officer for each Obligated Party           CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 9 -------------------------------------------------------------------------------- EXHIBIT A TO HORIZON HEALTH CORPORATION FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT   Compliance Certificate   EXHIBIT A, Cover Page -------------------------------------------------------------------------------- COMPLIANCE CERTIFICATE for the Fiscal Quarter ending                                  ,                To: JPMorgan Chase Bank, N.A.      P.O. Box 660197      Dallas, Texas 75266-0197      Fax No.: (972) 888-7837      Telephone No.: (972) 888-7802      Attention: Brian McDougal   Ladies and Gentlemen:   This Compliance Certificate (the “Certificate”) is being delivered pursuant to Section 8.1(c) of that certain Third Amended and Restated Credit Agreement (as amended, the “Agreement”) dated as of June 10, 2005, among the Horizon Health Corporation (“Parent”), Horizon Mental Health Management, Inc. (“Borrower”), the banks and lending institutions named therein (the “Banks”) and JPMorgan Chase Bank, N.A., as agent for the Banks (“Agent”). All capitalized terms, unless otherwise defined herein, shall have the same meanings as in the Agreement. All the calculations set forth below shall be made pursuant to the terms of the Agreement.   The undersigned, as an authorized financial officer of Parent, and not individually, does hereby certify to the Agents and the Banks that:   1.      DEFAULT. No Default has occurred and is continuing or if a Default has occurred and is continuing, I have described on the attached Exhibit A the nature thereof and the steps taken or proposed to remedy such Default. 2.      SECTION 8.1 – Financial Statements and Records                             (a)    Annual audited financial statements of Parent and the Subsidiaries on or before ninety (90) days after the end of each Fiscal Year.             Yes      No      N/A (b)    Quarterly unaudited financial statements of Parent and the Subsidiaries within forty-five (45) days after the end of each Fiscal Quarter.             Yes      No      N/A (c)    Financial Projections of Parent and Subsidiaries within forty-five (45) days after the beginning of each Fiscal Year.             Yes      No      N/A 3.      SECTION 8.10(d) – Restricted Group Members                             EBITDA for the Restricted Group Members for the most recently completed four Fiscal Quarter period not to exceed 12.5% of line 9(f) (such percentage may increase to 15% or 20% depending on the Borrower’s election to amend Section 10.3):    $                                       Actual EBITDA for the Restricted Group Members for the most recently completed four Fiscal Quarter period:    $                       Yes      No        4.      SECTION 9.1 – Debt               (a)    Purchase money not to exceed:    $ 5,000,000      Yes      No        Actual Outstanding:    $                                         COMPLIANCE CERTIFICATE, Page 1 -------------------------------------------------------------------------------- (b)    Guarantees of surety, appeal bonds, etc. not to exceed:    $ 1,000,000                    Actual Outstanding:    $                       Yes      No      (c)    Aggregate Debt of newly acquired or merged Subsidiaries not to exceed:                           Capital Lease Obligations    $ 10,000,000                    Actual Outstanding:    $                       Yes      No      Other Debt:    $ 5,000,000                    Actual Outstanding:    $                       Yes      No      (d)    Debt owing from Restricted Group Members plus Investments in Restricted Group Members may not exceed 20% of line 8(f)    $                                     Actual Outstanding:    $                       Yes      No      (e)    Other Debt not to exceed:    $ 5,000,000                    Actual Outstanding:    $                       Yes      No      5.      SECTION 9.5 – Investments                           (a)    Aggregate amount of loans to physicians employed by a Subsidiary not to exceed (calculated net of bad debt reserve):    $ 500,000                    Actual Outstanding:    $                       Yes      No      (b)    Aggregate amount of investments in Insights in addition to the Purchase Price paid for Insights not to exceed:    $ 1,000,000                    Actual Aggregate Amount:    $                       Yes      No      (c)    Aggregate amount of initial capital contribution made to Friends LP not to exceed without being included in line 4(d)    $ 17,500,000                    Actual Aggregate Amount:    $                       Yes      No      6.      SECTION 9.8 – Asset Dispositions                           (a)    Aggregate book value of assets disposed during current Fiscal Year not to exceed:    $ 2,500,000                    (b)    Total book value of asset dispositions not otherwise permitted for the current Fiscal Year:    $                       Yes      No      7.      SECTION 9.11 – Prepayment of Debt                           (a)    Aggregate amount of Debt, other than the Obligations, prepaid or optionally redeemed during period from the Closing Date to the Revolving Termination Date not to exceed:    $ 2,500,000                    (b)    Total amount of Debt, other than the Obligations, prepaid or optionally redeemed:    $                       Yes      No      8.      SECTION 10.1 – Consolidated Net Worth                           (a)    Base Consolidated Net Worth    $                                     (b)    Cumulative positive Net Income since 2/28/05 Fiscal Quarter end    $                                       COMPLIANCE CERTIFICATE, Page 2 -------------------------------------------------------------------------------- (c)    50% of 8(b)    $                                     (d)    Aggregate amount of net cash proceeds or other Capital Contribution to Parent since 2/28/05    $                                     (e)    Required Consolidated Net Worth: 8(a) plus 9(c) plus 8(d)    $                                     (f)     Actual Consolidated Net Worth    $                       Yes      No      9.      Section 10.2 – Fixed Charge Coverage                           (a)    Parent and the Subsidiaries’ Consolidated Net Income for last four Fiscal Quarters (from Schedule 1)    $                                     (b)    Plus provisions for tax    $                                     (c)    less benefit from tax    $                                     (d)    Plus interest expense    $                                     (e)    Plus amortization and depreciation    $                                     (f)     Parent and the Subsidiaries’ EBITDA: (9(a) plus 9(b) minus 9(c) plus 9(d) plus 9(e))    $                                     (g)    provisions for taxes    $                                     (h)    plus benefit from taxes    $                                     (i)     minus cash dividends and other distributions made on account of the Parent’s capital stock    $                                     (j)     Cash Flow (10(g)  plus 9(h) minus 9(g) minus 9(i))    $                                     (k)    Fixed Charges                           (i)     Cash interest expense for last four Fiscal Quarters    $                                     (ii)    as of each date of determination, the current maturities of long term debt reflected on Parent’s consolidated balance sheet    $                                     (iii)  4/5 of the outstanding Loans (excluded beginning August 31, 2009 and each Fiscal Quarter thereafter)    $                                     (iv)   Aggregate amount of Capital Expenditures for last four Fiscal Quarters    $                                     (v)    Payments made pursuant to Capital Lease Obligations for last four Fiscal Quarters    $                                     (vi)   Payments made with respect to deferred purchase price and performance obligations for last four Fiscal Quarters    $                                     (vi)   Sum of 9(k)(i)+(ii)-(iii)+(iv)+(v)+(vi)    $                                     (l)     Actual Fixed Charge Coverage (9(j) : 9(k)(vi))=                  :1.00                    (m)   Minimum Fixed Charge Coverage      1.25:1.00      Yes      No      10.    SECTION 10.3 – Indebtedness to Adjusted EBITDA                           (a)    Debt for borrowed money    $                                     (b)    Debt evidenced by bonds, notes, etc.    $                                     (c)    Capital Lease Obligations    $                                     (d)    Reimbursement obligations for letters of credit    $                                       COMPLIANCE CERTIFICATE, Page 3 -------------------------------------------------------------------------------- (e)    Amount payable with respect to all deferred purchase price and performance obligations    $                                   (f)     Sum of 10(a) through 10(e)    $                                   (g)    Actual EBITDA (from 9(f))    $                                   (h)    Prior Period/Prior Target EBITDA; provided that, the EBITDA for a Prior Target will not be included unless it can be established in a manner satisfactory to Agent based on financial statements of the Prior Target prepared in accordance with GAAP without adjustment for expense or other charges that will be eliminated after the acquisition;    $                                   (i)     Adjusted EBITDA (10(g) plus 10(h))    $                                   (j)     10(f) : 10(i)                  :1.00                  (k)    Maximum Indebtedness to Adjusted EBITDA allowed by Credit Agreement (see table below; ratio may decrease to 2.75:1.00 or 2.50:1:00 depending on the Borrower’s election under Section 8.10(d)):           Yes      No                                    Fiscal Quarter ended November 30, 2005    3.00 to 1.00                      Fiscal Quarter ended February 28, 2006    3.50 to 1.00                      Fiscal Quarter ended May 31, 2006    3.25 to 1.00                      Fiscal Quarter ended August 31, 2006 and thereafter    3.00 to 1.00                  11.    SECTION 10.4 – Managed Care Contracts                                   (a)    Gross revenue during the immediately preceding 12 month period from contracts providing exclusively for managed care              $                                   (b)    Gross revenue during the immediately preceding 12 month period from the managed care portions of contracts providing for employee assistance services and managed care              $                                   (c)    Total Managed Care Gross Revenue (11(a) plus (11(b))              $                                   (d)    Total Gross Revenue during such 12 month period              $                                   (e)    25% of 11(d)              $                                   (f)     Maximum Permitted Gross Revenue from Managed Care Contracts                  11(c) > 11(e)    Yes      No        COMPLIANCE CERTIFICATE, Page 4 -------------------------------------------------------------------------------- 13.    ATTACHED SCHEDULES Attached hereto as schedules are the calculations supporting the computation set forth above in this Certificate. All information contained herein and on the attached schedules is true and correct. 14.    FINANCIAL STATEMENTS The unaudited financial statements attached hereto were prepared in accordance with GAAP (excluding footnotes) and fairly present (subject to year end audit adjustments) the financial conditions and the results of the operations of the Persons reflected thereon, at the date and for the periods indicated therein. 15.    CREATION OF SUBSIDIARIES. Since the delivery of the last Compliance Certificate, the Obligated Parties have created the following Subsidiaries each of which has been designated as an Acquisition Subsidiary, a Restricted Group Member or both.   16.    CONFLICT In the event of any conflict between the definitions or covenants contained in the Credit Agreement and as they may be interpreted or abbreviated in the Compliance Certificate, the Credit Agreement shall control.   IN WITNESS WHEREOF, the undersigned has executed this Certificate effective this          day of                         ,             .   HORIZON HEALTH CORPORATION By:     --------------------------------------------------------------------------------     Name:     --------------------------------------------------------------------------------     Title:     --------------------------------------------------------------------------------     COMPLIANCE CERTIFICATE, Page 5 -------------------------------------------------------------------------------- Schedule 1 to Compliance Certificate   Parent Consolidated Net Income for period                              to                                1.      GAAP consolidated net income for Parent (the “Subject Person”) excluding the following (to the extent included):    $                               (a)    extraordinary gains or losses or nonrecurring revenue or expenses                                      (b)    gains on sale of securities                                      (c)    losses on sale of securities                                      (d)    any gains or losses in respect of the write-up of any asset at greater than original cost or write-down at less than original cost;                                      (e)    any gains or losses realized upon the sale or other disposition of property, plant, equipment or intangible assets which is not sold or otherwise disposed of in the ordinary course of business;                                      (f)     any gains or losses from the disposal of a discontinued business;                                      (g)    any net gains or losses arising from the extinguishment of any debt;                                      (h)    any restoration to income of any contingency reserve for long term asset or long term liabilities, except to the extent that provision for such reserve was made out of income accrued during such period;                                      (i)     the cumulative effect of any change in an accounting principle on income of prior periods;                                      (j)     any deferred credit representing the excess of equity in any acquired company or assets at the date of acquisition over the cost of the investment in such company or asset;                                      (k)    the income from any sale of assets in which the book value of such assets prior to their sale had been the book value inherited;                                      (l)     the income (or loss) of any Person (other than a subsidiary) in which the Subject Person or a subsidiary has an ownership interest; provided, however, that (i) Consolidated Net Income shall include amounts in respect of the income of such Person when actually received in cash by the Subject Person or such subsidiary in the form of dividends or similar distributions and (ii) Consolidated Net Income shall be reduced by the aggregate amount of all investments, regardless of the form thereof, made by the Subject Person or any of its subsidiaries in such Person for the purpose of funding any deficit or loss of such Person;                                      (m)   the income of any subsidiaries to the extent the payment of such income in the form of a distribution or repayment of any Debt to the Subject Person or a Subsidiary is not permitted, whether on account of any restriction in by-laws, articles of incorporation or similar governing document, any agreement or any law, statute, judgment, decree or governmental order, rule or regulation applicable to such Subsidiary;                                      (n)    any reduction in or addition to income tax expense resulting from an increase or decrease in a deferred income tax asset due to the anticipation of future income tax benefits;                                      (o)    any reduction in or addition to income tax expense due to the change in a statutory tax rate resulting in an increase or decrease in a deferred income tax asset or in a deferred income tax liability;                                        Schedule 1 to Compliance Certificate, Page 1 -------------------------------------------------------------------------------- (q)    any gains or losses attributable to returned surplus assets of any pension-benefit plan or any pension credit attributable to the excess of (i) the return on pension-plan assets over (ii) the pension obligation’s service cost and interest cost;                                 (p)    the income or loss of any Person acquired by the Subject Person or a subsidiary for any period prior to the date of such acquisition;                                                                   (q)    the income from any sale of assets in which the accounting basis of such assets had been the book value of any Person acquired by the Subject Person or a subsidiary prior to the date such Person became a subsidiary or was merged into or consolidated with the Subject Person or a subsidiary;                                                                   (r)     One–time loss relating to reorganization of certain employees, locations and services of Employee Assistance Programs International, LLC in an amount not to exceed $5,700,000; and                                 (s)    any non-cash expense attributable to the expensing of stock option programs of such Person; provided, however, that Consolidated Net Income shall be reduced by the aggregate amount of cash payments made by such Person during any period for the purpose of funding any such expense.                                 TOTAL:    $                           -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Schedule 1 to Compliance Certificate, Page 2 -------------------------------------------------------------------------------- SCHEDULE 5.13 TO HORIZON HEALTH CORPORATION CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT   Required Banks   Bank   Required Bank     Percentage       Banks Agreeing to Consent         and First Amendment (insert             % from prior column if Bank         signs Amendment then total         % in this column)         1.      JPMorgan Chase Bank, N.A.     20.00%     2.      Bank of America, National Association     20.00%     3.      Wells Fargo Bank, N.A.     20.00%     4.      KeyBank National Association     20.00%     5.      Wachovia Bank, National Association     12.00%     6.      Amegy Bank, National Association       8.00%     Total   100.00%       Schedule 4.13, Solo Page

Exhibit 10.90   BEARINGPOINT, INC.   STOCK OPTION AGREEMENT   BearingPoint, Inc., a Delaware corporation (the “Company”), hereby grants to Harry L. You (the “Optionee”), pursuant to the award notice attached hereto (the “Award Notice”) as of the date set forth in the Award Notice (the “Option Date”), a non-statutory Common Stock option to purchase from the Company the number of shares of its common stock, $0.01 par value (“Common Stock”), set forth in the Award Notice (the “Option”), at the price per share set forth in the Award Notice, upon and subject to the terms and conditions set forth below and in the Award Notice.   1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee accepts this Agreement by executing the Award Notice in the space provided therefor and returning an original execution copy of the Award Notice to the Company.   2. Time and Manner of Exercise of Option.   2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after the expiration date set forth in the Award Notice (the “Expiration Date”).   2.2. Exercise of Option. (a) The Option shall become exercisable in accordance with the exercise schedule set forth in the Award Notice (the “Exercise Schedule”).   (b) If the Optionee’s employment with the Company terminates by reason of Disability, the Option shall be exercisable in full and may thereafter be exercised by the Optionee or the Optionee’s Legal Representative until and including the Expiration Date.   (c) If the Optionee’s employment with the Company terminates by reason of Retirement, the Option shall continue to vest in accordance with the vesting schedule set forth in the Award Notice and may thereafter be exercised by the Optionee or the Optionee’s Legal Representative until and including the earlier to occur of (i) the date which is one year after the Optionee’s date of death, provided the Optionee dies following termination of active employment by reason of Retirement, and (ii) the Expiration Date.   (d) If the Optionee’s employment with the Company terminates by reason of death, the Option shall be exercisable in full and may thereafter be exercised by the Optionee’s Legal Representative or Permitted Transferees, as the case may be, until and including the Expiration Date.   (e) If the Optionee’s employment with the Company terminates for any reason other than Disability, Retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee’s termination of employment and may thereafter be exercised by the Optionee or the Optionee’s Legal Representative until and including the earlier to occur of (i) the date which is three months after the effective date of the Optionee’s termination of employment and (ii) the Expiration Date , provided, however, that on -------------------------------------------------------------------------------- the termination of the Optionee’s employment by the Company without Cause or by the Optionee for Good Reason, the next portion of the Option that is scheduled to vest shall vest on the date of the Executive’s termination.   (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or Retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee’s Legal Representative or Permitted Transferees, as the case may be, until and including the earlier to occur of (i) the date which is one year after the date of death and (ii) the Expiration Date.   (g) Notwithstanding Sections 2.1 and 2.4 and the exercise periods set forth in the Award Notice and in subsections (b), (c), (d), (e) and (f) of this Section 2.2, in the event the Company is involved in a business combination, including a business combination which is intended to be treated as a pooling of interests for financial accounting purposes (a “Pooling Transaction”), in connection with which the Optionee receives a substitute option to purchase securities of any entity, including an entity directly or indirectly acquiring the Company:   (1) if the acquisition of the substitute option by the Optionee may be treated as a purchase for purposes of Section 16(b) of the Exchange Act and the Optionee’s employment with the Company is terminated for any reason during the nine-month period beginning three months prior to the consummation of such business combination, then the Option (or option in substitution thereof) shall be exercisable to the extent set forth in the Award Notice and above in this Section 2.2 until and including the latest to occur of (i) the date determined pursuant to the then applicable subsection (b), (c), (d), (e) or (f) of this Section 2.2, (ii) the date which is seven months after the consummation of such business combination and (iii) the Expiration Date; or   (2) if the Optionee is restricted from disposing of a security (or security underlying a security) issued in connection with the Pooling Transaction and the purpose of such restriction is to ensure that the Pooling Transaction is accounted for as a pooling of interests (the “Pooling Restriction”) and the Optionee’s employment with the Company is terminated for any reason during the nine-month period beginning three months prior to the consummation of such business combination, then the Option (or option in substitution thereof) shall be exercisable to the extent set forth in the Award Notice and above in this Section 2.2 until and including the latest to occur of (i) the date determined pursuant to the then applicable subsection (b), (c), (d), (e) or (f) of this Section 2.2, (ii) the date which is one month after the date of expiration of the Pooling Restriction and (iii) the Expiration Date.   (h) Change in Control   (1) In the event of a Change in Control in connection with which the holders of Common Stock receive shares of common stock that are registered under Section 12 of the Exchange Act, this Option shall immediately become exercisable in full and there shall be substituted for each share of Common Stock available under this Option, the   2 -------------------------------------------------------------------------------- number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. In the event of any such substitution, the purchase price per share shall be appropriately adjusted by the Compensation Committee of the Board (the “Committee”) whose determination shall be final, binding and conclusive, such adjustments to be made without an increase in the aggregate purchase price or base price.   (2) In the event of any Change in Control other than a Change in Control in connection with which the holders of Common Stock receive shares of common stock that are registered under Section 12 of the Exchange Act, the Option shall immediately become exercisable in full and shall be surrendered to the Company by the Optionee, the Option shall immediately be cancelled by the Company, and the Optionee shall receive, within 10 days of the occurrence of a Change in Control, a cash payment from the Company in an amount equal to the number of shares of Common Stock then subject to the Option, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to Common Stockholders of the Company in the transaction whereby the Change in Control took place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the purchase price per share of Common Stock subject to the Option. The Company shall cooperate with the Optionee to assure that any cash payment in accordance with the foregoing is made in compliance with Section 16 of the Exchange Act and the rules and regulations thereunder.   (3) “Change in Control” shall mean:   (A) a sale or transfer of all or substantially all of the assets of the Company on a consolidated basis in any transaction or series of related transactions;   (B) any merger, consolidation or reorganization to which the Company is a party, except for a merger, consolidation or reorganization in which the Company is the surviving corporation and, after giving effect to such merger, consolidation or reorganization, the holders of the Company’s outstanding equity (on a fully diluted basis) immediately prior to the merger, consolidation or reorganization will own in the aggregate immediately following the merger, consolidation or reorganization the Company’s outstanding equity (on a fully diluted basis) either (i) having the ordinary voting power to elect a majority of the members of the Company’s board of directors to be elected by the holders of Common Stock and any other class which votes together with the Common Stock as a single class or (ii) representing at least 50% of the equity value of the Company as reasonably determined by the Board;   (C) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the holders of the Company’s equity, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened solicitation by any   3 -------------------------------------------------------------------------------- individual, entity or group (a “Person”) other than the Board, including any “person” within the meaning of Section 13(d) of the Exchange Act , for the purpose of opposing a solicitation by any other Person with respect to the election or removal of directors, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; or   (D) any Person acquires beneficial ownership of 30% or more of the outstanding equity of the Company generally entitled to vote on the election of directors.   2.3. Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (a) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and by accompanying such notice with payment therefore in full (or by arranging for such payment to the Company’s satisfaction) either (i) in cash, (ii) by delivery to the Company (either actual delivery or by attestation procedures established by the Company) of Mature Shares having an aggregate Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) by a combination of (i) and (ii), and (b) by executing such documents as the Company may reasonably request. The Company shall have sole discretion to disapprove of an election pursuant to any of clauses (ii) - (iv). Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Common Stock shall be delivered until the full purchase price therefore and any withholding taxes thereon, as described in Section 3.3, have been paid.   2.4. Termination of Option. (a) Subject to Section 2.2(g), in no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not earlier terminated pursuant to Sections 2.2 or 2.5 or exercised pursuant to Section 2.3, on the Expiration Date.   (b) In the event that rights to purchase all or a portion of the shares of Common Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company’s request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be; provided, however, that such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Common Stock hereunder, the Company shall, within 10 days of the Optionee’s delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance.   2.5. Termination of Option and Forfeiture of Option Gain. (a) If the Optionee:     (1) breaches any covenant concerning confidentiality or intellectual property or concerning noncompetition or nonsolicitation of clients,   4 --------------------------------------------------------------------------------   prospective clients or personnel of the Company and its affiliates to which the Optionee is or may become a party in the future; or     (2) is terminated for “Cause,” as defined in Section 4.3;   then, in addition to and without in any way limiting any remedies under any of the covenants described above in this Section 2.5(a) or otherwise and any other provable damages, the Option shall terminate automatically (if not previously terminated) on the date the Optionee commits such breach or is terminated for “Cause” and the Optionee shall pay the Company, within five business days of receipt by the Optionee of a written demand therefore, an amount in cash determined by multiplying the number of shares of Common Stock purchased pursuant to each exercise of the Option occurring within three months prior to the date the Optionee commits such breach or is terminated for “Cause” (without reduction for any shares of Common Stock delivered by the Optionee or withheld by the Company pursuant to Section 2.3 or Section 3.3) by the difference between (i) the Fair Market Value of a share of Common Stock on the date of such exercise and (ii) the purchase price per share of Common Stock set forth in the Award Notice.   (b) The Optionee may be released from the Optionee’s obligations under Section 2.5(a) only if and to the extent the Committee determines in its sole discretion that such a release is in the best interests of the Company.   (c) The Optionee agrees that by executing the Award Notice the Optionee authorizes the Company and its Subsidiaries to deduct any amount or amounts owed by the Optionee pursuant to Section 2.5(a) from any amounts payable by the Company or any Subsidiary to the Optionee, including, without limitation, any amount payable to the Optionee as salary, wages, vacation pay or bonus. This right of setoff shall not be an exclusive remedy and the Company’s or a Subsidiary’s election not to exercise this right of setoff with respect to any amount payable to the Optionee shall not constitute a waiver of this right of setoff with respect to any other amount payable to the Optionee or any other remedy.   3. Additional Terms and Conditions of Option.   3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing sentence, during the Optionee’s lifetime the Option is exercisable only by the Optionee or the Optionee’s Legal Representative. Except to the extent permitted by the second preceding sentence, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void.   3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any shares of Common Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act unless such purchase has been registered under the Securities Act and any   5 -------------------------------------------------------------------------------- applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in a form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of any purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable.   3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Common Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee.   (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company (either actual delivery or by attestation procedures established by the Company) of Mature Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to the Optionee upon exercise of the Option having an aggregate Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Company shall have sole discretion to disapprove of an election pursuant to any of clauses (2) - (5). Shares of Common Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Common Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full.   3.4. Tax Reporting and Payment Liability. The Company will assess its Required Tax Payments’ withholding and reporting requirements, in connection with the Option, including the grant, vesting or exercise of the Option or sale of shares acquired pursuant to such exercise. These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s actions with respect to Required Tax Payments, the Optionee hereby acknowledges and agrees that the ultimate liability for any and all Required Tax Payments is and remains his or her responsibility and liability and that the Company (i) makes no representations nor undertakings regarding treatment of any Required Tax Payments in   6 -------------------------------------------------------------------------------- connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option and the subsequent sale of shares acquired pursuant to such exercise; and (ii) does not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Optionee’s liability regarding Required Tax Payments.   3.5. Adjustment. In the event of any Common Stock split, reverse Common Stock split, Common Stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.   3.6. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, and such shares may not be delivered, unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent, approval or other action.   3.7. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered, subject to the conditions of this Article 3, one or more certificates representing the number of shares purchased against full payment therefore. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. Alternatively, in the Company’s sole discretion, the Company may transfer title or ownership of shares acquired upon exercise of the Option under the Company’s procedures through its transfer agent.   3.8. Option Confers No Rights as Common Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Common Stock subject to the Option until purchased and title or ownership of shares has been transferred to the Optionee under the Company’s procedures through its transfer agent. The Optionee shall not be considered a Common Stockholder of the Company with respect to any such shares not so purchased.   3.9. Acknowledgement and Waiver. By executing the Award Notice and accepting the grant of the Option evidenced by the Award Notice and this Agreement, the Optionee acknowledges that: (i) the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of Options, or benefits in lieu of   7 -------------------------------------------------------------------------------- Options even if Options have been granted repeatedly in the past; (ii) all decisions with respect to any such future grants will be at the sole discretion of the Company; (iii) the Optionee’s receipt of the Option shall not create a right to further employment with the Company and shall not interfere with the ability of the Company to terminate the Optionee’s employment relationship at any time with or without cause; (iv) the Option is not part of normal or expected compensation or salary for any purposes, including but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (v) the future value of the underlying shares is unknown and cannot be predicted with certainty; (vi) if the Optionee exercises his or her Option and obtains shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the option price; (vii) if the underlying shares do not increase in value, the Option will have no value; and (x) no claim or entitlement to compensation or damages arises from termination of the Options or diminution in value of the Option or shares of Common Stock purchased through exercise of the Option and the Optionee irrevocably releases the Company and its Affiliates from any such claim that may arise.   3.10. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding this Agreement shall be final, binding and conclusive.   3.11. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Common Stock, the full number of shares of Common Stock subject to the Option from time to time.   4. Miscellaneous Provisions.   4.1. Employment Letter. In the event of a conflict between the provisions of this Agreement and the provisions of the employment letter entered into by the Optionee and the Company on March 17, 2005 (the “Employment Letter”), the Employment Letter shall control.   4.2. Designation as Non-Statutory Common Stock Option. The Option is hereby designated as not constituting an Incentive Common Stock Option. This Agreement shall be interpreted and treated consistently with such designation.   4.3. Meaning of Certain Terms. (a) As used herein, employment by the Company shall include employment by a subsidiary of the Company.   (b) As used herein, the following terms shall have the meanings set forth below:   “Board” shall mean the Board of Directors of the Company.   “Cause” shall mean the occurrence, failure to cause the occurrence or failure to cure after the occurrence (when a cure is permitted), as the case may be, of any of the following circumstances after the Optionee’s receipt of written notification from the General Counsel which includes a detailed description of the claimed circumstance: (i) the Optionee’s embezzlement, misappropriation of corporate funds, or the Optionee’s   8 -------------------------------------------------------------------------------- material acts of dishonesty; (ii) the Optionee’s commission or conviction of any felony or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendre to any felony or misdemeanor involving moral turpitude; (iii) the Optionee’s engagement, without a reasonable belief that his action was in the best interests of the Company, in any activity that could harm the business or reputation of the Company in a material manner; (iv) the Optionee’s willful failure to adhere to the Company’s material corporate codes, policies or procedures that have been communicated to him; (v) the Optionee’s material breach of any provision of the Managing Director Agreement or the Employment Letter, as defined in Section 4.1; or (vi) the Optionee’s violation of any statutory or common law duty or obligation to the Company, including, without limitation, the duty of loyalty, provided, however, that in the case of subsections (iii), (iv), (v) and (vi), the Company shall provide the Optionee with the opportunity to cure any Cause event during the 15-day period after his receipt of written notice describing the Cause event, provided, however, that a Cause event shall be considered to be cured only if all adverse consequences of the Cause event have been fully remedied.   “Code” shall mean the Internal Revenue Code of 1986, as amended.   “Disability” shall mean the inability of the Optionee to perform substantially his duties and responsibilities for a continuous period of at least six months, as determined solely by the Committee.   “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.   “Fair Market Value” shall mean the last sale price of a share of Common Stock as reported on the New York Stock Exchange on the date as of which such value is being determined or, if there shall be no reported transactions on such date, on the next preceding date for which a transaction was reported; provided, however, that if the Common Stock is not traded on the New York Stock Exchange, Fair Market Value may be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate.   “Good Reason” shall mean the occurrence or failure to cause the occurrence, as the case may be, without the Optionee’s express written consent, of any of the following circumstances for more than 15 days after receipt by the General Counsel of the Company of the Optionee’s written notification and description of the claimed circumstance: (i) any adverse change in the Optionee’s then positions, titles or reporting obligations, or a material diminution of the Optionee’s duties, responsibilities or authority (including, without limitation, a failure to elect the Optionee, or nominate the Optionee for re-election, to the Board) or the assignment to the Optionee of duties or responsibilities that are materially adversely inconsistent with the Optionee’s position, (ii) a relocation of the Company’s principal executive office to any location outside the continental United States or a relocation of the Optionee’s office away from the Company’s principal executive office, (iii) any material breach by the Company of any provision of the Employment Letter or the Managing Director Agreement or Special Termination Agreement, or (iv) the failure of any successor to the Company (whether direct or indirect and whether by merger, acquisition, consolidation or otherwise) to   9 -------------------------------------------------------------------------------- assume in a writing delivered to the Optionee upon the successor becoming such, the obligations of the Company under the Employment Letter, provided, however, that this clause shall not apply if the transaction results in the successor becoming legally required to fulfill the obligations of the Company under the Employment Letter, whether by operation of law or otherwise.   “Legal Representative” shall include an executor, administrator, legal representative, guardian or similar person.   “Managing Director Agreement” shall mean the Managing Director Agreement entered into by the Optionee and the Company on March 17, 2005.   “Mature Shares” shall mean previously-acquired shares of Common Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and which such holder either (i) has held for at least six months or (ii) has purchased on the open market.   “Permitted Transferee” shall include any transferee designated as the Optionee’s beneficiary in the event of the Optionee’s death pursuant to beneficiary designation procedures approved by the Company.   “Retirement” shall mean the date as of which the Optionee’s age and service with the Company and its affiliates equals or exceed 70 years (using whole years and full calendar months).   “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.   “Special Termination Agreement” shall mean the special termination agreement entered into by the Optionee and the Company on March 17, 2005.   “Subsidiary” shall mean any subsidiary corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, as described in Section 424(f) of the Code.   “Tax Date” shall mean the date the obligation to withhold or pay taxes arises in connection with the Option.   4.4. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement.   4.5. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, (a) with respect to any exercise notices or administrative notices, to BearingPoint, Inc., c/o Morgan Stanley, Stock Plan Administration, Harborside Financial Center, Plaza Three, 1st Floor, Jersey City, NJ 07311, and (b) with respect to all other notices, to BearingPoint, Inc., c/o General Counsel, 1676 International Drive, McLean, VA 22101, and if to the Optionee, to the last known mailing address of the Optionee   10 -------------------------------------------------------------------------------- contained in the records of the Company. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication sent to the Company is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company.   4.6. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the Code or the laws of the United States, shall be governed by the laws of the Commonwealth of Virginia and construed in accordance therewith without giving effect to principles of conflicts of laws.   11

  Exhibit 10.1 COMMON STOCK PURCHASE AGREEMENT Dated August 21, 2006 by and between PHARMACYCLICS, INC. and AZIMUTH OPPORTUNITY LTD. --------------------------------------------------------------------------------   TABLE OF CONTENTS               Page   Article I PURCHASE AND SALE OF COMMON STOCK     1   Section 1.1    Purchase and Sale of Stock     1   Section 1.2    Effective Date; Settlement Dates     1   Section 1.3    The Shares     2   Section 1.4    Current Report; Prospectus Supplement     2             Article II FIXED REQUEST TERMS; OPTIONAL AMOUNT     2   Section 2.1    Fixed Request Notice     2   Section 2.2    Fixed Requests     3   Section 2.3    Share Calculation     4   Section 2.4    Limitation of Fixed Requests     4   Section 2.5    Reduction of Commitment     4   Section 2.6    Below Threshold Price     5   Section 2.7    Settlement     5   Section 2.8    Reduction of Pricing Period     5   Section 2.9    Optional Amount     6   Section 2.10    Calculation of Optional Amount Shares     6   Section 2.11    Exercise of Optional Amount     7   Section 2.12    Aggregate Limit     7             Article III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR     8   Section 3.1    Organization and Standing of the Investor     8   Section 3.2    Authorization and Power     8   Section 3.3    No Conflicts     8   Section 3.4    Information     8             Article IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY     9   Section 4.1    Organization, Good Standing and Power     9   Section 4.2    Authorization, Enforcement     9   Section 4.3    Capitalization     9   Section 4.4    Issuance of Shares     10   Section 4.5    No Conflicts     10   Section 4.6    Commission Documents, Financial Statements     11   Section 4.7    Subsidiaries     12   Section 4.8    No Material Adverse Effect     12   Section 4.9    Indebtedness     12   Section 4.10    Title To Assets     13   Section 4.11    Actions Pending     13   Section 4.12    Compliance With Law     13   Section 4.13    Certain Fees     13   Section 4.14    Operation of Business     14   i --------------------------------------------------------------------------------                 Page   Section 4.15    Environmental Compliance     16   Section 4.16   Material Agreements     16   Section 4.17   Transactions With Affiliates     17   Section 4.18   Securities Act     17   Section 4.19   Employees     19   Section 4.20   Use of Proceeds     19   Section 4.21   Public Utility Holding Company Act and Investment Company Act Status     19   Section 4.22   ERISA     19   Section 4.23   Taxes     19   Section 4.24   Insurance     20   Section 4.25    Acknowledgement Regarding Investor’s Purchase of Shares     20             Article V COVENANTS     20   Section 5.1    Securities Compliance; NASD Filing     20   Section 5.2   Registration and Listing     21   Section 5.3   Compliance with Laws     21   Section 5.4   Keeping of Records and Books of Account; Foreign Corrupt Practices Act     22   Section 5.5   Limitations on Holdings and Issuances     22   Section 5.6   Other Agreements and Other Financings     23   Section 5.7   Stop Orders     24   Section 5.8   Amendments to the Registration Statement; Prospectus Supplements; Free Writing Prospectuses     24   Section 5.9   Prospectus Delivery     25   Section 5.10    Selling Restrictions     26   Section 5.11   Effective Registration Statement     26   Section 5.12    Non-Public Information     27   Section 5.13    Broker/Dealer     27   Section 5.14    Update of Disclosure Schedule     27             Article VI OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES     27   Section 6.1    Opinion of Counsel and Certificate     27   Section 6.2    Conditions Precedent to the Obligation of the Company     27   Section 6.3   Conditions Precedent to the Obligation of the Investor     29             Article VII TERMINATION     31   Section 7.1    Term, Termination by Mutual Consent     31   Section 7.2   Other Termination     32   Section 7.3    Effect of Termination     32             Article VIII INDEMNIFICATION     32   Section 8.1    General Indemnity     32   Section 8.2   Indemnification Procedures     34             Article IX MISCELLANEOUS     36   Section 9.1    Fees and Expenses     36   Section 9.2   Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial     36   ii --------------------------------------------------------------------------------                 Page   Section 9.3    Entire Agreement; Amendment     37   Section 9.4    Notices     37   Section 9.5    Waivers     38   Section 9.6    Headings     38   Section 9.7    Successors and Assigns     38   Section 9.8    Governing Law     39   Section 9.9    Survival     39   Section 9.10    Counterparts     39   Section 9.11    Publicity     39   Section 9.12    Severability     39   Section 9.13    Further Assurances     39             Annex A. Definitions         iii --------------------------------------------------------------------------------   COMMON STOCK PURCHASE AGREEMENT      This COMMON STOCK PURCHASE AGREEMENT, made and entered into on this 21st day of August 2006 (this “Agreement”), by and between Azimuth Opportunity Ltd., an international business company incorporated under the laws of the British Virgin Islands (the “Investor”), and Pharmacyclics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”). RECITALS      WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company may issue and sell to the Investor and the Investor shall thereupon purchase from the Company up to $20,000,000 worth of newly issued shares of the Company’s common stock, $.0001 par value (“Common Stock”), subject, in all cases, to the Trading Market Limit;      WHEREAS, the offer and sale of the shares of Common Stock hereunder have been registered by the Company in the Registration Statement, which has been declared effective by order of the Commission under the Securities Act;      NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF COMMON STOCK      Section 1.1 Purchase and Sale of Stock. Upon the terms and subject to the conditions of this Agreement, during the Investment Period the Company in its discretion may issue and sell to the Investor up to $20,000,000 (the “Total Commitment”) worth of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock (subject in all cases to the Trading Market Limit, the “Aggregate Limit”), by (i) the delivery to the Investor of not more than 24 separate Fixed Request Notices (unless the Investor and the Company mutually agree that a different number of Fixed Request Notices may be delivered) as provided in Article II hereof and (ii) the exercise by the Investor of Optional Amounts, which the Company may in its discretion grant to the Investor and which may be exercised by the Investor, in whole or in part, as provided in Article II hereof. The aggregate of all Fixed Request Amounts and Optional Amount Dollar Amounts shall not exceed the Aggregate Limit.      Section 1.2 Effective Date; Settlement Dates. This Agreement shall become effective and binding upon delivery of counterpart signature pages of this Agreement executed by each of the parties hereto, and by delivery of an opinion of counsel and a certificate of the Company as provided in Section 6.1 hereof, to the offices of Greenberg Traurig, LLP, 200 Park Avenue, New York, New York 10166, at l0:00 a.m., New York time, on the Effective Date. In consideration of and in express reliance upon the representations, warranties and covenants, and otherwise upon the terms and subject to the conditions, of this Agreement, from and after the Effective Date and during the Investment Period (i) the Company shall issue and sell to the Investor, and the Investor agrees to purchase from the Company, the Shares in respect of each Fixed Request and (ii) the Investor may in its discretion elect to purchase Shares in respect of --------------------------------------------------------------------------------   each Optional Amount. The issuance and sale of Shares to the Investor pursuant to any Fixed Request or Optional Amount shall occur on the applicable Settlement Date in accordance with Sections 2.7 and 2.9 (or on such Trading Day in accordance with Section 2.8, as applicable), provided in each case that all of the conditions precedent thereto set forth in Article VI theretofore shall have been fulfilled or (to the extent permitted by applicable law) waived.      Section 1.3 The Shares. The Company has duly authorized and reserved for issuance, and covenants to continue to reserve for issuance, free of all preemptive and other similar rights, at all times during the Investment Period, the requisite aggregate number of authorized but unissued shares of its Common Stock to timely effect the issuance, sale and delivery in full to the Investor of all Shares to be issued in respect of all Fixed Requests and Optional Amounts under this Agreement.      Section 1.4 Current Report; Prospectus Supplement. Within four business days after the Effective Date, the Company shall file with the Commission a report on Form 8-K relating to the transactions contemplated by, and briefly describing the material terms and conditions of, this Agreement and, to the extent not included in a Prospectus Supplement, disclosing all information relating to the transactions contemplated hereby required to be disclosed in the Registration Statement and the Base Prospectus (but which permissibly has been omitted therefrom in accordance with the Securities Act), including, without limitation, information required to be disclosed in the section captioned “Plan of Distribution” in the Base Prospectus (the “Current Report”). The Current Report may include a copy of this Agreement as an exhibit. To the extent applicable, the Current Report shall be incorporated by reference in the Registration Statement in accordance with the provisions of Rule 430B under the Securities Act. Prior to filing the Current Report with the Commission, the Company shall provide the Investor a reasonable opportunity to comment on a draft of such Current Report and shall give due consideration to such comments.      If required under the Securities Act, the Company shall file a final Base Prospectus pursuant to Rule 424(b) under the Securities Act on or prior to the first Fixed Request Exercise Date. Pursuant to Section 5.9 and subject to the provisions of Section 5.8, on the first Trading Day immediately following the end of each Pricing Period, the Company shall file with the Commission a Prospectus Supplement disclosing the number of Shares to be issued and sold to the Investor thereunder, the total purchase price therefor and the net proceeds to be received by the Company therefrom and, to the extent required by the Securities Act, identifying the Current Report. ARTICLE II FIXED REQUEST TERMS; OPTIONAL AMOUNT      Subject to the satisfaction of the conditions set forth in this Agreement, the parties agree (unless otherwise mutually agreed upon by the parties in writing) as follows:      Section 2.1 Fixed Request Notice. Upon three Trading Days’ prior written notice to the Investor, the Company may, from time to time in its sole discretion, provide a notice to the Investor of a Fixed Request before 9:30 a.m. (New York time) on the first Trading Day of the Pricing Period (the “Fixed Request Notice”), substantially in the form attached hereto as Exhibit 2 --------------------------------------------------------------------------------   A. The Fixed Request Notice shall specify the Fixed Amount Requested, establish the Threshold Price for such Fixed Request, designate the first Trading Day of the Pricing Period and specify the Optional Amount, if any, that the Company elects to grant to the Investor during the Pricing Period and the applicable Threshold Price for such Optional Amount (the “Optional Amount Threshold Price”). The Threshold Price and the Optional Amount Threshold Price established by the Company in a Fixed Request Notice may be the same or different, in the Company’s sole discretion. Upon the terms and subject to the conditions of this Agreement, the Investor is obligated to accept each Fixed Request Notice prepared and delivered in accordance with the provisions of this Agreement.      Section 2.2 Fixed Requests. From time to time during the Investment Period, the Company may in its sole discretion deliver to the Investor a Fixed Request Notice for a specified Fixed Amount Requested, and the applicable discount price (the “Discount Price”) shall be determined, in accordance with the price and share amount parameters as set forth below or such other parameters mutually agreed upon by the Investor and the Company, and upon the terms and subject to the conditions of this Agreement, the Investor shall purchase from the Company the Shares subject to such Fixed Request Notice; provided, however, that the Company may not deliver any single Fixed Request Notice for a Fixed Amount Requested in excess of the lesser of: (i) the amount in the applicable Fixed Amount Requested column below and (ii) 2.5% of the Market Capitalization:           Threshold Price   Fixed Amount Requested   Discount Price Equal to or greater than $15.00   Not to exceed $3,750,000   95.00% of the VWAP Equal to or greater than $14.00 and less than $15.00   Not to exceed $3,500,000   94.90% of the VWAP Equal to or greater than $13.00 and less than $14.00   Not to exceed $3,250,000   94.80% of the VWAP Equal to or greater than $12.00 and less than $13.00   Not to exceed $3,000,000   94.70% of the VWAP Equal to or greater than $11.00 and less than $12.00   Not to exceed $2,750,000   94.60% of the VWAP Equal to or greater than $10.00 and less than $11.00   Not to exceed $2,500,000   94.50% of the VWAP Equal to or greater than $9.00 and less than $10.00   Not to exceed $2,250,000   94.40% of the VWAP Equal to or greater than $8.00 and less than $9.00   Not to exceed $2,000,000   94.30% of the VWAP Equal to or greater than $7.00 and less than $8.00   Not to exceed $1,750,000   94.20% of the VWAP Equal to or greater than $6.00 and less than $7.00   Not to exceed $1,500,000   94.10% of the VWAP Equal to or greater than $5.00 and less than $6.00   Not to exceed $1,250,000   94.00% of the VWAP Equal to or greater than $4.50 and less than $5.00   Not to exceed $1,000,000   93.75% of the VWAP Equal to or greater than $4.00 and less than $4.50   Not to exceed $750,000   93.50% of the VWAP 3 --------------------------------------------------------------------------------             Threshold Price   Fixed Amount Requested   Discount Price Equal to or greater than $3.50 and less than $4.00   Not to exceed $625,000   93.25% of the VWAP Equal to or greater than $3.00 and less than $3.50   Not to exceed $500,000   93.00% of the VWAP      Anything to the contrary in this Agreement notwithstanding, at no time shall the Investor be required to purchase more than $3,750,000 worth of Common Stock in respect of any Pricing Period (not including Common Stock subject to any Optional Amount). The date on which the Company delivers any Fixed Request Notice in accordance with this Section 2.2 hereinafter shall be referred to as a “Fixed Request Exercise Date”.      Section 2.3 Share Calculation. Subject to Section 2.6, the number of Shares to be issued by the Company to the Investor pursuant to a Fixed Request shall equal the aggregate sum of each quotient (calculated for each Trading Day during the applicable Pricing Period for which the VWAP equals or exceeds the Threshold Price) determined pursuant to the following equation (rounded to the nearest whole Share):                                       N   =   (A x B)/C, where:     N  =  the number of Shares to be issued by the Company to the Investor in respect of a Trading Day during the applicable Pricing Period for which the VWAP equals or exceeds the Threshold Price,   A  =  0.10 (the “Multiplier”); provided, however, that if the number of Trading Days constituting a Pricing Period is decreased as set forth in Section 2.8 hereof, then the Multiplier correspondingly shall be increased to equal the decimal equivalent (in 10-millionths) of a fraction, the numerator of which is one and the denominator of which equals the number of Trading Days in the Pricing Period as so decreased,   B  =  the Fixed Amount Requested, and   C  =  the applicable Discount Price.      Section 2.4 Limitation of Fixed Requests. The Company shall not make more than one Fixed Request in each Pricing Period. Not less than five Trading Days shall elapse between the end of one Pricing Period and the commencement of any other Pricing Period during the Investment Period. There shall be permitted a maximum of 24 Fixed Requests during the Investment Period. Each Fixed Request automatically shall expire immediately following the last Trading Day of each Pricing Period.      Section 2.5 Reduction of Commitment. On the last Trading Day of each Pricing Period, the Investor’s Total Commitment under this Agreement automatically (and without the need for any amendment to this Agreement) shall be reduced, on a dollar-for-dollar basis, by the total amount of the Fixed Request Amount and the Optional Amount Dollar Amount, if any, for such Pricing Period. 4 --------------------------------------------------------------------------------        Section 2.6 Below Threshold Price. If the VWAP on any Trading Day in a Pricing Period is lower than the Threshold Price, then for each such Trading Day the total amount of the Fixed Amount Requested shall be reduced, on a dollar-for-dollar basis, by an amount equal to the product of (x) the Multiplier and (y) the original Fixed Amount Requested, and no Shares shall be purchased or sold with respect to such Trading Day, except as provided below. If trading in the Common Stock on NASDAQ (or any national securities exchange on which the Common Stock is then listed) is suspended for any reason for more than three hours on any Trading Day, the Investor may at its option deem the price of the Common Stock to be lower than the Threshold Price for such Trading Day and, for each such Trading Day, the total amount of the Fixed Amount Requested shall be reduced as provided in the immediately preceding sentence, and no Shares shall be purchased or sold with respect to such Trading Day, except as provided below. For each Trading Day during a Pricing Period on which the VWAP is (or is deemed to be) lower than the Threshold Price, the Investor may in its sole discretion elect to purchase such U.S. dollar amount of Shares equal to the amount by which the Fixed Amount Requested has been reduced in accordance with this Section 2.6, at the Threshold Price multiplied by the applicable percentage determined in accordance with the price and share amount parameters set forth in Section 2.2. The Investor shall inform the Company via facsimile transmission not later than 8:00 p.m. (New York time) on the last Trading Day of such Pricing Period as to the number of Shares, if any, the Investor elects to purchase as provided in this Section 2.6.      Section 2.7 Settlement. The payment for, against simultaneous delivery of, Shares in respect of each Fixed Request shall be settled on the second Trading Day next following the last Trading Day of each Pricing Period (the “Settlement Date”). On each Settlement Date, the Company shall deliver the Shares purchased by the Investor to the Investor or its designees via DTC’s Deposit Withdrawal Agent Commission (DWAC) system, against simultaneous payment therefor to the Company’s designated account by wire transfer of immediately available funds, provided that if the Shares are received by the Investor later than 1:00 p.m. (New York time), payment therefor shall be made with next day funds. As set forth in Section 9.1(ii), a failure by the Company to deliver such Shares shall result in the payment of liquidated damages by the Company to the Investor.      Section 2.8 Reduction of Pricing Period. If during a Pricing Period the Company elects to reduce the number of Trading Days in such Pricing Period (and thereby amend its previously delivered Fixed Request Notice), the Company shall so notify the Investor before 9:00 a.m. (New York time) on any Trading Day during a Pricing Period (a “Reduction Notice”) and the last Trading Day of such Pricing Period shall be the Trading Day immediately preceding the Trading Day on which the Investor received such Reduction Notice; provided, however, that if the Company delivers the Reduction Notice later than 9:00 a.m. (New York time) on a Trading Day during a Pricing Period, then the last Trading Day of such Pricing Period instead shall be the Trading Day on which the Investor received such Reduction Notice.      Upon receipt of a Reduction Notice, the Investor (i) shall purchase the Shares in respect of each Trading Day in such reduced Pricing Period for which the VWAP equals or exceeds the Threshold Price in accordance with Section 2.3 hereof; (ii) may elect to purchase the Shares in respect of any Trading Day in such reduced Pricing Period for which the VWAP is (or is deemed to be) lower than the Threshold Price in accordance with Section 2.6 hereof; and (iii) may elect 5 --------------------------------------------------------------------------------   to exercise all or any portion of an Optional Amount on any Trading Day during such reduced Pricing Period in accordance with Sections 2.10 and 2.11 hereof.      In addition, upon receipt of a Reduction Notice, the Investor may elect to purchase such U.S. dollar amount of additional Shares equal to the quotient determined pursuant to the following equation:                                                       D   =   A x 1/B x (B – C), where: D   =  the U.S. dollar amount of additional Shares to be purchased,   A   =  the Fixed Amount Requested,   B   =  10 or, for purposes of this Section 2.8, such lesser number of Trading Days as the parties may mutually agree to, and   C   =  the number of Trading Days in the reduced Pricing Period, at a per Share price equal to (x) the Fixed Amount Requested attributable to the reduced Pricing Period divided by (y) the number of Shares to be purchased during such reduced Pricing Period pursuant to clause (i) of the immediately preceding paragraph.      The Investor may also elect to exercise any portion of the applicable Optional Amount which was unexercised during the reduced Pricing Period by issuing an Optional Amount Notice to the Company not later than 10:00 a.m. (New York time) on the first Trading Day next following the last Trading Day of the reduced Pricing Period. The number of Shares to be issued upon exercise of such Optional Amount shall be calculated pursuant to the equation set forth in Section 2.10 hereof, except that “C” shall equal the greater of (i) the VWAP for the Common Stock on the last Trading Day of the reduced Pricing Period or (ii) the Optional Amount Threshold Price.      The payment for, against simultaneous delivery of, Shares to be purchased and sold in accordance with this Section 2.8 shall be settled on the second Trading Day next following the Trading Day on which the Investor receives a Reduction Notice.      Section 2.9 Optional Amount. With respect to any Pricing Period, the Company may in its sole discretion grant to the Investor the right to exercise, from time to time during the Pricing Period (but not more than once on any Trading Day), all or any portion of an Optional Amount. The maximum Optional Amount Dollar Amount and the Optional Amount Threshold Price shall be set forth in the Fixed Request Notice. Each daily Optional Amount exercise shall be aggregated during the Pricing Period and settled on the next Settlement Date. The Optional Amount Threshold Price designated by the Company in its Fixed Request Notice shall apply to each Optional Amount during the applicable Pricing Period.      Section 2.10 Calculation of Optional Amount Shares. The number of shares of Common Stock to be issued in connection with the exercise of an Optional Amount shall be the quotient determined pursuant to the following equation (rounded to the nearest whole Share): 6 --------------------------------------------------------------------------------                                     O   =   A/(B x C), where: O   =  the number of shares of Common Stock to be issued in connection with such Optional Amount exercise, A   =  the Optional Amount Dollar Amount with respect to which the Investor has delivered an Optional Amount Notice, B   =  the applicable percentage determined in accordance with the price and shares amount parameters set forth in Section 2.2 (with the Optional Amount Threshold Price serving as the Threshold Price for such purposes), and C  =  the greater of (i) the VWAP for the Common Stock on the day the Investor delivers the Optional Amount Notice or (ii) the Optional Amount Threshold Price.      Section 2.11 Exercise of Optional Amount. If granted by the Company to the Investor with respect to a Pricing Period, all or any portion of the Optional Amount may be exercised by the Investor on any Trading Day during the Pricing Period, subject to the limitations set forth in Section 2.9. As a condition to each exercise of an Optional Amount pursuant to this Section 2.11, the Investor shall issue an Optional Amount Notice to the Company no later than 8:00 p.m. (New York time) on the day of such Optional Amount exercise. If the Investor does not exercise an Optional Amount in full by 8:00 p.m. (New York time) on the last Trading Day of the applicable Pricing Period, such unexercised portion of the Investor’s Optional Amount with respect to that Pricing Period automatically shall lapse and terminate.      Section 2.12 Aggregate Limit. Notwithstanding anything to the contrary contained in this Agreement, in no event may the Company issue a Fixed Request Notice or grant an Optional Amount to the extent that the sale of Shares pursuant thereto and pursuant to all prior Fixed Request Notices or Optional Amounts issued hereunder would cause the Company to sell or the Investor to purchase Shares which in the aggregate are in excess of the Aggregate Limit. If the Company issues a Fixed Request Notice or Optional Amount that otherwise would permit the Investor to purchase shares of Common Stock which would cause the aggregate purchases by Investor hereunder to exceed the Aggregate Limit, such Fixed Request Notice or Optional Amount shall be void ab initio to the extent of the amount by which the dollar value of shares or number of shares, as the case may be, of Common Stock otherwise issuable pursuant to such Fixed Request Notice or Optional Amount together with the dollar value of shares or number of shares, as the case may be, of all other Common Stock purchased by the Investor pursuant hereto would exceed the Aggregate Limit. The Company hereby represents, warrants and covenants that neither it nor any of its Subsidiaries (i) has effected any transaction or series of transactions, (ii) is a party to any pending transaction or series of transactions or (iii) shall enter into any contract, agreement, agreement-in-principle, arrangement or understanding with respect to, or shall effect, any Other Financing which, in any of such cases, would be integrated with the transactions contemplated by this Agreement for purposes of determining whether approval of the Company’s stockholders is required under any bylaw, listed securities maintenance standards or other rules of the Trading Market; provided, however, that the Company shall be permitted to take any action referred to in clause (iii) above if the Company has timely provided the Investor with an Integration Notice as provided in Section 5.6(ii) hereof. 7 --------------------------------------------------------------------------------   ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR      The Investor hereby makes the following representations and warranties to the Company:      Section 3.1 Organization and Standing of the Investor. The Investor is an international business company duly organized, validly existing and in good standing under the laws of the British Virgin Islands.      Section 3.2 Authorization and Power. The Investor has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to purchase the Shares in accordance with the terms hereof. The execution, delivery and performance of this Agreement by the Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and no further consent or authorization of the Investor, its Board of Directors or stockholders is required. This Agreement has been duly executed and delivered by the Investor. This Agreement constitutes a valid and binding obligation of the Investor enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.      Section 3.3 No Conflicts. The execution, delivery and performance by the Investor of this Agreement and the consummation by the Investor of the transactions contemplated herein do not and shall not (i) result in a violation of such Investor’s charter documents, bylaws or other applicable organizational instruments, (ii) conflict with, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Investor is a party or is bound, (iii) create or impose any lien, charge or encumbrance on any property of the Investor under any agreement or any commitment to which the Investor is party or under which the Investor is bound or under which any of its properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Investor or by which any of its properties or assets are bound or affected, except, in the case of clauses (ii), (iii) and (iv), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Investor to enter into and perform its obligations under this Agreement in any material respect. The Investor is not required under federal, state, local or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Shares in accordance with the terms hereof.      Section 3.4 Information. The Investor and its advisors have been furnished with all materials relating to the business, financial condition, management and operations of the Company and materials relating to the offer and sale of the Shares which have been requested by the Investor. The Investor and its advisors have been afforded the opportunity to ask questions 8 --------------------------------------------------------------------------------   of representatives of the Company. The Investor has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Shares. The Investor understands that it (and not the Company) shall be responsible for its own tax liabilities that may arise as a result of this investment or the transactions contemplated by this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY      Except as set forth in the disclosure schedule delivered by the Company to the Investor (which is hereby incorporated by reference in, and constitutes an integral part of, this Agreement) (the “Disclosure Schedule”), the Company hereby makes the following representations and warranties to the Investor:      Section 4.1 Organization, Good Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. The Company and each such Subsidiary is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except for any jurisdiction in which the failure to be so qualified would not have a Material Adverse Effect.      Section 4.2 Authorization, Enforcement. The Company has the requisite corporate power and authority to enter into and perform this Agreement and to issue and sell the Shares in accordance with the terms hereof. Except for approvals of the Company’s Board of Directors or a committee thereof as may be required in connection with any issuance and sale of Shares to the Investor hereunder (which approvals shall be obtained prior to the delivery of any Fixed Request Notice), the execution, delivery and performance by the Company of this Agreement and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.      Section 4.3 Capitalization. The authorized capital stock of the Company and the shares thereof issued and outstanding as of the Effective Date are as set forth in the 2005 Form 10-K. All of the outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in the Commission Documents, as of the Effective Date, no shares of Common Stock were entitled to preemptive rights or registration rights and there were no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company. Except as set forth in the 9 --------------------------------------------------------------------------------   Commission Documents, there were no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into or exchangeable for any shares of capital stock of the Company. Except for customary transfer restrictions contained in agreements entered into by the Company to sell restricted securities or as set forth in the Commission Documents, as of the Effective Date, the Company was not a party to, and it had no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the Commission Documents, the offer and sale of all capital stock, convertible or exchangeable securities, rights, warrants or options of the Company issued prior to the Effective Date complied with all applicable federal and state securities laws, and no stockholder has any right of rescission or damages or any “put” or similar right with respect thereto which would have a Material Adverse Effect. The Company has furnished or made available to the Investor true and correct copies of the Company’s Certificate of Incorporation as in effect on the Effective Date (the “Charter”), and the Company’s Bylaws as in effect on the Effective Date (the “Bylaws”), and true and correct copies (redacted as appropriate) of all executed resolutions of the Company’s Board of Directors (and committees thereof) relating to the capital stock of the Company (and transactions in respect thereof) since December 31, 2004 (except with respect to issuances of shares of capital stock of the Company to directors or employees of the Company as fees or compensation that were duly approved by the Company’s Board of Directors or a committee thereof).      Section 4.4 Issuance of Shares. The Shares to be issued under this Agreement have been or will be duly authorized by all necessary corporate action and, when paid for or issued in accordance with the terms hereof, the Shares shall be validly issued and outstanding, fully paid and nonassessable, and the Investor shall be entitled to all rights accorded to a holder and beneficial owner of Common Stock.      Section 4.5 No Conflicts. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated herein do not and shall not (i) result in a violation of any provision of the Company’s Charter or Bylaws, (ii) conflict with, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company or any of its Significant Subsidiaries is a party or is bound (including, without limitation, any listing agreement with the Trading Market), (iii) create or impose a lien, charge or encumbrance on any property of the Company or any of its Significant Subsidiaries under any agreement or any commitment to which the Company or any of its Significant Subsidiaries is a party or under which the Company or any of its Significant Subsidiaries is bound or under which any of their respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries are bound or affected, except, in the case of clauses (ii), (iii) and (iv), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The Company is not required under federal, state, local or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, 10 --------------------------------------------------------------------------------   deliver or perform any of its obligations under this Agreement, or to issue and sell the Shares to the Investor in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the Commission, the National Association of Securities Dealers, Inc. (the “NASD”) or the Trading Market subsequent to the Effective Date, including but not limited to a Prospectus Supplement under Sections 1.4 and 5.9 of this Agreement, the NASD Filing under Section 5.1 of this Agreement and any registration statement, prospectus or prospectus supplement which has been or may be filed pursuant to this Agreement).      Section 4.6 Commission Documents, Financial Statements. (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except as disclosed in the Commission Documents, as of the Effective Date the Company had timely filed (giving effect to permissible extensions in accordance with Rule 12b-25 under the Exchange Act) all Commission Documents. The Company has delivered or made available to the Investor true and complete copies of the Commission Documents filed with the Commission prior to the Effective Date (including, without limitation, the 2005 Form 10-K) and has delivered or made available to the Investor true and complete copies of all of the Commission Documents heretofore incorporated by reference in the Registration Statement and the Prospectus. The Company has not provided to the Investor any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. As of its filing date, each Commission Document filed with the Commission and incorporated by reference in the Registration Statement and the Prospectus (including, without limitation, the 2005 Form 10-K) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and other federal, state and local laws, rules and regulations applicable to it, and, as of its filing date, such Commission Document did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Each Commission Document to be filed with the Commission after the Effective Date and incorporated by reference in the Registration Statement, the Prospectus and any Prospectus Supplement required to be filed pursuant to Sections 1.4 and 5.9 hereof during the Investment Period (including, without limitation, the Current Report), when such document becomes effective or is filed with the Commission, as the case may be, shall comply in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and other federal, state and local laws, rules and regulations applicable to it, and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.           (b) The financial statements, together with the related notes and schedules, of the Company included in the Commission Documents comply as to form in all material respects with all applicable accounting requirements and the published rules and regulations of the Commission and all other applicable rules and regulations with respect thereto. Such financial statements, together with the related notes and schedules, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial condition of the Company and 11 --------------------------------------------------------------------------------   its consolidated Subsidiaries as of 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).           (c) The Company has timely filed with the Commission and made available to the Investor all certifications and statements required by (x) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002 (“SOXA”)) with respect to all relevant Commission Documents. The Company is in compliance in all material respects with the provisions of SOXA applicable to it as of the date hereof. The Company maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act; such controls and procedures are effective to ensure that all material information concerning the Company and its Subsidiaries is made known on a timely basis to the individuals responsible for the timely and accurate preparation of the Company’s Commission filings and other public disclosure documents. As used in this Section 4.6(c), the term “file” shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the Commission.           (d) PricewaterhouseCoopers LLP, who have expressed their opinions on the audited financial statements and related schedules included or incorporated by reference in the Registration Statement and the Base Prospectus is, with respect to the Company, an independent registered public accounting firm as required by the rules of the Public Company Accounting Oversight Board.      Section 4.7 Subsidiaries. The 2005 Form 10-K sets forth each Subsidiary of the Company as of the Effective Date, showing its jurisdiction of incorporation or organization and the percentage of the Company’s ownership of the outstanding capital stock or other ownership interests of such Subsidiary, and the Company does not have any other Subsidiaries as of the Effective Date.      Section 4.8 No Material Adverse Effect. Since March 31, 2006 the Company has not experienced or suffered any Material Adverse Effect, and there exists no current state of facts, condition or event which would have a Material Adverse Effect, except (i) as disclosed in any Commission Documents filed since May 9, 2006 or (ii) continued losses from operations.      Section 4.9 Indebtedness. The Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2006 sets forth, as of March 31, 2006, all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments through such date. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $10,000,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements, indemnities and other contingent obligations in respect of Indebtedness of others in excess of $10,000,000, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $10,000,000 due under leases required to be capitalized in accordance with GAAP. There is no 12 --------------------------------------------------------------------------------   existing or continuing default or event of default in respect of any Indebtedness of the Company or any of its Subsidiaries.      Section 4.10 Title To Assets. Each of the Company and its Subsidiaries has good and marketable title to all of their respective real and personal property reflected in the Commission Documents, free of mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the Commission Documents or those that would not have a Material Adverse Effect. All real property leases of the Company are valid and subsisting and in full force and effect in all material respects.      Section 4.11 Actions Pending. There is no action, suit, claim, investigation or proceeding pending, or to the knowledge of the Company threatened, against the Company or any Subsidiary which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the Commission Documents, there is no action, suit, claim, investigation or proceeding pending, or to the knowledge of the Company threatened, against or involving the Company, any Subsidiary or any of their respective properties or assets, or involving any officers or directors of the Company or any of its Subsidiaries, including, without limitation, any securities class action lawsuit or stockholder derivative lawsuit, in each case which, if determined adversely to the Company, its Subsidiary or any officer or director of the Company or its Subsidiaries, would have a Material Adverse Effect.      Section 4.12 Compliance With Law. The business of the Company and the Subsidiaries has been and is presently being conducted in compliance with all applicable federal, state, local and foreign governmental laws, rules, regulations and ordinances, except as set forth in the Commission Documents and except for such non-compliance which, individually or in the aggregate, would not have a Material Adverse Effect.      Section 4.13 Certain Fees. Except for the placement fee payable by the Company to Reedland Capital Partners, an Institutional Division of the Financial West Group, Member NASD/SIPC (“Reedland”), which shall be set forth in a separate placement agency agreement between the Company and Reedland (a true and complete fully executed copy of which has heretofore been provided to the Investor), no brokers, finders or financial advisory fees or commissions shall be payable by the Company or any Subsidiary with respect to the transactions contemplated by this Agreement. Except as set forth in this Section 4.13 or as disclosed in Section 4.13 of the Disclosure Schedule or in the Registration Statement, the Prospectus or the Current Report, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company, the Investor or the Broker-Dealer for a brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated by this Agreement or, to the Company’s knowledge, any arrangements, agreements, understandings, payments or issuance with respect to the Company or any of its officers, directors, stockholders, partners, employees, Subsidiaries or affiliates that may affect the NASD’s determination of the amount of compensation to be received by any NASD member (including, without limitation, those NASD members set forth on Schedule 4.13 of the Disclosure Schedule) or person associated with any NASD member in connection with the transactions contemplated by this Agreement. Except as set forth in this Section 4.13 or as disclosed in Section 4.13 of the Disclosure Schedule or in the Registration Statement, the 13 --------------------------------------------------------------------------------   Prospectus or the Current Report, no “items of value” (within the meaning of Rule 2710 of the NASD’s Conduct Rules) have been received, and no arrangements have been entered into for the future receipt of any items of value, from the Company or any of its officers, directors, stockholders, partners, employees, Subsidiaries or affiliates by any NASD member (including, without limitation, those NASD members set forth on Schedule 4.13 of the Disclosure Schedule) or person associated with any NASD member, during the period commencing 180 days immediately preceding the Effective Date and ending on the date this Agreement is terminated in accordance with Article VII, that may affect the NASD’s determination of the amount of compensation to be received by any NASD member or person associated with any NASD member in connection with the transactions contemplated by this Agreement. The Company hereby acknowledges and agrees that the Investor may rely on the representations and warranties contained in this Section 4.13 and elsewhere in this Agreement in connection with its preparation of the NASD Filing.      Section 4.14 Operation of Business. (a) The Company or one or more of its Subsidiaries possesses such permits, licenses, approvals, consents and other authorizations (including licenses, accreditation and other similar documentation or approvals of any local health departments) (collectively, “Governmental Licenses”) issued by the appropriate federal, state, local or foreign regulatory agencies or bodies, including, without limitation, the United States Food and Drug Administration (“FDA”), necessary to conduct the business now operated by it, except where the failure to possess such Governmental Licenses, individually or in the aggregate, would not have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses and all applicable FDA rules and regulations, guidelines and policies, and all applicable rules and regulations, guidelines and policies of any governmental authority exercising authority comparable to that of the FDA (including any non-governmental authority whose approval or authorization is required under foreign law comparable to that administered by the FDA), except where the failure to so comply, individually or in the aggregate, would not have a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect, individually or in the aggregate, would not have a Material Adverse Effect. As to each product that is subject to FDA regulation or similar legal provisions in any foreign jurisdiction that is developed, manufactured, tested, packaged, labeled, marketed, sold, distributed and/or commercialized by the Company or any of its Subsidiaries, each such product is being developed, manufactured, tested, packaged, labeled, marketed, sold, distributed and/or commercialized in compliance with all applicable requirements of the FDA (and any non-governmental authority whose approval or authorization is required under foreign law comparable to that administered by the FDA), including, but not limited to, those relating to investigational use, investigational device exemption, premarket notification, premarket approval, good clinical practices, good manufacturing practices, record keeping, filing of reports, and patient privacy and medical record security, except where such non-compliance, individually or in the aggregate, would not have a Material Adverse Effect. As to each product or product candidate of the Company or any of its Subsidiaries subject to FDA regulation or similar legal provision in any foreign jurisdiction, all manufacturing facilities of the Company and its Subsidiaries are operated in compliance with the FDA’s Quality System Regulation requirements at 21 C.F.R. Part 820, as applicable, except where such non-compliance, individually or in the aggregate, would not have a Material Adverse Effect. Except as set forth in the Commission 14 --------------------------------------------------------------------------------   Documents or the Registration Statement, neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses or relating to a potential violation of, failure to comply with, or request to produce additional information under, any FDA rules and regulations, guidelines or policies which, if the subject of any unfavorable decision, ruling or finding, individually or in the aggregate, would have a Material Adverse Effect. Except as set forth in the Commission Documents or the Registration Statement, neither the Company nor any of its Subsidiaries has received any correspondence, notice or request from the FDA, including, without limitation, notice that any one or more products or product candidates of the Company or any of its Subsidiaries failed to receive approval from the FDA for use for any one or more indications, which correspondence, notice or request would have a Material Adverse Effect, and neither the Company nor any of its Subsidiaries knows of any basis therefor. This Section 4.14 does not relate to environmental matters, such items being the subject of Section 4.15.           (b) The Company or one or more of its Subsidiaries owns or possesses adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, trade dress, logos, copyrights and other intellectual property, including, without limitation, all of the intellectual property described in the Commission Documents as being owned or licensed by the Company (collectively, “Intellectual Property”), necessary to carry on the business now operated by it. Except as set forth in the Commission Documents, there are no actions, suits or judicial proceedings pending, or to the Company’s knowledge threatened, relating to patents or proprietary information to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is subject, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which could render any Intellectual Property invalid or inadequate to protect the interest of the Company and its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, individually or in the aggregate, would have a Material Adverse Effect.           (c) All pre-clinical and clinical trials conducted by the Company or any of its Subsidiaries or in which the Company or any of its Subsidiaries has participated that are described in the Registration Statement or the Commission Documents, or the results of which are referred to in the Registration Statement or the Commission Documents, if any, are the only pre-clinical and clinical trials currently being conducted by or on behalf of the Company and its Subsidiaries. All such pre-clinical and clinical trials conducted, supervised or monitored by the Company or any of its Subsidiaries have been conducted in compliance with all applicable federal, state, local and foreign laws, and the regulations and requirements of any applicable governmental entity, including, but not limited to, FDA good clinical practice and good laboratory practice requirements, except where such non-compliance would not have a Material Adverse Effect. Except as set forth in the Registration Statement or the Commission Documents, neither the Company nor any of its Subsidiaries has received any notices or correspondence from the FDA or any other governmental agency requiring the termination, suspension, delay or modification of any pre-clinical or clinical trials conducted by, or on behalf of, the Company or any of its Subsidiaries or in which the Company or any of its Subsidiaries has participated that 15 --------------------------------------------------------------------------------   are described in the Registration Statement or the Commission Documents, if any, or the results of which are referred to in the Registration Statement or the Commission Documents. All pre-clinical and clinical trials previously conducted by or on behalf of the Company or any of its Subsidiaries while conducted by or on behalf of the Company or any of its Subsidiaries, were conducted in compliance with all applicable federal, state, local and foreign laws, and the regulations and requirements of any applicable governmental entity, including, but not limited to, FDA good clinical practice and good laboratory practice requirements.      Section 4.15 Environmental Compliance. Except as disclosed in the Commission Documents, the Company and each of its Subsidiaries have obtained all material approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations of all governmental authorities, or from any other person, that are required under any Environmental Laws, except for any approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations the failure of which to obtain does not or would not have a Material Adverse Effect. “Environmental Laws” shall mean all applicable laws relating to the protection of the environment including, without limitation, all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous in nature. Except for such instances as would not, individually or in the aggregate, have a Material Adverse Effect, to the best of the Company’s knowledge, there are no past or present events, conditions, circumstances, incidents, actions or omissions relating to or in any way affecting the Company or its Subsidiaries that violate or could reasonably be expected to violate any Environmental Law after the Effective Date or that could reasonably be expected to give rise to any environmental liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or related to the manufacture, processing, distribution, use, treatment, storage (including without limitation underground storage tanks), disposal, transport or handling, or the emission, discharge, release or threatened release of any hazardous substance.      Section 4.16 Material Agreements. Except as set forth in the Commission Documents, neither the Company nor any Subsidiary of the Company is a party to any written or oral contract, instrument, agreement commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to an annual report on Form 10-K (collectively, “Material Agreements”). The Company and each of its Subsidiaries have performed in all material respects all the obligations required to be performed by them under the Material Agreements, have received no notice of default or an event of default by the Company or any of its Subsidiaries thereunder and are not aware of any basis for the assertion thereof, and neither the Company or any of its Subsidiaries nor, to the best knowledge of the Company, any other contracting party thereto are in default under any Material Agreement now in effect, the result of which would have a Material Adverse Effect. Each of the Material Agreements is in full force and effect, and constitutes a legal, valid and binding obligation enforceable in accordance with its terms against the Company and/or any of its Subsidiaries and, to the best knowledge of the Company, each other contracting party thereto, except as such 16 --------------------------------------------------------------------------------   enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.      Section 4.17 Transactions With Affiliates. Except as set forth in the Commission Documents, there are no loans, leases, agreements, contracts, royalty agreements, management contracts, service arrangements or other continuing transactions exceeding $120,000 between (a) the Company or any Subsidiary, on the one hand, and (b) any person or entity who would be covered by Item 404(a) of Regulation S-K, on the other hand. Except as disclosed in the Commission Documents, there are no outstanding amounts payable to or receivable from, or advances by the Company or any of its Subsidiaries to, and neither the Company nor any of its Subsidiaries is otherwise a creditor of or debtor to, any beneficial owner of more than 5% of the outstanding shares of Common Stock, or any director, employee or affiliate of the Company or any of its Subsidiaries, other than (i) reimbursement for reasonable expenses incurred on behalf of the Company or any of its Subsidiaries or (ii) as part of the normal and customary terms of such persons’ employment or service as a director with the Company or any of its Subsidiaries.      Section 4.18 Securities Act. The Company has complied with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares hereunder.           (i) The Company has prepared and filed with the Commission in accordance with the provisions of the Securities Act the Registration Statement, including the Base Prospectus, relating to the Shares. The Registration Statement was declared effective by order of the Commission on February 18, 2004. As of the date hereof, no stop order suspending the effectiveness of the Registration Statement has been issued by the Commission or is continuing in effect under the Securities Act and no proceedings therefor are pending before or, to the Company’s knowledge, threatened by the Commission. No order preventing or suspending the use of the Prospectus or any Permitted Free Writing Prospectus has been issued by the Commission.           (ii) The Company meets the requirements for the use of Form S-3 under the Securities Act. The Company has not received any notice from the Commission of any objection to the use of the form of the Registration Statement. The Registration Statement complied in all material respects on the date on which it was declared effective by the Commission and on the Effective Date of this Agreement, and will comply in all material respects on each applicable Fixed Request Exercise Date and on each applicable Settlement Date, with the requirements of the Securities Act and the Registration Statement (including the documents incorporated by reference therein) did not as of the Effective Date and shall not on each applicable Fixed Request Exercise Date and on each applicable Settlement Date contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus, in light of the circumstances under which they were made, not misleading; provided that this representation and warranty does not apply to statements in or omissions from the Registration Statement made in reliance upon and in conformity with information relating to the Investor furnished to the Company in writing by or on behalf of the Investor expressly for use therein. The Registration Statement, as of the Effective Date, meets the requirements set forth in Rule 415(a)(1)(x) under the Securities Act. 17 --------------------------------------------------------------------------------   The Base Prospectus complied in all material respects on its date and on the Effective Date, and will comply in all material respects on each applicable Fixed Request Exercise Date and on each applicable Settlement Date, with the requirements of the Securities Act and did not as of the Effective Date and shall not on each applicable Fixed Request Exercise Date and on each applicable Settlement Date contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation and warranty does not apply to statements in or omissions from the Base Prospectus made in reliance upon and in conformity with information relating to the Investor furnished to the Company in writing by or on behalf of the Investor expressly for use therein.           (iii) Each Prospectus Supplement required to be filed pursuant to Sections 1.4 and 5.9 hereof, when filed with the Commission under Rule 424(b) under the Securities Act and on the applicable Settlement Date, shall comply in all material respects with the provisions of the Securities Act and shall not when filed or on the Settlement Date contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, except that this representation and warranty does not apply to statements in or omissions from any Prospectus Supplement made in reliance upon and in conformity with information relating to the Investor or Reedland furnished to the Company in writing by or on behalf of the Investor or Reedland expressly for use therein.           (iv) At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) relating to the Shares, the Company was not and is not an Ineligible Issuer (as defined in Rule 405 under the Securities Act), without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an Ineligible Issuer. Each Issuer Free Writing Prospectus (a) shall conform in all material respects to the requirements of the Securities Act on the date of its first use, (b) when considered together with the Prospectus on each applicable Fixed Request Exercise Date and on each applicable Settlement Date, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and (c) shall not include any information that conflicts with the information contained in the Registration Statement, including any document incorporated by reference therein and any Prospectus Supplement deemed to be a part thereof that has not been superseded or modified. The immediately preceding sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus made in reliance upon and in conformity with information relating to the Investor or Reedland furnished to the Company in writing by or on behalf of the Investor or Reedland expressly for use therein.           (v) Prior to the Effective Date, the Company has not distributed any offering material in connection with the offering and sale of the Shares. From and after the Effective Date and prior to the completion of the distribution of the Shares, the Company shall not distribute any offering material in connection with the offering and sale of the Shares, other than the Registration Statement, the Base Prospectus as supplemented by any Prospectus Supplement or any Permitted Free Writing Prospectus. 18 --------------------------------------------------------------------------------        Section 4.19 Employees. As of the Effective Date, neither the Company nor any Subsidiary of the Company has any collective bargaining arrangements or agreements covering any of its employees, except as set forth in the Commission Documents. As of the Effective Date, except as disclosed in the Registration Statement or the Commission Documents, no officer, consultant or key employee of the Company or any Subsidiary whose termination, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any Subsidiary.      Section 4.20 Use of Proceeds. The proceeds from the sale of the Shares shall be used by the Company and its Subsidiaries as set forth in the Base Prospectus and any Prospectus Supplement filed pursuant to Sections 1.4 and 5.9.      Section 4.21 Public Utility Holding Company Act and Investment Company Act Status. The Company is not a “holding company” or a “public utility company” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of the consummation of the transactions contemplated by this Agreement and the application of the proceeds from the sale of the Shares as set forth in the Base Prospectus and any Prospectus Supplement shall not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.      Section 4.22 ERISA. No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any Plan by the Company or any of its Subsidiaries which has had or would have a Material Adverse Effect. No “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) or “accumulated funding deficiency” (as defined in Section 203 of ERISA) or any of the events set forth in Section 4043(b) of ERISA has occurred with respect to any Plan which has had or would have a Material Adverse Effect, and the execution and delivery of this Agreement and the issuance and sale of the Shares hereunder shall not result in any of the foregoing events. Each Plan is in compliance in all material respects with applicable law, including ERISA and the Code; the Company has not incurred and does not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any Plan; and each Plan for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualifications. As used in this Section 4.22, the term “Plan” shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any Subsidiary or by any trade or business, whether or not incorporated, which, together with the Company or any Subsidiary, is under common control, as described in Section 414(b) or (c) of the Code.      Section 4.23 Taxes. The Company (i) has filed all necessary federal, state and foreign income and franchise tax returns or has duly requested extensions thereof, except for those the failure of which to file would not have a Material Adverse Effect, (ii) has paid all federal, state, local and foreign taxes due and payable for which it is liable, except to the extent that any such taxes are being contested in good faith and by appropriate proceedings, except for such taxes the 19 --------------------------------------------------------------------------------   failure of which to pay would not have a Material Adverse Effect, and (iii) does not have any tax deficiency or claims outstanding or assessed or, to the best of the Company’s knowledge, proposed against it which would have a Material Adverse Effect.      Section 4.24 Insurance. The Company carries, or is covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its and its Subsidiaries’ businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries.      Section 4.25 Acknowledgement Regarding Investor’s Purchase of Shares. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereunder. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder, and any advice given by the Investor or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereunder is merely incidental to the Investor’s purchase of the Shares. ARTICLE V COVENANTS      The Company covenants with the Investor, and the Investor covenants with the Company, as follows, which covenants of one party are for the benefit of the other party, during the Investment Period:      Section 5.1 Securities Compliance; NASD Filing.           (i) The Company shall notify the Commission and the Trading Market, as applicable, in accordance with their respective rules and regulations, of the transactions contemplated by this Agreement, and shall take all necessary action, undertake all proceedings and obtain all registrations, permits, consents and approvals for the legal and valid issuance of the Shares to the Investor in accordance with the terms of this Agreement.           (ii) As promptly as practicable, the Investor shall prepare and, no later than 24 hours after the Effective Date, file with the NASD’s Corporate Financing Department via CobraDesk all documents and information required to be filed with the NASD pursuant to Rule 2710 of the NASD’s Conduct Rules with regard to the transactions contemplated by this Agreement (the “NASD Filing”). In connection therewith, on the Effective Date, the Company shall pay to the NASD by wire transfer of immediately available funds the applicable filing fee with respect to the NASD Filing, and the Company shall be solely responsible for payment of such fee. The Company hereby agrees to provide the Investor all requisite information and otherwise to assist the Investor in a timely fashion in order for the Investor to complete the preparation and submission of the NASD Filing in accordance with this Section 5.1(ii) and to promptly respond to any inquiries or requests from NASD or its staff. Each party hereto shall (A) promptly notify the other party of any communication to that party or its affiliates from the NASD, including, without limitation, any request from the NASD or its staff for amendments or supplements to or additional information in respect of the NASD Filing and permit the other 20 --------------------------------------------------------------------------------   party to review in advance any proposed written communication to the NASD and (B) furnish the other party with copies of all written correspondence, filings and communications between them and their affiliates and their respective representatives and advisors, on the one hand, and the NASD or members of its staff, on the other hand, with respect to this Agreement or the transactions contemplated hereby. Each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to obtain as promptly as practicable (but in no event later than 60 days after the Effective Date) written confirmation from the NASD to the effect that the NASD’s Corporate Financing Department has determined not to raise any objection with respect to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby; provided, however, that the Investor shall not be required to (x) disclose to the NASD or to any other governmental agency, person or entity any business, financial or other information that the Investor deems, in its sole and absolute discretion, to be proprietary, confidential or otherwise sensitive information, (y) amend, modify or change any of the terms or conditions of this Agreement or (z) otherwise take any other action, including, without limitation, modifying the Discount Price thresholds referred to in Section 2.2 or the amount of fees and commissions to be paid to the Broker-Dealer in connection with the transactions contemplated by this Agreement, in each case, in such a manner that would, in the Investor’s sole and absolute discretion, render the terms and conditions of this Agreement and the transactions contemplated hereby to be no longer advisable to the Investor. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be permitted to deliver any Fixed Request Notice to the Investor, and the Investor shall not be obligated to purchase any Shares pursuant to a Fixed Request Notice, unless and until the parties hereto shall have received written confirmation from the NASD to the effect that the NASD’s Corporate Financing Department has determined not to raise any objection with respect to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby.      Section 5.2 Registration and Listing. The Company shall take all action necessary to cause the Common Stock to continue to be registered as a class of securities under Sections 12(b) or 12(g) of the Exchange Act, shall comply with its reporting and filing obligations under the Exchange Act, and shall not take any action or file any document (whether or not permitted by the Securities Act) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The Company shall take all action necessary to continue the listing and trading of its Common Stock and the listing of the Shares purchased by Investor hereunder on the Trading Market, and shall comply with the Company’s reporting, filing and other obligations under the bylaws, listed securities maintenance standards and other rules of the Trading Market.      Section 5.3 Compliance with Laws.           (i) The Company shall comply, and cause each Subsidiary to comply, (a) with all laws, rules, regulations and orders applicable to the business and operations of the Company and its Subsidiaries except as would not have a Material Adverse Effect and (b) with all applicable provisions of the Securities Act, the Exchange Act, the rules and regulations of the NASD and the listing standards of the Trading Market. Without limiting the generality of the foregoing, neither the Company nor any of its officers, directors or affiliates has taken or will 21 --------------------------------------------------------------------------------   take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which would in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company.           (ii) The Investor shall comply with all laws, rules, regulations and orders applicable to the performance by it of its obligations under this Agreement and its investment in the Shares, except as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Investor to enter into and perform its obligations under this Agreement in any material respect. Without limiting the foregoing, the Investor shall comply with all applicable provisions of the Securities Act and the Exchange Act.      Section 5.4 Keeping of Records and Books of Account; Foreign Corrupt Practices Act.           (i) The Company shall keep and cause each Subsidiary to keep adequate records and books of account, in which complete entries shall be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its Subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. The Company shall maintain a system of internal accounting controls which are sufficient to provide reasonable assurance that (a) transactions are executed with management’s authorization; (b) transactions are recorded as necessary to permit preparation of the consolidated financial statements of the Company and to maintain accountability for the Company’s consolidated assets; (c) access to the Company’s assets is permitted only in accordance with management’s authorization; and (d) the reporting of the Company’s assets is compared with existing assets at regular intervals.           (ii) Neither the Company, nor any of its Subsidiaries, nor to the knowledge of the Company, any of their respective directors, officers, agents, employees or any other persons acting on their behalf shall, in connection with the operation of their respective businesses, (a) use any corporate funds for unlawful contributions, payments, gifts or entertainment or to make any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or organizations, (b) pay, accept or receive any unlawful contributions, payments, expenditures or gifts, or (c) violate or operate in noncompliance with any export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or foreign laws and regulations.           (iii) From time to time from and after the period beginning with the third Trading Day immediately preceding each Fixed Request Exercise Date through and including the applicable Settlement Date, the Company shall make available for inspection and review by the Investor, customary documentation allowing the Investor and/or its appointed counsel or advisors to conduct due diligence.      Section 5.5 Limitations on Holdings and Issuances. At no time during the term of this Agreement shall the Investor directly or indirectly own more than 9.9% of the then issued and outstanding shares of Common Stock. The Company shall not be obligated to issue and the 22 --------------------------------------------------------------------------------   Investor shall not be obligated to purchase any shares of Common Stock which would result in the issuance under this Agreement to the Investor at any time of Shares which, when aggregated with all other shares of Common Stock then owned beneficially by the Investor, would result in the beneficial ownership by the Investor of more than 9.9% of the then issued and outstanding shares of the Common Stock.      Section 5.6 Other Agreements and Other Financings.           (i) The Company shall not enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction in or of which the terms thereof would restrict, materially delay, conflict with or impair the ability or right of the Company or any Subsidiary to perform its obligations under this Agreement, including, without limitation, the obligation of the Company to deliver Shares to the Investor in respect of a Fixed Request on the applicable Settlement Date.           (ii) The Company shall notify the Investor, within 48 hours, if it enters into any agreement, plan, arrangement or transaction with a third party, the principal purpose of which is to obtain during a Pricing Period an Other Financing not constituting an Acceptable Financing (an “Other Financing Notice”); provided, however, that the Company shall notify the Investor immediately (an “Integration Notice”) if it enters into any agreement, plan, arrangement or transaction with a third party, the principal purpose of which is to obtain an Other Financing which would be integrated with the transactions contemplated by this Agreement for purposes of determining whether approval of the Company’s stockholders is required under any bylaw, listed securities maintenance standards or other rules of the Trading Market and, if required under applicable law, including, without limitation, Regulation FD promulgated by the Commission, or under the applicable rules and regulations of the Trading Market, the Company shall simultaneously publicly disclose such information in accordance with Regulation FD and the applicable rules and regulations of the Trading Market. For purposes of this Section 5.6(ii), any press release issued by, or Commission Document filed by, the Company shall constitute sufficient notice, provided that it is issued or filed, as the case may be, within the time requirements set forth in the first sentence of this Section 5.6(ii) for an Other Financing Notice or an Integration Notice, as applicable. During any Pricing Period in which the Company is required to provide notice pursuant to the first sentence of this Section 5.6(ii), the Investor shall (i) have the option to purchase the Shares subject to the Fixed Request at (x) the price therefor in accordance with the terms of this Agreement or (y) the third party’s price in connection with the Other Financing, net of such third party’s discounts, Warrant Value and fees, or (ii) the Investor may elect to not purchase any Shares subject to the Fixed Request for that Pricing Period. An “Other Financing” shall mean (x) the issuance of Common Stock or securities convertible into or exchangeable for Common Stock at a net discount (after all fees, discounts, Warrant Value and commissions associated with the transaction) to the then Current Market Price of the Common Stock; (y) the implementation by the Company of any mechanism in respect of any securities convertible into or exchangeable for Common Stock for the reset of the purchase price of the Common Stock to below the then Current Market Price of the Common Stock (including, without limitation, any antidilution or similar adjustment provisions in respect of any Company securities); or (z) the issuance of options, warrants or similar rights of subscription in each case not constituting an Acceptable Financing. “Acceptable Financing” shall mean the issuance by the Company of shares of Common Stock or securities convertible into or exchangeable for 23 --------------------------------------------------------------------------------   Common Stock in connection with awards under the Company’s benefit and equity plans and arrangements and the issuance of shares of Common Stock upon the conversion, exercise or exchange thereof, shares of Common Stock issuable upon the conversion or exchange of equity awards or convertible or exchangeable securities outstanding as of the Effective Date, shares of Common Stock and/or warrants or similar rights to subscribe for the purchase of shares of Common Stock in connection with asset or other acquisition, technology sharing, licensing, research and joint development agreements (or amendments thereto) with third parties, and the issuance of shares of Common Stock upon the exercise thereof, and warrants or similar rights to subscribe for the purchase of shares of Common Stock issued in connection with equipment financings and/or real property leases (or amendments thereto) and the issuance of shares of Common Stock upon the exercise thereof.      Section 5.7 Stop Orders. The Company shall advise the Investor immediately and shall confirm such advice in writing: (i) of the Company’s receipt of notice of any request by the Commission for amendment of or a supplement to the Registration Statement, the Prospectus, any Permitted Free Writing Prospectus or for any additional information; (ii) of the Company’s receipt of notice of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) of the Company becoming aware of the happening of any event, which makes any statement of a material fact made in the Prospectus or any Permitted Free Writing Prospectus untrue or which requires the making of any additions to or changes to the statements then made in the Prospectus or any Permitted Free Writing Prospectus in order to state a material fact required by the Securities Act to be stated therein or necessary in order to make the statements then made therein, in light of the circumstances under which they were made, not misleading, or of the necessity to amend the Registration Statement or supplement the Prospectus or any Permitted Free Writing Prospectus to comply with the Securities Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company shall use commercially reasonable efforts to obtain the withdrawal of such order at the earliest possible time. The Company shall also advise the Investor immediately and shall confirm such advice in writing of the Company becoming aware of the happening of any event, which makes any statement made in the NASD Filing untrue or which requires the making of any additions to or changes to the statements then made in the NASD Filing in order to comply with Rule 2710 of the NASD’s Conduct Rules.      Section 5.8 Amendments to the Registration Statement; Prospectus Supplements; Free Writing Prospectuses.           (i) Except as provided in this Agreement and other than periodic reports required to be filed pursuant to the Exchange Act, the Company shall not file with the Commission any amendment to the Registration Statement that relates to the Investor, the Agreement or the transactions contemplated hereby or file with the Commission any Prospectus Supplement that relates to the Investor, this Agreement or the transactions contemplated hereby with respect to which (a) the Investor shall not previously have been advised, (b) the Company shall not have given due consideration to any comments thereon received from the Investor or its counsel, or (c) the Investor shall reasonably object after being so advised, unless it is necessary to amend the Registration Statement or make any supplement to the Prospectus to comply with 24 --------------------------------------------------------------------------------   the Securities Act or any other applicable law or regulation, in which case the Company shall immediately so inform the Investor, the Investor shall be provided with a reasonable opportunity to review and comment upon any disclosure relating to the Investor and the Company shall expeditiously furnish to the Investor an electronic copy thereof. In addition, for so long as, in the reasonable opinion of counsel for the Investor, the Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) is required to be delivered in connection with any purchase of Shares by the Investor, the Company shall not file any Prospectus Supplement with respect to the Shares without delivering or making available a copy of such Prospectus Supplement, together with the Base Prospectus, to the Investor promptly.           (ii) The Company agrees that, unless it obtains the prior written consent of the Investor, it has not made and will not make an offer relating to the Shares that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a Free Writing Prospectus required to be filed by the Company or the Investor with the Commission or retained by the Company or the Investor under Rule 433 under the Securities Act. The Investor agrees that, unless it obtains the prior written consent of the Company, it has not made and will not make an offer relating to the Shares that would constitute a Free Writing Prospectus required to be filed by the Company with the Commission or retained by the Company under Rule 433 under the Securities Act. Any such Issuer Free Writing Prospectus or other Free Writing Prospectus consented to by the Investor or the Company is referred to in this Agreement as a “Permitted Free Writing Prospectus.” The Company agrees that (x) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has complied and will comply, as the case may be, with the requirements of Rules 164 and 433 under the Securities Act applicable to any Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping.      Section 5.9 Prospectus Delivery. The Company shall file with the Commission a Prospectus Supplement on the first Trading Day immediately following the end of each Pricing Period. The Company shall provide the Investor a reasonable opportunity to comment on a draft of each such Prospectus Supplement and any Issuer Free Writing Prospectus (and shall give due consideration to all such comments) and, subject to the provisions of Section 5.8 hereof, shall deliver or make available to the Investor, without charge, an electronic copy of each form of Prospectus Supplement, together with the Base Prospectus, and any Permitted Free Writing Prospectus on each applicable Settlement Date. The Company consents to the use of the Prospectus (and of any Prospectus Supplement thereto) in accordance with the provisions of the Securities Act and with the securities or “blue sky” laws of the jurisdictions in which the Shares may be sold by the Investor, in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) is required by the Securities Act to be delivered in connection with sales of the Shares. If during such period of time any event shall occur that in the judgment of the Company and its counsel is required to be set forth in the Prospectus or any Permitted Free Writing Prospectus or should be set forth therein in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus or any Permitted Free Writing Prospectus to comply with the Securities Act or any other applicable law or regulation, the Company shall forthwith prepare and, subject to Section 5.8 above, file with the Commission an appropriate Prospectus 25 --------------------------------------------------------------------------------   Supplement to the Prospectus (or supplement to the Permitted Free Writing Prospectus) and shall expeditiously furnish or make available to the Investor an electronic copy thereof.      Section 5.10 Selling Restrictions.           (i) The Investor covenants that from and after the date hereof through and including the 90th day next following the termination of this Agreement (the “Restricted Period”), neither the Investor nor any of its affiliates (within the meaning of the Exchange Act) nor any entity managed by the Investor shall, directly or indirectly, sell any securities of the Company, except the Shares that it owns or has the right to purchase as provided in a Fixed Request Notice. During the Restricted Period, neither the Investor or any of its affiliates nor any entity managed by the Investor shall sell any shares of Common Stock of the Company it does not “own” or have the unconditional right to receive under the terms of this Agreement (within the meaning of Rule 200 of Regulation SHO promulgated by the Commission under the Exchange Act), including Shares in any account of the Investor or in any account directly or indirectly managed by the Investor or any of its affiliates or any entity managed by the Investor. Without limiting the generality of the foregoing, prior to and during the Restricted Period, neither the Investor nor any of its affiliates nor any entity managed by the Investor or any of its affiliates shall enter into a short position with respect to shares of Common Stock of the Company, including in any account of the Investor’s or in any account directly or indirectly managed by the Investor or any of its Affiliates or any entity managed by the Investor, except that the Investor may sell Shares that it is obligated to purchase under a pending Fixed Request Notice but has not yet taken possession of so long as the Investor (or the Broker-Dealer, as applicable) covers any such sales with the Shares purchased pursuant to such Fixed Request Notice; provided, however, that the Investor (or the Broker-Dealer, as applicable) shall not be required to cover any such sales with the Shares purchased pursuant to such Fixed Request Notice if (a) the Fixed Request is terminated by mutual agreement of the Company and the Investor and, as a result of such termination, no Shares are delivered to the Investor under this Agreement or (b) the Company otherwise fails to deliver such Shares to the Investor on the applicable Settlement Date upon the terms and subject to the provisions of this Agreement. Prior to and during the Restricted Period, the Investor shall not grant any option to purchase or acquire any right to dispose or otherwise dispose for value of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for, or warrants to purchase, any shares of Common Stock, or enter into any swap, hedge or other agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, except for such sales expressly permitted by this Section 5.10(i).           (ii) In addition to the foregoing, in connection with any sale of the Company’s securities (including any sale permitted by paragraph (i) above), the Investor shall comply in all respects with all applicable laws, rules, regulations and orders, including, without limitation, the requirements of the Securities Act and the Exchange Act.      Section 5.11 Effective Registration Statement. During the Investment Period, the Company shall use its best efforts to maintain the continuous effectiveness of the Registration Statement under the Securities Act. 26 --------------------------------------------------------------------------------        Section 5.12 Non-Public Information. Neither the Company nor any of its directors, officers or agents shall disclose any material non-public information about the Company to the Investor, unless a simultaneous public announcement thereof is made by the Company in the manner contemplated by Regulation FD.      Section 5.13 Broker/Dealer. The Investor shall use one or more broker-dealers to effectuate all sales, if any, of the Shares that it may purchase from the Company pursuant to this Agreement which (or whom) shall be unaffiliated with the Investor and not then currently engaged or used by the Company (collectively, the “Broker-Dealer”). The Investor will provide the Company with all information regarding the Broker-Dealer reasonably requested by the Company. The Investor shall be solely responsible for all fees and commissions of the Broker-Dealer.      Section 5.14 Update of Disclosure Schedule. During the Investment Period, the Company shall from time to time update the Disclosure Schedule as may be required to satisfy the condition set forth in Section 6.3(i). For purposes of this Section 5.14, any disclosure made in a schedule to the Compliance Certificate shall be deemed to be an update of the Disclosure Schedule. Notwithstanding anything in this Agreement to the contrary, no update to the Disclosure Schedule pursuant to this Section 5.14 shall cure any breach of a representation or warranty of the Company contained in this Agreement and shall not affect any of the Investor’s remedies with respect thereto. ARTICLE VI OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES      Section 6.1 Opinion of Counsel and Certificate. Simultaneously with the execution and delivery of this Agreement, the Investor has received and relied upon (i) an opinion of outside counsel to the Company, dated the Effective Date, in the form of Exhibit C hereto, and (ii) a certificate from the Company, dated the Effective Date, in the form of Exhibit D hereto.      Section 6.2 Conditions Precedent to the Obligation of the Company. The obligation hereunder of the Company to issue and sell the Shares to the Investor under any Fixed Request Notice or Optional Amount is subject to the satisfaction or (to the extent permitted by applicable law) waiver of each of the conditions set forth below. These conditions are for the Company’s sole benefit and (to the extent permitted by applicable law) may be waived by the Company at any time in its sole discretion.           (i) Accuracy of the Investor’s Representations and Warranties. The representations and warranties of the Investor contained in this Agreement (i) that are not qualified by “materiality” shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the applicable Fixed Request Exercise Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (ii) that are qualified by “materiality” shall have been true and correct when made and shall be true and correct as of the applicable Fixed Request Exercise Date and the applicable 27 --------------------------------------------------------------------------------   Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.           (ii) Registration Statement. The Registration Statement is effective and neither the Company nor the Investor shall have received notice that the Commission has issued or intends to issue a stop order with respect to the Registration Statement. The Company shall have a maximum dollar amount certain of Shares registered under the Registration Statement which are in an amount not less than the maximum dollar amount worth of Shares issuable pursuant to all Fixed Request Notices and Optional Amounts during the Investment Period. The Current Report shall have been filed with the Commission, as required pursuant to Section 1.4, and all Prospectus Supplements shall have been filed with the Commission, as required pursuant to Sections 1.4 and 5.9 hereof, to disclose the sale of the Shares prior to each Settlement Date, as applicable. Any other material required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433 under the Securities Act.           (iii) Performance by the Investor. The Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to the applicable Fixed Request Exercise Date and the applicable Settlement Date.           (iv) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by this Agreement.           (v) No Suspension, Etc. Trading in the Common Stock shall not have been suspended by the Commission or the Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the applicable Fixed Request Exercise Date and applicable Settlement Date), and, at any time prior to the applicable Fixed Request Exercise Date and applicable Settlement Date, none of the events described in clauses (i), (ii) and (iii) or the last sentence of Section 5.7 shall have occurred, trading in securities generally as reported on the Trading Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Company, makes it impracticable or inadvisable to issue the Shares.           (vi) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened, and no inquiry or investigation by any governmental authority shall have been commenced or threatened, against the Company or any Subsidiary, or any of the officers, directors or affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions. 28 --------------------------------------------------------------------------------             (vii) Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such Fixed Request Notice or Optional Amount shall not violate Sections 2.2, 2.12 and 5.5 hereof.           (viii) No Unresolved NASD Objection. There shall not exist any unresolved objection raised by the NASD’s Corporate Financing Department with respect to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby, and the parties hereto shall have obtained written confirmation thereof from the NASD.      Section 6.3 Conditions Precedent to the Obligation of the Investor. The obligation hereunder of the Investor to accept a Fixed Request or Optional Amount grant and to acquire and pay for the Shares is subject to the satisfaction or (to the extent permitted by applicable law) waiver, at or before each Fixed Request Exercise Date and each Settlement Date, of each of the conditions set forth below. These conditions are for the Investor’s sole benefit and (to the extent permitted by applicable law) may be waived by the Investor at any time in its sole discretion.           (i) Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company contained in this Agreement (i) that are not qualified by “materiality” or “Material Adverse Effect” shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the applicable Fixed Request Exercise Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (ii) that are qualified by “materiality” or “Material Adverse Effect” shall have been true and correct when made and shall be true and correct as of the applicable Fixed Request Exercise Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.           (ii) Registration Statement. The Registration Statement is effective and neither the Company nor the Investor shall have received notice that the Commission has issued or intends to issue a stop order with respect to the Registration Statement. The Company shall have a maximum dollar amount certain of Shares registered under the Registration Statement which are in an amount not less than the maximum dollar amount worth of Shares issuable pursuant to all Fixed Request Notices and Optional Amounts during the Investment Period. The Current Report shall have been filed with the Commission, as required pursuant to Section 1.4, and all Prospectus Supplements shall have been filed with the Commission, as required pursuant to Sections 1.4 and 5.9 hereof, to disclose the sale of the Shares prior to each Settlement Date, as applicable, and an electronic copy of each such Prospectus Supplement together with the Base Prospectus shall have been delivered or made available to the Investor in accordance with Section 5.9 hereof. Any other material required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433 under the Securities Act. 29 --------------------------------------------------------------------------------             (iii) No Suspension. Trading in the Common Stock shall not have been suspended by the Commission or the Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the applicable Fixed Request Exercise Date and applicable Settlement Date), and, at any time prior to the applicable Fixed Request Exercise Date and applicable Settlement Date, none of the events described in clauses (i), (ii) and (iii) or the last sentence of Section 5.7 shall have occurred, trading in securities generally as reported on the Trading Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Investor, makes it impracticable or inadvisable to purchase the Shares.           (iv) Performance of the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the applicable Fixed Request Exercise Date and the applicable Settlement Date and shall have delivered to the Investor on the applicable Settlement Date the Compliance Certificate substantially in the form attached hereto as Exhibit E.           (v) No Injunction. No statute, rule, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by this Agreement.           (vi) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened, and no inquiry or investigation by any governmental authority shall have been commenced or threatened, against the Company or any Subsidiary, or any of the officers, directors or affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.           (vii) Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such Fixed Request Notice or Optional Amount shall not violate Sections 2.2, 2.12 and 5.5 hereof.           (viii) Shares Authorized. The Shares issuable pursuant to such Fixed Request Notice or Optional Amount shall have been duly authorized by all necessary corporate action of the Company.           (ix) Notification of Listing of Shares. The Company shall have submitted to the Trading Market a notification form of listing of additional shares related to the Shares issuable pursuant to such Fixed Request or Optional Amount in accordance with the bylaws, listed securities maintenance standards and other rules of the Trading Market.           (x) Opinions of Counsel; Bring-Down. Subsequent to the filing of the Current Report pursuant to Section 1.4 and prior to the first Fixed Request Exercise Date, the 30 --------------------------------------------------------------------------------   Investor shall have received an opinion and a separate negative assurance letter from outside counsel to the Company in the form of Exhibit F hereto. On each Settlement Date, the Investor shall have received an opinion “bring down” from outside counsel to the Company in the form of Exhibit G hereto.           (xi) No Unresolved NASD Objection. There shall not exist any unresolved objection raised by the NASD’s Corporate Financing Department with respect to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby, and the parties hereto shall have obtained written confirmation thereof from the NASD.           (xii) Payment of Investor’s Counsel Fees; Due Diligence Expenses. On the Effective Date, the Company shall have paid by wire transfer of immediately available funds to an account designated by the Investor’s counsel, the fees and expenses of the Investor’s counsel in accordance with the proviso to the first sentence of Section 9.1(i) of this Agreement. On the 30th day of the third month in each calendar quarter during the Investment Period, the Company shall have paid by wire transfer of immediately available funds (a) to an account designated by the Investor, the due diligence expenses incurred by the Investor and (b) to an account designated by the Investor’s counsel, the fees and expenses of the Investor’s counsel, in each case, in accordance with the provisions of the second sentence of Section 9.1(i) of this Agreement. ARTICLE VII TERMINATION      Section 7.1 Term, Termination by Mutual Consent. Unless earlier terminated as provided hereunder, this Agreement shall terminate automatically on the earliest of (i) the first day of the month next following the 18-month anniversary of the Effective Date (the “Investment Period”), (ii) the date that the entire dollar amount of Shares registered under the Registration Statement have been issued and sold and (iii) the date the Investor shall have purchased the Total Commitment of shares of Common Stock (subject in all cases to the Trading Market Limit). The Company may terminate this Agreement effective upon three Trading Days’ prior written notice to the Investor under Section 9.4; provided, however, that such termination shall not occur during a Pricing Period or prior to a Settlement Date. This Agreement may be terminated at any time (A) by the mutual written consent of the parties, effective as of the date of such mutual written consent unless otherwise provided in such written consent, it being hereby acknowledged and agreed that the Investor may not consent to such termination during a Pricing Period or prior to a Settlement Date in the event the Investor has instructed the Broker-Dealer to effect an open-market sale of Shares which are subject to a pending Fixed Request Notice but which have not yet been physically delivered by the Company (and/or credited by book-entry) to the Investor in accordance with the terms and subject to the conditions of this Agreement, or (B) by either the Company or the Investor effective upon written notice to the other party under Section 9.4, if the NASD’s Corporate Financing Department has raised any objection with respect to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby, or has otherwise failed to confirm in writing that it has determined not to raise any such objection, and such objection shall not have been resolved, or such confirmation of no objection shall not have been obtained, prior to (1) the 60th day immediately following the Effective Date, in the case of an objection raised or confirmation failure occurring prior to the first Fixed Request Exercise Date, or (2) prior to the 60th day immediately following the receipt by the Company or 31 --------------------------------------------------------------------------------   the Investor of notice of such objection, in the case of an objection raised after the first Fixed Request Exercise Date; provided however, that (x) the party seeking to terminate this Agreement pursuant to this clause (B) of Section 7.1 shall have used its commercially reasonable efforts to resolve such objection and/or to obtain such confirmation of no objection in accordance with and subject to the provisions of Section 5.1(ii) of this Agreement and (y) the right to terminate this Agreement pursuant to this clause (B) of Section 7.1 shall not be available to any party whose action or failure to act has been a principal cause of, or has resulted in, such objection or confirmation failure and such action or failure to act constitutes a breach of this Agreement.      Section 7.2 Other Termination. If the Company provides the Investor with an Other Financing Notice (other than in respect of an underwritten public offering or an Acceptable Financing) or an Integration Notice, the Investor shall have the right to terminate this Agreement within the subsequent 30-day period (the “Event Period”), effective upon one Trading Day’s prior written notice delivered to the Company in accordance with Section 9.4 at any time during the Event Period. The Company shall notify the Investor and the Investor shall have the right to terminate this Agreement at any time if: (i) an event constituting a Material Adverse Effect has occurred or an event has occurred which would result in the occurrence of a Material Adverse Effect; (ii) a Material Change in Ownership has occurred; or (iii) a default or event of default has occurred and is continuing under the terms of any agreement, contract, note or other instrument to which the Company or any of its Subsidiaries is a party with respect to any indebtedness for borrowed money representing more than 10% of the Company’s consolidated assets, in any such case, upon one Trading Day’s prior written notice delivered to the Company in accordance with Section 9.4 hereof.      Section 7.3 Effect of Termination. In the event of termination by the Company or the Investor, written notice thereof shall forthwith be given to the other party as provided in Section 9.4 and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become void and of no further force and effect, except as provided in Section 9.9 hereof. Nothing in this Section 7.3 shall be deemed to release the Company or the Investor from any liability for any breach under this Agreement, or to impair the rights of the Company and the Investor to compel specific performance by the other party of its obligations under this Agreement. ARTICLE VIII INDEMNIFICATION      Section 8.1 General Indemnity.           (i) Indemnification by the Company. The Company shall indemnify and hold harmless the Investor, the Broker-Dealer, each affiliate, employee, representative and advisor of and to the Investor and the Broker-Dealer, and each person, if any, who controls the Investor or the Broker-Dealer within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from and against all losses, claims, damages, liabilities and expenses (including reasonable costs of defense and investigation and all attorneys’ fees) to which the Investor, the Broker-Dealer and each such other person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities and expenses (or actions in 32 --------------------------------------------------------------------------------   respect thereof) arise out of or are based upon (i) any violation of law (including United States federal securities laws) in connection with the transactions contemplated by this Agreement by the Company or any of its Subsidiaries, affiliates, officers, directors or employees, (ii) any untrue statement or alleged untrue statement of a material fact contained, or incorporated by reference, in the Registration Statement or any amendment thereto or any omission or alleged omission to state therein, or in any document incorporated by reference therein, a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained, or incorporated by reference, in the Prospectus, any Issuer Free Writing Prospectus, or in any amendment thereof or supplement thereto, or in any “issuer information” (as defined in Rule 433 under the Securities Act) of the Company, which “issuer information” is required to be, or is, filed with the Commission or otherwise contained in any Free Writing Prospectus, or any amendment or supplement thereto, or any omission or alleged omission to state therein, or in any document incorporated by reference therein, 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, or (iv) any untrue statement or alleged untrue statement contained in the NASD Filing, or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a fact necessary in order to comply with Rule 2710 of the NASD’s Conduct Rules, but only to the extent the untrue statement, alleged untrue statement, omission or alleged omission was made in reliance upon, and in conformity with, information furnished by the Company to the Investor expressly for inclusion in the NASD Filing, or any amendment thereof or supplement thereto; provided, however, that (A) the Company shall not be liable under this Section 8.1(i) to the extent that a court of competent jurisdiction shall have determined by a final judgment (from which no further appeals are available) that such loss, claim, damage, liability or expense resulting directly and solely from any such acts or failures to act, undertaken or omitted to be taken by the Investor, Broker-Dealer or such person through its bad faith or willful misconduct, (B) the foregoing indemnity shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Investor, Reedland or any Broker-Dealer expressly for use in the Current Report or any Prospectus Supplement or Permitted Free Writing Prospectus, or any amendment thereof or supplement thereto, and (C) with respect to the Prospectus, the foregoing indemnity shall not inure to the benefit of the Investor or any such person from whom the person asserting any loss, claim, damage, liability or expense purchased Common Stock, if copies of all Prospectus Supplements required to be filed pursuant to Section 1.4 and 5.9, together with the Base Prospectus, were timely delivered or made available to the Investor pursuant hereto and a copy of the Base Prospectus, together with a Prospectus Supplement (as applicable), was not sent or given by or on behalf of the Investor or any such person to such person, if required by law to have been delivered, at or prior to the written confirmation of the sale of the Common Stock to such person, and if delivery of the Base Prospectus, together with a Prospectus Supplement (as applicable), would have cured the defect giving rise to such loss, claim, damage, liability or expense.      The Company shall reimburse the Investor, the Broker-Dealer and each such controlling person promptly upon demand (with accompanying presentation of documentary evidence) for all legal and other costs and expenses reasonably incurred by the Investor, the Broker-Dealer or 33 --------------------------------------------------------------------------------   such indemnified persons in investigating, defending against, or preparing to defend against any such claim, action, suit or proceeding with respect to which it is entitled to indemnification.           (ii) Indemnification by the Investor. The Investor shall indemnify and hold harmless the Company, each of its directors and officers, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from and against all losses, claims, damages, liabilities and expenses (including reasonable costs of defense and investigation and all attorneys fees) to which the Company and each such other person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon (i) any violation of law (including United States federal securities laws) in connection with the transactions contemplated by this Agreement by the Investor or any of its affiliates, officers, directors or employees, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Current Report or any Prospectus Supplement or Permitted Free Writing Prospectus, or in any amendment thereof or supplement thereto, or any omission or alleged omission to state therein 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, in each case, to the extent, but only to the extent, the untrue statement, alleged untrue statement, omission or alleged omission was made in reliance upon, and in conformity with, written information furnished by the Investor to the Company expressly for inclusion in the Current Report or such Prospectus Supplement or Permitted Free Writing Prospectus, or any amendment thereof or supplement thereto, or (iii) any untrue statement or alleged untrue statement contained in the NASD Filing, or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a fact necessary in order to comply with Rule 2710 of the NASD’s Conduct Rules; provided, however, that the foregoing indemnity for statements or omissions referred to in clause (iii) above shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Investor by the Company expressly for use in the NASD Filing, or any amendment thereof or supplement thereto.      The Investor shall reimburse the Company and each such director, officer or controlling person promptly upon demand for all legal and other costs and expenses reasonably incurred by the Company or such indemnified persons in investigating, defending against, or preparing to defend against any such claim, action, suit or proceeding with respect to which it is entitled to indemnification.      Section 8.2 Indemnification Procedures. Promptly after a person receives notice of a claim or the commencement of an action for which the person intends to seek indemnification under Section 8.1, the person will notify the indemnifying party in writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the indemnifying party will not relieve the indemnifying party from liability under Section 8.1, except to the extent it has been materially prejudiced by the failure to give notice. The indemnifying party will be entitled to participate in the defense of any claim, action, suit or proceeding as to which indemnification is being sought, and if the indemnifying party acknowledges in writing the obligation to indemnify the party against whom the claim or action is brought, the indemnifying party may (but will not be required to) assume the defense against 34 --------------------------------------------------------------------------------   the claim, action, suit or proceeding with counsel satisfactory to it. After an indemnifying party notifies an indemnified party that the indemnifying party wishes to assume the defense of a claim, action, suit or proceeding, the indemnifying party will not be liable for any legal or other expenses incurred by the indemnified party in connection with the defense against the claim, action, suit or proceeding except that if, in the opinion of counsel to the indemnifying party, one or more of the indemnified parties should be separately represented in connection with a claim, action, suit or proceeding, the indemnifying party will pay the reasonable fees and expenses of one separate counsel for the indemnified parties. Each indemnified party, as a condition to receiving indemnification as provided in Section 8.1, will cooperate in all reasonable respects with the indemnifying party in the defense of any action or claim as to which indemnification is sought. No indemnifying party will be liable for any settlement of any action effected without its prior written consent. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested (by written notice provided in accordance with Section 9.4) an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated hereby effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received written notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party will, without the prior written consent of the indemnified party, effect any settlement of a pending or threatened action with respect to which an indemnified party is, or is informed that it may be, made a party and for which it would be entitled to indemnification, unless the settlement includes an unconditional release of the indemnified party from all liability and claims which are the subject matter of the pending or threatened action.      If for any reason the indemnification provided for in this Agreement is not available to, or is not sufficient to hold harmless, an indemnified party in respect of any loss or liability referred to in Section 8.1 as to which such indemnified party is entitled to indemnification thereunder, each indemnifying party shall, in lieu of indemnifying the indemnified party, contribute to the amount paid or payable by the indemnified party as a result of such loss or liability, (i) in the proportion which is appropriate to reflect the relative benefits received by the indemnifying party, on the one hand, and by the indemnified party, on the other hand, from the sale of Shares which is the subject of the claim, action, suit or proceeding which resulted in the loss or liability or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to the statements or omissions which are the subject of the claim, action, suit or proceeding that resulted in the loss or liability, as well as any other relevant equitable considerations.      The remedies provided for in Section 8.1 and this Section 8.2 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. 35 --------------------------------------------------------------------------------   ARTICLE IX MISCELLANEOUS      Section 9.1 Fees and Expenses.           (i) Each party shall bear its own fees and expenses related to the transactions contemplated by this Agreement; provided, however, that the Company shall pay, on the Effective Date, by wire transfer of immediately available funds (A) to the NASD, the applicable filing fee with respect to the NASD Filing and (B) to an account designated by the Investor’s counsel, up to $35,000, representing actual attorneys’ fees and expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the Investor in connection with the preparation, negotiation, execution and delivery of this Agreement, legal due diligence of the Company and review of the Registration Statement, the Base Prospectus, the Current Report, any Permitted Free Writing Prospectus and preparation of the NASD Filing. In addition, the Company shall pay, on the 30th day of the third month in each calendar quarter during the Investment Period, $12,500, representing (x) the due diligence expenses incurred by the Investor during the Investment Period and (y) the attorneys’ fees and expenses incurred by the Investor in connection with ongoing legal due diligence of the Company, any amendments, modifications or waivers of this Agreement, any amendments of or supplements to the NASD Filing and review of Prospectus Supplements, Permitted Free Writing Prospectuses, opinion “bring downs” and all other related documents to be delivered by the Company and its counsel in connection with a Fixed Request Exercise Date and the applicable Settlement Date. The Company shall pay all U.S. federal, state and local stamp and other similar transfer and other taxes and duties levied in connection with issuance of the Shares pursuant hereto.           (ii) If the Company issues a Fixed Request Notice and fails to deliver the Shares to the Investor on the applicable Settlement Date and such failure continues for 10 Trading Days, the Company shall pay the Investor, in cash (or, at the option of the Investor, in shares of Common Stock which have not been registered under the Securities Act), as liquidated damages for such failure and not as a penalty, an amount equal to 2.0% of the payment required to be paid by the Investor on such Settlement Date (i.e., the sum of the Fixed Amount Requested and the Optional Amount Dollar Amount) for the initial 30 days following such Settlement Date until the Shares have been delivered, and an additional 2.0% for each additional 30-day period thereafter until the Shares have been delivered, which amount shall be prorated for such periods less than thirty 30 days.      Section 9.2 Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial. (i) The Company and the Investor acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that either party shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement by the other party and to enforce specifically the terms and provisions hereof this being in addition to any other remedy to which either party may be entitled by law or equity.           (i) Each of the Company and the Investor (a) hereby irrevocably submits to the jurisdiction of the United States District Court and other courts of the United States sitting in the State of New York for the purposes of any suit, action or proceeding arising out of or relating 36 --------------------------------------------------------------------------------   to this Agreement, and (b) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Investor consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 9.2 shall affect or limit any right to serve process in any other manner permitted by law.           (iii) Each of the Company and the Investor hereby waives to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated hereby or disputes relating hereto. Each of the Company and the Investor (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 9.2.      Section 9.3 Entire Agreement; Amendment. This Agreement, together with the exhibits referred to herein and the Disclosure Schedule, represents the entire agreement of the parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by either party relative to subject matter hereof not expressly set forth herein. No provision of this Agreement may be amended other than by a written instrument signed by both parties hereto. The Disclosure Schedule and all exhibits to this Agreement are hereby incorporated by reference in, and made a part of, this Agreement as if set forth in full herein.      Section 9.4 Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or facsimile (with facsimile machine confirmation of delivery received) at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The address for such communications shall be:               If to the Company:   Pharmacyclics, Inc.         995 East Arques Avenue         Sunnyvale, California 94085         Telephone Number: (408) 774-0330         Fax: (408) 328-3665         Attention: Chief Financial Officer               With copies to:   Latham & Watkins LLP         140 Scott Drive 37 --------------------------------------------------------------------------------                     Menlo Park, California 94025         Telephone Number: (650) 463-4600         Fax: (650) 463-2600         Attention: Alan C. Mendelson, Esq.                             Laura I. Bushnell, Esq.               If to the Investor:   Azimuth Opportunity Ltd.         c/o Fortis Prime Fund Solutions (BVI) Limited         P.O. Box 761, 1st Floor         James Frett Building         Road Town, Tortola         British Virgin Islands         Telephone Number: (284) 494-6046         Fax: (284) 494-6898         Attention: Peter O’Connell               With copies to:   Greenberg Traurig, LLP         The MetLife Building         200 Park Avenue         New York, NY 10166         Telephone Number: (212) 801-9200         Fax: (212) 801-6400         Attention: Clifford E. Neimeth, Esq.                              Anthony J. Marsico, Esq. Either party hereto may from time to time change its address for notices by giving at least 10 days advance written notice of such changed address to the other party hereto.      Section 9.5 Waivers. No waiver by either party 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 other provisions, condition or requirement hereof nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. No provision of this Agreement may be waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought.      Section 9.6 Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof.      Section 9.7 Successors and Assigns. The Investor may not assign this Agreement to any person without the prior consent of the Company, in the Company’s sole discretion. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement. 38 --------------------------------------------------------------------------------        Section 9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the internal procedural and substantive laws of the State of New York, without giving effect to the choice of law provisions of such state.      Section 9.9 Survival. The representations and warranties of the Company and the Investor contained in Articles III and IV and the covenants contained in Article V shall survive the execution and delivery hereof until the termination of this Agreement, and the agreements and covenants set forth in Article VIII of this Agreement shall survive the execution and delivery hereof.      Section 9.10 Counterparts. This Agreement may be executed in counterparts, all of which taken together shall constitute one and the same original and binding instrument and shall become effective when all counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause four additional executed signature pages to be physically delivered to the other parties within five days of the execution and delivery hereof.      Section 9.11 Publicity. On or after the Effective Date, the Company may issue a press release or otherwise make a public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement (including, without limitation, by filing a copy of this Agreement with the Commission); provided, however, that prior to issuing any such press release, or making any such public statement or announcement, the Company shall consult with the Investor on the form and substance of such press release or other disclosure.      Section 9.12 Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement, and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.      Section 9.13 Further Assurances. From and after the date of this Agreement, upon the request of the Investor or the Company, each of the Company and the Investor shall execute and deliver such instrument, documents and 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. 39 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.                   PHARMACYCLICS, INC.:                       By:   /s/ Leiv Lea   Name: Leiv Lea             Title: Vice President, Finance & Administration and CFO and Secretary                       AZIMUTH OPPORTUNITY LTD.:                       By:   /s/ Deirdre M. McCoy   Name: Deirdre M. McCoy             Title: Corporate Secretary     40 --------------------------------------------------------------------------------   ANNEX A TO THE COMMON STOCK PURCHASE AGREEMENT DEFINITIONS      (a) “Acceptable Financing” shall have the meaning assigned to such term in Section 5.6(ii) hereof.      (b) “Aggregate Limit” shall have the meaning assigned to such term in Section 1.1 hereof.      (c) “Base Prospectus” shall mean the Company’s prospectus, dated August 21, 2006, a preliminary form of which is included in the Registration Statement.      (d) “Broker-Dealer” shall have the meaning assigned to such term in Section 5.13 hereof.      (e) “Bylaws” shall have the meaning assigned to such term in Section 4.3 hereof.      (f) “Charter” shall have the meaning assigned to such term in Section 4.3 hereof.      (g) “Code” shall mean the Internal Revenue Code of 1986, as amended.      (h) “Commission” shall mean the Securities and Exchange Commission or any successor entity.      (i) “Commission Documents” shall mean (1) all reports, schedules, registrations, forms, statements, information and other documents filed by the Company with the Commission pursuant to the reporting requirements of the Exchange Act, including all material filed pursuant to Section 13(a) or 15(d) of the Exchange Act, which have been filed by the Company since July 1, 2005 and which hereafter shall be filed by the Company during the Investment Period, including, without limitation, the Current Report and the Form 10-K filed by the Company for its fiscal year ended June 30, 2005 (the “2005 Form 10-K”), (2) the Registration Statement, as the same may be amended from time to time, the Prospectus and each Prospectus Supplement, and each Issuer Free Writing Prospectus and (3) all information contained in such filings and all documents and disclosures that have been and heretofore shall be incorporated by reference therein.      (j) “Common Stock” shall have the meaning assigned to such term in the Recitals.      (k) “Current Market Price” means, with respect to any particular measurement date, the closing price of a share of Common Stock as reported on the Trading Market for the Trading Day immediately preceding such measurement date.      (l) “Current Report” shall have the meaning assigned to such term in Section 1.4 hereof.      (m) “Discount Price” shall have the meaning assigned to such term in Section 2.2 hereof.   --------------------------------------------------------------------------------        (n) “Effective Date” shall mean August 21, 2006.      (o) “Environmental Laws” shall have the meaning assigned to such term in Section 4.15 hereof.      (p) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.      (q) “Event Period” shall have the meaning assigned to such term in Section 7.2 hereof.      (r) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.      (s) “FDA” shall have the meaning assigned to such term in Section 4.14(a) hereof.      (t) “Fixed Amount Requested” shall mean the amount of a Fixed Request requested by the Company in a Fixed Request Notice delivered pursuant to Section 2.1 hereof.      (u) “Fixed Request” means the transactions contemplated under Sections 2.1 through 2.8 of this Agreement.      (v) “Fixed Request Amount” means the actual amount of proceeds received by the Company pursuant to a Fixed Request under this Agreement.      (w) “Fixed Request Exercise Date” shall have the meaning assigned to such term in Section 2.2 hereof.      (x) “Fixed Request Notice” shall have the meaning assigned to such term in Section 2.1 hereof.      (y) “Free Writing Prospectus” shall mean a “free writing prospectus” as defined in Rule 405 promulgated under the Securities Act.      (z) “GAAP” shall mean generally accepted accounting principles in the United States of America as applied by the Company.      (aa) “Governmental Licenses” shall have the meaning assigned to such term in Section 4.14(a) hereof.      (bb) “Indebtedness” shall have the meaning assigned to such term in Section 4.9 hereof.      (cc) “Integration Notice” shall have the meaning assigned to such term in Section 5.6(ii) hereof.      (dd) “Intellectual Property” shall have the meaning assigned to such term in Section 4.14(b) hereof.   --------------------------------------------------------------------------------        (ee) “Investment Period” shall have the meaning assigned to such term in Section 7.1 hereof.      (ff) “Issuer Free Writing Prospectus” shall mean an “issuer free writing prospectus” as defined in Rule 433 promulgated under the Securities Act.      (gg) “Market Capitalization” shall be calculated on the Trading Day preceding the applicable Pricing Period and shall be the product of (x) the number of shares of Common Stock outstanding and (y) the closing bid price of the Common Stock, both as determined by Bloomberg Financial LP using the DES and HP functions.      (hh) “Material Adverse Effect” shall mean any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any effect on the business, operations, properties or condition (financial or otherwise) of the Company that is material and adverse to the Company and its Subsidiaries, taken as a whole, and/or any condition, occurrence, state of facts or event that would prohibit or otherwise materially interfere with or delay the ability of the Company to perform any of its obligations under this Agreement.      (ii) “Material Agreements” shall have the meaning assigned to such term in Section 4.16 hereof.      (jj) “Material Change in Ownership” shall mean the occurrence of any one or more of the following: (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock or other securities of the Company entitling such person to exercise, upon an event of default or default or otherwise, 50% or more of the total voting power of all series and classes of capital stock and other securities of the Company entitled to vote generally in the election of directors, other than any such acquisition by the Company, any Subsidiary of the Company or any employee benefit plan of the Company; (ii) any consolidation or merger of the Company with or into any other person, any merger of another person into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the properties and assets of the Company to another person, other than (a) any such transaction (x) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company and (y) pursuant to which holders of capital stock of the Company immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction or (b) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of common stock of the surviving entity; (iii) during any consecutive two-year period, individuals who at the beginning of that two-year period constituted the Board of Directors (together with any new directors whose election to the Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose elections or nominations for election were previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office;   --------------------------------------------------------------------------------   or (iv) the Company is liquidated or dissolved or a resolution is passed by the Company’s stockholders approving a plan of liquidation or dissolution of the Company. Beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act. The term “person” shall include any syndicate or group which would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act.      (kk) “Multiplier” shall have the meaning assigned to such term in Section 2.3 hereof.      (ll) “NASD” shall have the meaning assigned to such term in Section 4.5 hereof.      (mm) “NASD Filing” shall have the meaning assigned to such term in Section 5.1 hereof.      (nn) “NASDAQ” means the NASDAQ Global Market or any successor thereto.      (oo) “Optional Amount” means the transactions contemplated under Sections 2.9 through 2.11 of this Agreement.      (pp) “Optional Amount Dollar Amount” shall mean the actual amount of proceeds received by the Company pursuant to the exercise of an Optional Amount under this Agreement.      (qq) “Optional Amount Notice” shall mean a notice sent to the Company with regard to the Investor’s election to exercise all or any portion of an Optional Amount, as provided in Section 2.11 hereof and substantially in the form attached hereto as Exhibit B.      (rr) “Optional Amount Threshold Price” shall have the meaning assigned to such term in Section 2.1 hereof.      (ss) “Other Financing” shall have the meaning assigned to such term in Section 5.6(ii) hereof.      (tt) “Other Financing Notice” shall have the meaning assigned to such term in Section 5.6(ii) hereof.      (uu) “Permitted Free Writing Prospectus” shall have the meaning assigned to such term in Section 5.8(ii) hereof.      (vv) “Plan” shall have the meaning assigned to such term in Section 4.22 hereof.      (ww) “Pricing Period shall mean a period of 10 consecutive Trading Days commencing on the day of delivery of a Fixed Request Notice (or, if the Fixed Request Notice is delivered after 9:30 a.m. (New York time), on the next Trading Day), or such other period mutually agreed upon by the Investor and the Company.      (xx) “Prospectus” shall mean the Base Prospectus, together with any final prospectus filed with the Commission pursuant to Rule 424(b), as supplemented by any Prospectus Supplement.   --------------------------------------------------------------------------------        (yy) “Prospectus Supplement” shall mean any prospectus supplement to the Base Prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act.      (zz) “Reduction Notice” shall have the meaning assigned to such term in Section 2.8 hereof.      (aaa) “Registration Statement” shall mean the registration statement on Form S-3, Commission File Number 333-112632, filed by the Company with the Commission under the Securities Act for the registration of the Shares, as such Registration Statement may be amended and supplemented from time to time.      (bbb) “Restricted Period” shall have the meaning assigned to such term in Section 5.10 hereof.      (ccc) “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.      (ddd) “Settlement Date” shall have the meaning assigned to such term in Section 2.7 hereof.      (eee) “Shares” shall mean shares of Common Stock issuable to the Investor upon exercise of a Fixed Request and shares of Common Stock issuable to the Investor upon exercise of an Optional Amount.      (fff) “Significant Subsidiary” means any Subsidiary of the Company that would constitute a Significant Subsidiary of the Company within the meaning of Rule 1-02 of Regulation S-X of the Commission.      (ggg) “SOXA” shall have the meaning assigned to such term in Section 4.6(c) hereof.      (hhh) “Subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.      (iii) “Total Commitment” shall have the meaning assigned to such term in Section 1.1 hereof.      (jjj) “Threshold Price” is the lowest price (except to the extent otherwise provided in Section 2.6) at which the Company may sell Shares during the applicable Pricing Period as set forth in a Fixed Request Notice (not taking into account the applicable percentage discount during such Pricing Period determined in accordance with Section 2.2); provided, however, that at no time shall the Threshold Price be lower than $3.00 per share unless the Company and the Investor mutually shall agree.      (kkk) “Trading Day” shall mean a full trading day (beginning at 9:30 a.m., New York City time, and ending at 4:00 p.m., New York City time) on the NASDAQ.   --------------------------------------------------------------------------------        (lll) “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the New York Stock Exchange or the NASDAQ.      (mmm) “Trading Market Limit” means that number of shares which is one less than 20.0% of the issued and outstanding shares of the Company’s Common Stock as of the Effective Date.      (nnn) “VWAP” shall mean the daily volume weighted average price (based on a Trading Day from 9:30 p.m. to 4:00 p.m. (New York time)) of the Company on the NASDAQ as reported by Bloomberg Financial L.P. using the AQR function.      (ooo) “Warrant Value” shall mean the fair value of all warrants, options and other similar rights issued to a third party in connection with an Other Financing, determined by using a standard Black-Scholes option-pricing model assuming an expected volatility percentage as shall be mutually agreed by the Investor and the Company. In the case of a dispute relating to such expected volatility assumption, the Investor shall obtain applicable volatility data from three investment banking firms of nationally recognized reputation, and the parties hereto shall use the average thereof for purposes of determining the expected volatility percentage in connection with the Black-Scholes calculation referred to in the immediately preceding sentence.  

Exhibit 10.13 ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”. CONFIDENTIAL TREATMENT REQUESTED WITH RESPECT TO CERTAIN PORTIONS HEREOF DENOTED WITH “***” LICENSE AND DEVELOPMENT AGREEMENT This License and Development Agreement (the “Agreement”) is made as of August 2, 2006 (the “Effective Date”) by and between BioDelivery Sciences International, Inc., a Delaware corporation with an office at 2501 Aerial Center Parkway, Suite 205, Morrisville, North Carolina 27560 USA (“Parent”), its wholly-owned subsidiary Arius Pharmaceuticals, Inc., a Delaware corporation with an office at the same address (“Arius”, and together with Parent, “BDSI”) and Meda AB, a Swedish corporation with its principal office at Pipers väg 2 A, SE-170 09, Solna, Sweden (“Meda”). BDSI and Meda are sometimes referred to collectively herein as the “Parties” or singly as a “Party.” RECITALS WHEREAS, BDSI wishes to grant to Meda, and Meda wishes to obtain from BDSI, an exclusive license to develop, manufacture (or have manufactured), market, advertise, promote, distribute, offer for sale, sell, export, and import BDSI’s BEMA fentanyl product in Europe on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the Parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. In addition to the capitalized terms defined elsewhere in this Agreement, the following terms used in this Agreement shall have the meaning set forth below: “ADE” means any Adverse Event associated with the Licensed Product or the Demonstration Samples (including Adverse Drug Reactions). “Adverse Event” or “AE” means any untoward medical occurrence in a patient or clinical investigation subject administered Licensed Products or Demonstration Samples and which does not necessarily have to have a causal relationship with such treatment. “Adverse Reaction” or “Adverse Drug Reaction” or “ADR” means a response to Licensed Product or Demonstration Sample which is noxious and unintended and which occurs at doses normally used in man for prophylaxis, diagnosis or therapy of disease or for modification of physiological function. -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Affiliate” means an individual, trust, business trust, joint venture, partnership, corporation, association or any other entity which owns, is owned by or is under common ownership with, a Party. For the purposes of this definition, the term “owns” (including, with correlative meanings, the terms “owned by” and “under common ownership with”) as used with respect to any Party, shall mean the possession (directly or indirectly) of more than 50% of the outstanding voting securities of a corporation or comparable equity interest in any other type of entity. “API” means an active pharmaceutical ingredient. “Applicable Laws” means all applicable laws, rules, regulations and guidelines that may apply to the development, marketing, manufacturing or sale of the Licensed Product or the performance of either Party’s obligations under this Agreement, including but not limited to all laws, regulations and guidelines governing the import, export, development, marketing, distribution and sale of the Licensed Product in the Territory, to the extent relevant, all Good Manufacturing Practices or Good Clinical Practices standards or guidelines promulgated by the FDA or other Competent Authorities, all laws, rules, regulations, and guidelines applicable to the manufacture, use, shipment, handling, sale, marketing, and distribution of fentanyl as a Schedule II controlled substance under the United States’ Controlled Substances Act and any similar foreign laws, rules, and regulations, and trade association guidelines (including but not limited to, with respect to all of the foregoing, those which apply to the handling of narcotics), where applicable. “Applicable Royalty Percentage” means *** percent (***%). “BEMA” means the proprietary bioerodible, mucoadhesive multi-layer polymer film technology Controlled by BDSI or Arius Two. “Books and Records” means, in whatever media, any and all books and records, reports and accounts in connection with or related to the Licensed Product, the Development Program, Competent Authorities, Applicable Laws or this Agreement. Books and Records shall also include any market research and competitive reports, marketing reports, and related data. “BDSI-Supplied Unit” means a Unit supplied by or on behalf of BDSI to Meda or its Affiliates under the Supply Agreement. “CDC Agreement” means that certain Clinical Development and License Agreement between BDSI and CDC IV, LLC (“CDC”) dated July 14, 2005, to the extent attached hereto and as amended February 15, 2006 and May 16, 2006, and subject to that certain Sublicensing Consent and Amendment between BDSI and CDC dated August 2, 2006 (the “CDC Consent”); the body of such Clinical Development and License Agreement (but not its exhibits), the referenced amendment, and the CDC Consent are attached hereto as Exhibit A.   2 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Bundled Product” means the Licensed Product when sold together with any other products and/or services within the Territory at a unit price, whether packaged together or separately with another pharmaceutical product or other device, equipment, instrumentation, or other components (other than solely containers or packaging exclusively for the Licensed Product). *** “Commercial Sale” means the sale for use, consumption or resale of each Licensed Product in the Territory by Meda, its Affiliates, or Sublicensees. A sale to an Affiliate or Sublicensee shall not constitute a Commercial Sale unless the Affiliate is the end user of the Licensed Product. “Commercially Reasonable Efforts” means, except as otherwise explicitly set forth in this Agreement, efforts consistent with the reasonable exercise of prudent scientific and business judgment and generally accepted practices in the pharmaceutical industry, as applied to similar products having comparable market potential. “Comparable market potential” shall be *** Commercially Reasonable Efforts requires that *** “Competent Authorities” means collectively the governmental entities in the Territory responsible for the regulation of medicinal products intended for human use, including but not limited to the EMEA. “Confidential Information” means any confidential or proprietary information of a Party, whether in oral, written, graphic or electronic form. Confidential Information shall not include any information which the receiving Party can prove by competent evidence: (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or available; (b) is known by the receiving Party at the time of receiving such information, as evidenced by its written records maintained in the ordinary course of business; (c) is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure; (d) is independently developed by the receiving Party, as evidenced by its written records maintained in the ordinary course of business, without knowledge of, and without the aid, application or use of, the disclosing Party’s Confidential Information; or (e) is the subject of a written permission to disclose provided by the disclosing Party. “Control” means the possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party existing on the Effective Date or, with respect to any intellectual property rights acquired   3 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   from a Third Party following the Effective Date, any agreements in effect at the time such rights are acquired. “Demonstration Samples” means Units, lacking fentanyl, used to demonstrate the manner in which the Licensed Product is prepared and used, and labeled “demonstration samples, for demonstration purposes only.” “Development Costs” means the total direct and indirect costs incurred by Meda or BDSI in performing their respective obligations under the Development Program or this Agreement, including but not limited to any travel, out-of-pocket, and Third Party costs. “Development Program” means, with respect to the Territory, the plan for completing Product Development for the Licensed Product and obtaining Governmental Approvals for the Licensed Product, including ***. “EMEA” means the European Agency for the Evaluation of Medicinal Products. “ESC” means the European Steering Committee established pursuant to Section 2.06 below. “FDA” means the United States Food and Drug Administration. “Field” means the treatment of breakthrough cancer pain. “FTE” means the equivalent of one person working full time for one 12-month period in a research, development, commercialization, regulatory or other relevant capacity, approximating *** hours per year. In the interests of clarity, though, a single individual who works more than *** hours in a single year shall be treated as one FTE regardless of the number of hours worked. “First Commercial Sale” means the first Commercial Sale of the Licensed Product in the Territory. “Good Clinical Practices” means good clinical practices as defined in 21 CFR § 50 et seq. and § 312 et seq. and equivalent standards established by Competent Authorities with respect to the Territory. “Governmental Approval” means all permits, licenses and authorizations, including but not limited to, import permits and Marketing Authorizations required by any Competent Authority as a prerequisite to the manufacturing, marketing or selling of the Licensed Product for human therapeutic use in the Territory. “HICP EU” means the Harmonised Index of Consumer Prices as calculated on an annual basis by the European Union across all member nations.   4 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “IFRS” means International Financial Reporting Standards promulgated by the International Accounting Standards Board, applied on a basis consistent throughout the periods indicated and consistent with each other. “Improvements” means any and all developments, inventions or discoveries relating to the Licensed Technology developed or acquired by, or under the Control of, a Party or, in the case of BDSI, Arius Two at any time during the Term and shall include, but not be limited to, such developments intended to enhance the safety and/or efficacy of the Licensed Product. “Know-How” means all know-how, trade secrets, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, protocols and information, whether or not patentable, which are not generally publicly known, including, without limitation, all chemical, biochemical, toxicological, and scientific research information, whether in written, graphic or video form or any other form or format. “Licensed Know-How” means all Know-How related to BEMA which is under the Control of BDSI or Arius Two as of the Effective Date, or is created or acquired by, or under the Control of, BDSI or Arius Two during the Term including, but not limited to, data and documentation of clinical trials, pharmacological, toxicological, clinical, assay, control, and manufacturing data, techniques, processes, methods, or systems, and any other information relating to BEMA, all as of the Effective Date and during the Term, which is not covered by the Licensed Patent Rights, but is or would be necessary or useful to develop, manufacture (or prepare for the manufacture of), or commercialize the Licensed Product. “Licensed Patent Rights” means all Patent Rights in the Territory related to the patents and patent applications listed on Exhibit C, claiming BEMA, any Improvement, or which are necessary or appropriate to develop, manufacture and commercialize the Licensed Product in the Territory, and that are under the Control of BDSI or Arius Two as of the Effective Date or that come under BDSI’s or Arius Two’s Control during the Term. “Licensed Product” means individually and collectively the BEMA-based product which (i) contains fentanyl as it sole API, (ii) ***, (iii) would, but for the licenses granted under this Agreement, infringe one or more claims of the Licensed Patent Rights, and (iv) ***, provided that, after the expiration of the Initial Term in a particular country, the “Licensed Product” in such country shall be deemed to be the BEMA-based product which (1) contains fentanyl as it sole API, (2) ***, and (3) was sold in such country as a Licensed Product by Meda, its Affiliates, or Sublicensees in such country during the Initial Term under this Agreement. “Licensed Technology” means the Licensed Patent Rights and the Licensed Know-How. “Marks” means “BEMA” and “BEMA Fentanyl”, alone or accompanied by any logo or design and any non-English language equivalents in figure, sound or meaning, whether registered or not.   5 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Meda Marks” means any trademarks, servicemarks, tradedress, or logos used by Meda specifically for the Licensed Product at any time in connection with the use, development, promotion, marketing, distribution, offer for sale, or sale of the Licensed Product in the Territory. “Marketing Authorization” means all necessary and appropriate regulatory approvals, including but not limited to variations thereto and, if applicable or reasonably advisable with respect to a particular jurisdiction, Pricing and Reimbursement Approvals to put the Licensed Product on the market for sale for human therapeutic use in a particular jurisdiction in the Territory. “Minimum Unit Price” means ***. “NDA” means a new drug application, all amendments and supplements thereto, and all additional documentation required to be filed with the FDA for approval to commence commercial sale of the Licensed Product in the United States. “Net Sales” means the gross amounts invoiced by Meda, its Affiliates, and their Sublicensees for their sales of Licensed Products to Third Parties in bona fide arm’s length transactions, less the following items: *** Licensed Products shall be considered sold when billed out or invoiced. Components of Net Sales shall be determined in the ordinary course of business in accordance with historical practice and using the accrual method of accounting in accordance with IFRS. In the event Meda or any Affiliate thereof transfers Licensed Product to a Third Party in a bona fide arm’s length transaction for consideration, in whole or in part, other than cash or to a Third Party in other than a bona fide arm’s length transaction, ***. Notwithstanding anything to the contrary, in the event that Meda, its Affiliates, or its Sublicensees sells Licensed Product to a Third Party at a discount that is greater than the discount generally given to such Third Party for their other products sold to such Third Party (including establishing a list price at a lower than normal level), then Net Sales to such Third Party shall be deemed to be equal to the arm’s length price that the Third Party would generally pay for such Licensed Product alone when not purchasing other products or services from Meda, its Affiliates, or Sublicensees. “Net Unit Royalty” means, for a particular Unit, ***. “Non-Royalty Sublicensing Revenue” means all ***, if granted by BDSI, to the relevant sublicense under Section 3.02(a) below. “Packaging” means any and all containers, cartons, shipping cases, inserts, package inserts or other similar material, including instructions for use, used in packaging or accompanying the Licensed Product.   6 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Patent Rights” means all rights under patents and patent applications, and any and all patents issuing therefrom (including utility, model and design patents and certificates of invention), together with any and all substitutions, extensions (including supplemental protection certificates), registrations, confirmations, reissues, divisionals, continuations, continuations-in-part, re-examinations, renewals and domestic and foreign counterparts of the foregoing, and all improvements, supplements, modifications or additions. “Phase III” means an expanded controlled or uncontrolled clinical trial performed after preliminary evidence suggesting effectiveness of the Licensed Product has been obtained, in order to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the Licensed Product and to provide an adequate basis for physician labeling. “Phase IV” means, as applicable, a study or program designed to obtain additional safety or efficacy data, detect new uses for or abuses of the Licensed Product, or to determine effectiveness for labeled indications under conditions of widespread usage, which is commenced after regulatory approval of the Licensed Product. “PMS” means any non-interventional post marketing surveillance study conducted within the conditions and terms of the approved Summary of Product Characteristics (SPC) or under normal conditions of use. Synonym used is post-authorization study. Post-authorization safety studies may sometimes also fall within this definition. “Pricing and Reimbursement Approvals” means any pricing and reimbursement approvals which may or must be obtained before placing the Licensed Product on the market in a particular jurisdiction in the Territory. “Prime Rate of Interest” means the prime rate of interest published from time to time in the Wall Street Journal as the prime rate; provided, however that if the Wall Street Journal does not publish the Prime Rate of Interest, then the term “Prime Rate of Interest” shall mean the rate of interest publicly announced by Bank of America, N.A., as its Prime Rate, Base Rate, Reference Rate or the equivalent of such rate, whether or not such bank makes loans to customers at, above, or below said rate. “Product Development” means Meda’s use of Commercially Reasonable Efforts to take, at its sole cost and expense, all actions reasonably necessary in connection with seeking and obtaining Governmental Approval of the Licensed Product in the Territory. “Product Price” means BDSI’s *** costs of supplying a particular Unit to Meda under the Supply Agreement, which shall include but not be limited to ***. “Product Recall” means any recall, market withdrawal, or field correction of the Licensed Product from or in the Territory.   7 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Arius Two Agreement” means that certain License Agreement executed between Arius and Arius Two, Inc. (“Arius Two”), dated August 2, 2006, as amended August 2, 2006, and subject to the Sublicensing Consent executed by Arius Two and Arius dated August 2, 2006 (the “Arius Two Consent”); such License Agreement, its aforementioned amendments, and the Arius Two Consent are attached hereto as Exhibit D. “Royalty” means the ***. “Royalty Quarter” means, for the first Royalty Quarter, the period commencing on the earlier of the date of (i) the First Commercial Sale or (ii) Meda’s or its Affiliates’ initial receipt of Non-Royalty Sublicensing Revenue and ending on the last day of that calendar quarter; and, for subsequent Royalty Quarters, the successive calendar quarters thereafter. “Royalty Year” means for the first Royalty Year, the period commencing on earlier of the date of (i) the First Commercial Sale or (ii) Meda’s or its Affiliates’ initial receipt of Non-Royalty Sublicensing Revenue and ending on December 31st of such calendar year; and for subsequent Royalty Years, the successive calendar years thereafter. “Serious Adverse Event” or “SAE” means an Adverse Event that at any dose (i) results in death, (ii) is life-threatening, (iii) requires inpatient hospitalization or prolongation of existing hospitalization, (iv) results in persistent or significant disability/incapacity, or (v) is a congenital anomaly/birth defect. The term “life-threatening” in this definition refers to an event in which the patient was at risk of death at the time of the event; it does not refer to an event which hypothetically might have caused death if it had been more severe. Important medical events that may not be immediately life-threatening or result in death or hospitalization but may jeopardize the patient or require intervention to prevent one of the other outcomes listed above should also be included in this definition to the extent reasonable medical and scientific judgement indicates that expedited reporting is appropriate under Applicable Laws. “Serious Adverse Reaction” or “SAR” means an Adverse Reaction that at any dose (i) results in death, (ii) is life-threatening, (iii) requires inpatient hospitalization or prolongation of existing hospitalization, (iv) results in persistent or significant disability/incapacity, or (v) is a congenital anomaly/birth defect. The term “life-threatening” in this definition refers to an event in which the patient was at risk of death at the time of the event; it does not refer to an event which hypothetically might have caused death if it had been more severe. Important medical events that may not be immediately life-threatening or result in death or hospitalization but may jeopardize the patient or require intervention to prevent one of the other outcomes listed above should also be included in this definition to the extent reasonable medical and scientific judgement indicates that expedited reporting is appropriate under Applicable Laws. “Sublicensee” means any Third Party, other than an Affiliate of Meda, to whom Meda sublicenses any of its rights under this Agreement.   8 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   “Subsequent Term” means, on a country-by-country basis, the period beginning on the expiration of the Initial Term in a particular country and continuing until the termination of this Agreement with respect to such country. “Supply Price” means, ***. “Initial Term” means the period of time commencing on the First Commercial Sale of the Licensed Product in the Territory and ending, on a country-by-country basis, on the later of (i) expiration of the last to expire of the Licensed Patent Rights covering the Licensed Product in such country, (ii) the last-to-expire form of regulatory exclusivity, if any, granted by any governmental or regulatory body in such country with respect to the Licensed Product, or (iii) the fifteenth anniversary of the First Commercial Sale of the Licensed Product in such country. “Term” means the Initial Term and the Subsequent Term. “Territory” means the countries specified on Exhibit E attached hereto. “Third Party” means any entity other than: (a) BDSI, (b) Meda, or (c) an Affiliate of BDSI or Meda. “Transfer Price” means an amount equal to the greater of (i) *** (“Estimated Average Unit Price”), or (ii) ***. “Unexpected Adverse Reaction” means an Adverse Reaction, the nature or severity of which is not consistent with the applicable information concerning the Licensed Product or Demonstration Sample (e.g. Investigator’s Brochure for the Licensed Product). “Unit” means a single saleable unit of Licensed Product and its Packaging. Section 1.02 Interpretation. The Section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Except where the context clearly requires to the contrary: (a) each reference in this Agreement to a designated “Section” or “Exhibit” is to the corresponding Section or Exhibit of or to this Agreement; (b) instances of gender or entity-specific usage (e.g., “his” “her” “its” “person” or “individual”) shall not be interpreted to preclude the application of any provision of this Agreement to any individual or entity; (c) “including” shall mean “including, without limitation”; (d) references to Applicable Laws shall mean such Applicable Laws in effect during the Term (taking into account any amendments thereto effective at such time without regard to whether such amendments were enacted or adopted after the Effective Date); (e) references to “US$” or “dollars” shall mean the lawful currency of the United States; (f) references to “Federal” or “federal” shall be to laws, agencies or other attributes of the United States (and not to any State or locality thereof); (g) the meaning of the terms “domestic” and “foreign” shall be determined by reference to the United States; (h) references to “days” shall mean calendar days; (i) references to months or years shall be to the actual calendar months or years at issue (taking   9 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   into account the actual number of days in any such month or year); and (j) days, business days and times of day shall be determined by reference to local time in Raleigh, North Carolina. ARTICLE II DEVELOPMENT Section 2.01 Meda Development. (a) Meda shall use Commercially Reasonable Efforts to pursue Product Development for the Licensed Product in the Territory. Meda will carry out development work substantially pursuant to the Development Program. Notwithstanding anything to the contrary, Meda shall be entitled to carry out the Development Program through the use of Third Party contractors, provided that Meda shall be responsible and liable for such Third Party’s performance of and compliance with Meda’s obligations hereunder. Notwithstanding the exclusivity of Section 3.02(a), if Meda fails to use Commercially Reasonable Efforts to pursue Product Development in accordance with this Section 2.01(a), ***. The Development Program may, save for in respect of BDSI’s obligations thereunder (which, notwithstanding anything to the contrary in this Agreement, may only be amended upon the written agreement of BDSI with respect thereto), be amended by Meda from time to time, subject to the advance review and approval by the ESC, such approval not to be unreasonably withheld. (b) Meda shall provide BDSI with written reports regarding the status and progress of the development of the Licensed Product in the Territory at least once per calendar quarter during the Term, which reports shall be delivered no later than *** following the end of the applicable quarter. (c) Meda shall maintain Books and Records in connection with the Development Program in accordance with Applicable Laws and otherwise in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, including to obtain Governmental Approvals, and shall properly reflect all material work done and results achieved by Meda in the performance of the Development Program in such Books and Records. BDSI and its designees (provided that such designees have entered into undertakings of confidentiality and non use which have been approved by Meda, such approval not to be unreasonably withheld) have, solely for the purposes of (i) establishing that Meda undertakes Commercially Reasonable Efforts in accordance with Section 2.01 (a), (ii) enabling BDSI to exercise and enforce its rights under this Agreement (including but not limited to its right of reference with respect to the data and results contained therein), and (iii) enabling BDSI to comply with Sections 3.2, 3.3, 5.3.4, and 10.5 and Article 4 of the CDC Agreement and Arius to comply with Sections 2.01(b), 2.01(c), 2.04(a), 2.04(b), 11.01, 13.05(a), and 14.12 and Article VI of the Arius Two Agreement, right to access, and not more often than once per calendar year audit, and inspect the materials in such Books and Records, including as permitted pursuant to Section 14.11, and Meda shall without undue delay provide copies of such Books and Records to BDSI and/or its designees upon their reasonable request. BDSI or its designees may audit and inspect such Books and Records at any time for cause upon reasonable notice to Meda. Any request to audit and inspect   10 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   such Books and Records in excess of the one permitted per year shall be at the approval of Meda with such approval not being unreasonably withheld. ***. Section 2.02 BDSI Obligations. (a) Following the Effective Date, BDSI shall at its cost provide Meda with copies of all regulatory approvals and Licensed Know-How in the possession of BDSI or Arius Two that relate to the Licensed Product, including but not limited to INDs, NDAs, and any and all applications, correspondence, filings, and documents related to any of the foregoing, and all data and results obtained from non-clinical and clinical studies performed by BDSI, Arius Two, their consultants, contractors, agents, or other representatives, prior to the Effective Date and during the Term, provided that BDSI shall not be required to deliver copies of any such information to the extent (1) such information includes Third Party proprietary information and (2) BDSI has agreed to keep such information confidential. BDSI warrants that, notwithstanding the foregoing, it shall not withhold any such information from Meda to the extent that it materially, directly, and solely concerns the safety or efficacy of the Licensed Product. Meda shall have the right, subject to providing BDSI an advance right to review and comment on all of the following, to make amendments to Government Approvals in the Territory, make additional applications thereunder, conduct such studies, or undertake any and all such actions as are necessary in order to maintain and apply for any marketing or product approvals, licenses, registrations or authorizations in the Territory with respect to Licensed Products. Upon BDSI’s written request, Meda shall provide BDSI or any designee thereof with copies of or access to any such documents that relate to the Licensed Product, including without limitation all amendments to the relevant Governmental Approvals, any additional applications, and the results of any such studies. (b) BDSI will use Commercially Reasonable Efforts to perform any obligations of BDSI specified in the Development Program. The costs and expenses incurred by BDSI under this Section 2.02(b) shall *** or as otherwise provided for in the Development Program. Notwithstanding anything to the contrary, BDSI shall be entitled to satisfy its obligations through the use of Third Party contractors provided that BDSI shall be liable for such Third Party’s performance of BDSI’s obligations hereunder. Section 2.03 Availability of Resources. Meda shall maintain facilities and/or enter into contractual relationships as are consistent with generally accepted practices in the pharmaceutical industry in order to carry out, or ensure the carrying out of, the activities to be performed by Meda pursuant to the Development Program. Section 2.04 Regulatory and Clinical Documentation. (a) Subject to the terms of this Agreement, Meda will own all documentation, including all notes, summaries and analyses related thereto, developed in connection with all clinical trials performed under the Development Program and regulatory submissions related thereto (the “Clinical Documentation”) and the results of all research and development conducted under the Development Program (the “Results”), provided that Meda shall provide BDSI and any designee thereof, (provided that such designee has entered into undertakings of confidentiality and   11 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   non use which have been approved by Meda, such approval not to be unreasonably withheld), with copies of and access to all such Clinical Documentation and Results solely for purposes of (1) establishing that Meda undertakes Commercially Reasonable Efforts in accordance with Section 2.01 (a), (2) enabling BDSI to exercise and enforce its rights under this Agreement (including but not limited to its right of reference with respect to such Clinical Documentation and Results and the right to audit and inspect the materials in such Books and Records pursuant to Section 14.11), and (3) enabling BDSI to comply with Sections 3.2, 10.5.1, 4.1.1, 4.2, 4.3, 4.4, 4.5.2 and 4.6 of the CDC Agreement and Arius to comply with Sections 2.01(b), 2.01(c), 2.04(a), 2.04(b), 11.01, 13.05(a), and 14.12 and Article VI of the Arius Two Agreement. Meda shall under no circumstances be obliged to give any third party which Meda in its reasonable discretion considers to be a competitor with the exceptions as cited in 2.01 (c), access to Clinical Documentation and/or Results. The foregoing shall not be interpreted to grant ownership to Meda of the results of any research and development conducted by or on behalf of BDSI outside the Development Program for use outside the Territory, regardless of whether or not such results are referred to in any regulatory submissions of Meda. (b) Any Governmental Approval required by any Competent Authority in the Territory shall be prepared, filed and obtained in Meda’s name and shall be owned by Meda, subject to Meda’s obligations under Section 13.05(c). Section 2.05 Costs and Expenses. Meda shall be responsible for all Development Costs incurred after the Effective Date within the Territory ***. Furthermore, Meda will reimburse BDSI for all of BDSI’s Development Costs, which shall include but not be limited to BDSI’s total direct and indirect costs and expenses incurred in satisfying its obligations under Section 2.02(b), *** ***. BDSI shall keep complete and accurate books and records pertaining to the Development Costs incurred by or on behalf of it pursuant to this Agreement in sufficient detail to permit Meda to confirm the accuracy of such Development Costs. Meda shall have the right to audit and inspect such Books and Records pursuant to the terms of Section 14.11, but only to the extent reasonably necessary to confirm the accuracy of the calculation of the Development Costs. Section 2.06 European Steering Committee. (a) Responsibilities. Within *** of the Effective Date, the parties shall establish a European Steering Committee (“ESC”) as described in this Section 2.06. The ESC shall exist during the term of this Agreement. The ESC shall be updated regarding the parties’ progress under the Development Program, advise the parties with respect thereto, be informed of any development work carried out by BDSI outside the Territory, and review and approve any changes or amendments to the Development Program, such changes and amendments only to be effective upon approval thereof by the ESC unless such change or amendment is required by a governmental authority within the Territory, provided that, notwithstanding the foregoing, the ESC shall have no authority to amend the body of this Agreement document. For the avoidance of doubt, for the purpose of this Section 2.06(a) the Development Program shall not be considered to be a part of the body of this Agreement document. *** The ESC shall also be   12 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   updated and provide input regarding the allocation of research and development work between the parties under the Development Program and shall recommend changes as necessary. The ESC shall also have such rights, responsibilities, and decision-making authority as may be specified elsewhere in this Agreement. The Parties shall report to the ESC on all significant research, development, clinical, regulatory, manufacturing, and commercialization issues relating to the Licensed Product or the Development Program, and the ESC shall make recommendations and provide strategic guidance with respect to such issues. Each Party shall keep the ESC reasonably informed of its progress and activities regarding the development of the Licensed Product during the Term. (b) Membership. The ESC will be comprised of an equal number of representatives from each Party. The exact number of such representatives shall be as agreed upon by the Parties, but no event shall such number be less than *** nor more than*** for each Party, and each Party shall include at least ***; each of such representatives shall have reasonably relevant experience and responsibility within the relevant Party’s organization. The Parties’ initial members of the ESC shall be as follows:   BDSI   Meda *** Each Party may replace any or all of its representatives on the ESC at any time upon written notice to the other Party. Any member of the ESC may designate a substitute to attend and perform the functions of that member at any meeting of the ESC. Each Party may, in its reasonable discretion, invite non-member representatives of such Party to attend meetings of the ESC. Meda shall designate one person of the ESC to act as chairperson of the ESC and BDSI shall designate a member of the ESC to act as secretary of the ESC. (c) Meetings. During the Term, the ESC shall meet via teleconference at least four times per annum or more frequently as the parties deem appropriate, on such dates, and at such places and times as the parties shall reasonably agree, provided, however, that the first meeting shall be held within *** of the Effective Date. The ESC shall meet in person at least once per calendar year. Meetings of the ESC shall, if personal attendance is required, alternate between the offices of the parties or their respective Affiliates, or such other place as the parties may agree. The members of the ESC also may hold meetings, convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate, provided that the members hold at least one face-to-face meeting each year. Each Party shall bear all costs and expenses relating to its members’ attendance at meetings of the ESC. The chairperson of the ESC will be responsible for setting all meeting dates and arranging logistics for the meetings, subject to the reasonable scheduling and logistics requests of the Parties, and the secretary will be responsible for recording and distributing minutes. If and as requested by Arius Two (or any assignee thereof with respect to the Arius Two Agreement), a representative of Arius Two (or its assignee with respect to the Arius Two Agreement) shall be entitled to attend all meetings of the ESC on a non-voting basis, in person or by means of telecommunications or video conferences; Arius Two and   13 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   any such assignee shall be deemed third party beneficiaries of this Agreement for purposes of enforcing the aforementioned right to attend ESC meetings. (d) Decision-Making. The ESC and its members shall use good faith efforts to operate and make decisions by majority vote of members, provided that in the event the ESC is unable to obtain a majority vote of its members regarding any matter before the ESC within a reasonable period of time not to exceed ***, the unresolved matter will be referred to a member of the Meda Executive Committee and the BDSI Chief Executive Officer (or, if such office is not held by any individual, the highest ranking executive officer) and such officers shall then use commercially reasonable efforts to negotiate in good faith in an attempt to resolve such matter. If, within *** of being referred to such officers for resolution, such officers are unable to resolve such matter ***. (e) Liaison. Each Party will designate an individual to serve as the liaison between the Parties to undertake and coordinate any day-to-day communications as may be required between the Parties relating to their respective activities under this Agreement. Each Party may change such liaison from time to time during the Term upon written notice thereof to the other Party. Section 2.07 Supply of Licensed Products. BDSI will be the exclusive supplier to Meda of Licensed Products, and BDSI shall supply Licensed Products for sale within the Territory exclusively to Meda, as described in the supply agreement attached hereto as Exhibit F (the “Supply Agreement”). Meda shall only manufacture, have manufactured, or obtain Licensed Products from Third Parties as provided for in the Supply Agreement. However, if, following expiration of the last to expire of the Licensed Patent Rights in the Territory, ***. ARTICLE III LICENSE Section 3.01 License Fee. In partial consideration for the licenses granted under Section 3.02(a), Meda shall pay to BDSI an initial one-time non-refundable (except as otherwise expressly stated herein) license fee of US$2,500,000, by wire transfer of immediately available funds to an account to be designated by BDSI. Meda shall pay such license fee upon execution of this Agreement by both parties. Section 3.02 License Terms. The terms and conditions of the license (the “License”) granted to Meda shall be as follows: (a) Subject to the terms and conditions of this Agreement, BDSI hereby grants to Meda during the Initial Term (i) a nonexclusive paid up, sub-licensable license under the Licensed Technology to develop the Licensed Product in the Territory for use and sale in the Field as contemplated by the Development Program, which license shall include a right of reference to and use of all preclinical and clinical data under the Control of BDSI or Arius Two and all regulatory approvals and related filings and correspondence under the Control of BDSI or Arius Two , in each case solely to the extent related to the Licensed Product, ***, (ii) a   14 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   nonexclusive sub-licensable license under the Licensed Technology to make and have made the Licensed Product for development and, effective upon the initial Governmental Approval of the Licensed Product in the Territory, with respect to the Territory, sale in the Field in the Territory, and, subject to the nonexclusivity of certain rights granted under the Arius Two Agreement upon the expiration of the Royalty Term (as defined in the Arius Two Agreement) pursuant to Section 3.04 thereof, (iii) an exclusive, royalty-bearing sub-licensable license, effective upon the initial Governmental Approval of the Licensed Product in the Territory, with respect to the Territory, under the Licensed Technology to market, advertise, promote, distribute, offer for sale, and sell the Licensed Product in the Field in the Territory. During the term of this Agreement, BDSI and its Affiliates shall not sell the Licensed Product in the Field in the Territory, nor grant any right or license to any Third Party with respect to the Licensed Product in the Territory that conflicts with the rights granted above. Meda shall have the right to sublicense, any rights granted hereunder within the Territory provided that (i) Meda shall provide BDSI with a copy of any proposed sublicense for BDSI’s review and comment prior to execution, (ii) Meda shall not enter into any such sublicense without BDSI’s written consent, provided that BDSI may not unreasonably withhold such consent with respect to any matter regarding such sublicense other than the final definition of Non-Royalty Sublicensing Revenue to be negotiated by the parties, (iii) Meda shall secure all reasonably appropriate covenants, obligations and rights from any such Sublicensee to ensure that Meda can comply with its obligations under this Agreement, (iv) Meda shall provide, upon written request by BDSI, reasonable assurance that its Sublicensees comply with confidentiality, indemnity, reporting, audit rights, and information obligations comparable to those set forth in this Agreement, (v) Meda shall be responsible and liable for such Sublicensee’s performance of Meda’s obligations hereunder and compliance with the terms of this Agreement, (vi) all Sublicensees shall agree to be subject to the terms of this Agreement, (vii) BDSI shall be provided with a copy of all sublicenses executed hereunder by Meda, and (viii) all such sublicenses shall terminate upon the termination of this Agreement. Neither Meda, its Affiliates, nor their Sublicensees shall sell, offer for sale, promote, market, or distribute Licensed Products in a country unless and until all necessary Governmental Approvals have been obtained in such country. Without limiting the foregoing, BDSI’s rights for development of the Licensed Product inside the Territory shall include but not be limited to the conduct of clinical trials of the Licensed Product for use in supporting Governmental Approvals outside of the Territory, provided that (i) if feasible, BDSI will discuss in good faith collaborating with Meda on such activities in the Territory, and (ii) BDSI shall not conduct any clinical trials of the Licensed Product in the Territory without Meda’s prior written approval, except as permitted by the first paragraph of this Section 3.02(a), which approval shall not be unreasonably withheld. Meda shall provide BDSI notice of its approval or denial of such approval within *** of any request for such approval, provided that (i) in the event Meda wishes to deny such approval, such notice shall include a written description of Meda’s reasonable objections to the proposed studies and (ii) Meda shall be deemed to have approved such studies in the event it fails to provide such notice within such *** period   15 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   (b) Meda acknowledges that it shall have no right, title or interest in or to the Licensed Technology, Licensed Product, or Marks except to the extent set forth in this Agreement, and BDSI reserves all rights to make, have made, use, sell, offer for sale, and import the Licensed Technology and Licensed Product except as otherwise expressly granted to Meda pursuant to this Agreement. Nothing in this Agreement shall be construed to grant Meda any rights or license to any intellectual property of BDSI other than as expressly set forth herein. (c) All Affiliates of Meda shall be subject to the terms of this Agreement. Meda shall be fully responsible and liable for the acts and omissions of its Affiliates in the course of exercising any rights granted under this Agreement as if such acts or omissions had been those of Meda, including but not limited to any breach of the provisions of this Agreement, and Meda shall ensure that all of Meda’s Affiliates shall comply with the terms of this Agreement. (d) INTENTIONALLY OMITTED. (e) Subject to the directions, instruction, and oversight of the ESC, Meda shall prepare and file with each of the Competent Authorities in each country in the Territory the appropriate applications and related documents necessary to obtain Governmental Approval to market and sell the Licensed Product in each country in the Territory in which Meda decides to market the Licensed Product. The above notwithstanding: i . Meda shall, no later than ***, submit an application for Governmental Approval to market and sell the Licensed Product in any one country of ***. ii. within six months of receiving Governmental Approval to market and sell the Licensed Product in any one country of ***, Meda will apply for Governmental Approval to market and sell the Licensed Product in at least one additional country, from those named above; and iii. upon receipt of Governmental Approval to market and sell the Licensed Product in a country in the Territory (including but not limited to Pricing and Reimbursement Approvals, if and as necessary), Meda shall commence the marketing and sale of the Licensed Product in such country within *** of receipt of such Governmental Approval. Notwithstanding the exclusivity provided in Section 3.02(a), if Meda fails to fulfill any of its obligations under this Section 3.02(e), Meda shall be in breach of this Agreement ***. (f) BDSI agrees that, notwithstanding the nonexclusivity of certain rights granted under the Arius Two Agreement upon the expiration of the Royalty Term (as defined in the Arius Two Agreement) pursuant to Section 3.04 thereof and resulting nonexclusivity of any licenses granted hereunder to Meda by BDSI as referenced herein, BDSI shall not grant rights to any Third Party in the Territory under the Licensed   16 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Technology, Improvements or Marks with respect to any Licensed Product during the term of this Agreement. Section 3.03 Trademarks. Subject to the terms and conditions of this Agreement and the nonexclusivity of certain rights granted under the Arius Two Agreement upon the expiration of the Royalty Term (as defined in the Arius Two Agreement) pursuant to Section 3.04 thereof, BDSI hereby grants to Meda an exclusive, paid-up, sub-licensable (subject to the constraints on sublicensing described in Section 3.02 above), royalty-free license to use the Marks during the Initial Term solely in connection with the use, development, promotion, marketing, distribution, offer for sale, and sale of the Licensed Product in the Territory, provided that such rights of marketing, distribution, offer for sale, and sale shall become effective upon the initial Governmental Approval of the Licensed Product in the Territory. Meda acknowledges that it shall have no right, title or interest in or to the Marks except to the extent set forth in the license granted to Meda under this Section 3.03, and BDSI reserves all rights to use the Marks other than those rights granted herein, provided that, if Meda elects, at least *** prior to receipt of initial Governmental Approval in the Territory with respect to the Licensed Product, to use and thereafter uses BDSI’s “BEMA Fentanyl” Mark for the Licensed Product in the Territory, BDSI will not use such Mark in the Territory for purposes of marketing or selling the Licensed Product unless this Agreement terminates or Meda ceases the use of such Mark. Meda shall use the Marks in the exact form set forth on Exhibit G, attached hereto, including the “®” symbol or “™” symbol, as applicable. All content or other specific graphic elements provided by BDSI shall remain the property of BDSI and the Marks and any such content or graphic elements, or any content or graphic elements to be used by Meda with the Licensed Product, shall be used only in the manner set forth in this Agreement and previously approved in writing by BDSI, such approval not to be unreasonably withheld. Notwithstanding anything to the contrary Meda shall be entitled to use any trademark other than the Marks, together with the Marks or otherwise, in connection with the use, development, promotion, marketing, distribution, offer for sale, and sale of the Licensed Product. For the avoidance of doubt, such trademarks shall be the exclusive property of Meda. Meda hereby grants BDSI the perpetual, irrevocable, royalty-free, fully-paid right and license to use Meda Marks (excluding, for the avoidance of doubt, the Meda name, logo and trade dress and any graphic elements relating thereto) in the manner previously approved in writing by Meda, such approval not to be unreasonably withheld in connection with the use, development, promotion, marketing, distribution, offer for sale, and sale of the Licensed Product outside the Territory and, following any termination of this Agreement by BDSI pursuant to Section 13.02 or 13.03 or by Meda pursuant to Section 13.03A, inside the Territory. Section 3.04 Ownership of Intellectual Property. (a) BDSI shall own all right, title and interest in and to any Improvements made by or on behalf of either Party, solely or jointly with the other Party or Third Parties, and all intellectual property rights related thereto, and Meda hereby assigns to BDSI all right, title, and interest to any Improvements generated by or on behalf of Meda or its Affiliates and all intellectual property rights related thereto. Meda shall take all actions and execute all documents necessary to effect the purposes of the foregoing, as requested by BDSI, and cause its Affiliates, employees, contractors, and other representatives to do the same. During the Term, each Party shall promptly notify the other Party in writing of Improvements made, solely or jointly with   17 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   other parties, by such Party (the “Improving Party”). In addition to any exclusive rights licensed hereunder and notwithstanding Section 3.04(b), BDSI shall, during the Term hereof, grant to Meda an exclusive license under Improvements and any Patent Rights claiming such Improvements Controlled by BDSI or Arius Two to the extent reasonably necessary to develop, market, advertise, promote, distribute, offer for sale, and sell the Licensed Product in the Territory. (b) For the avoidance of doubt and except as specifically set forth in this Agreement, Meda shall have no right, title, or interest in or to the Licensed Technology, Marks, or any Improvements. Section 3.05 BDSI Right of Reference. Meda hereby grants, subject to the rights of Meda under this Agreement, BDSI a royalty-free, fully-paid, perpetual and irrevocable exclusive license and right of reference, with rights of sublicense, to all preclinical and clinical data, results, and information generated by or on behalf of Meda, its Affiliates, or their Sublicensees concerning Licensed Products and all Governmental Approvals and all supporting information, filings, correspondence, amendments, and supplements with respect to the foregoing solely for the purposes of seeking, obtaining, or maintaining regulatory approvals and/or clearances of (i) the Licensed Product outside the Territory and (ii) any BEMA-based products other than the Licensed Product in any jurisdiction throughout the world. Section 3.06 License Following Expiration of the Initial Term. After expiration of the Initial Term in a particular country in the Territory, Meda shall retain, during the Subsequent Term, subject to compliance with its payment obligations under Article IV and the nonexclusivity of certain rights granted under the Arius Two Agreement upon the expiration of the Royalty Term (as defined in the Arius Two Agreement) pursuant to Section 3.04 thereof, an exclusive, royalty-bearing license under the Licensed Know-How, Improvements, and Marks, to the extent under the Control of BDSI or Arius Two, to make, have made, use, sell, and offer for sale Licensed Products in the Field in such country, consistent with terms applying to the licenses granted hereunder during the Initial Term. Section 3.07 ***. Section 3.08 ***. ARTICLE IV ROYALTY AND MILESTONE PAYMENTS Section 4.01 Payments on Sales. (a) For any BDSI-Supplied Units intended for sale by Meda, its Affiliates, or their Sublicensees, Meda shall pay the Transfer Price for each such Unit upon delivery thereof pursuant to the terms of the Supply Agreement. Meda shall advise BDSI in writing no later than *** in advance of the placing of the first order for Units to be supplied for sale in a particular Royalty Year of the Estimated Average Unit Price for such Royalty Year.   18 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   (b) For each Licensed Product sold by Meda, its Affiliates, or Sublicensees that is not a BDSI-Supplied Unit, Meda shall pay BDSI the greatest of ***. In the event no BDSI-Supplied Units have been commercially sold or distributed by Meda, its Affiliates, or their Sublicensees prior to the sale of the applicable Unit, the parties shall use commercially reasonable efforts to in good faith negotiate a commercially reasonable royalty per Unit with respect to such Unit consistent with the foregoing based on the Parties’ costs of manufacturing (or having manufactured) Licensed Products for commercial sale; if the parties are unable to reach agreement concerning such a royalty within *** of initiating such negotiations, such royalty rate shall be determined pursuant to the dispute resolution procedures in Section 14.03. Notwithstanding the foregoing, upon any assignment of this Agreement to Arius Two or CDC as contemplated by Sections 9.11 and 13.05(g), for all Licensed Products sold by Meda, its Affiliates, or Sublicensees that are not BDSI-Supplied Units, ***. Section 4.02 Milestone Payments. Meda shall pay to BDSI, as additional license fees, the following non-refundable (except as otherwise expressly stated herein), non-creditable development milestone payments within ten (10) days of the occurrence of the specified milestone event: (a) US$*** upon ***; (b) US$*** upon ***; and (c) US$*** upon ***. For the avoidance of doubt, each milestone payment referred to in this Section 4.02 shall be paid only once by Meda. BDSI shall provide Meda written notice of the achievement of the milestone specified in subsection (a) above within ten (10) days of such achievement; Meda shall provide BDSI written notice of the achievement of the milestones specified in subsections (b) and (c) above within ten (10) days of such achievement. ***. Section 4.03 Non-Royalty Sublicensing Revenue. Meda shall pay BDSI an amount equal to *** percent (***%) of all Non-Royalty Sublicensing Revenue received by Meda or its Affiliates. Section 4.04 Reconciliations, Reports, and Payments. (a) Meda, on behalf of itself and its Affiliates, shall, beginning with respect to the initial Royalty Quarter, furnish to BDSI a quarterly written report (each, a “Royalty Statement”) showing in reasonably specific detail ***. (b) In the event that, with respect to any BDSI-Supplied Units, the total aggregate Supply Price calculated with respect to particular Licensed Products sold by Meda, its Affiliates, or Sublicensees during a particular Royalty Quarter exceeds the Transfer Price paid to BDSI with respect to such Licensed Products, Meda shall pay BDSI an amount equal to such excess; in the event that the total aggregate Transfer Price paid to BDSI with respect to particular   19 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Licensed Products sold by Meda, its Affiliates, and Sublicensees during a particular Royalty Quarter exceeds the Supply Price with respect to such Licensed Products, BDSI shall pay Meda an amount equal to such excess. In the event that the weighted average Supply Price is *** of the Transfer Price for *** Royalty Quarters, the Transfer Price shall be changed for the remainder of that Royalty Year to ***. (c) All payments due BDSI under Sections 4.01, 4.03, 4.04, and 7.03 with respect to a particular Royalty Quarter shall be due no later than *** following the close of each Royalty Quarter; all payments due Meda under Section 4.04(b) with respect to a particular Royalty Quarter shall be due no later than *** following BDSI’s receipt of the applicable Royalty Statement. All payments hereunder shall be payable in United States Dollars. With respect to each Royalty Quarter, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at the rate of exchange reported in The Wall Street Journal on the last business day of the applicable Royalty Quarter. All payments owed under this Agreement shall be made by wire transfer to a bank account designated by the Party owed payment, unless otherwise specified in writing by such Party. (d) In the event that any payment, including contingent payments, due hereunder is not made when due, each such payment shall accrue interest from the date due at an annual rate equal to the Prime Rate of Interest plus three percent (3%) or, if less, the maximum legally permissible interest rate, pro rated for any partial years during which such interest shall accrue. The payment of such interest shall not limit BDSI from exercising any other rights it may have under this Agreement as a consequence of the lateness of any payment. (e) During the Term and for a period of five years thereafter, or longer if and as required in order for Meda to comply with Applicable Law, BDSI to comply with the CDC Agreement, and Arius to comply with the Arius Two Agreement, Meda shall keep complete and accurate records in sufficient detail to permit BDSI to confirm the completeness and accuracy of (i) the information presented in each Royalty Statement and all payments due hereunder and (ii) the calculation of Net Sales. BDSI and any designee thereof shall have the right to audit and inspect such records pursuant to the terms of Section 14.11. (f) All taxes levied on account of the payments accruing to a Party under this Agreement shall be paid by such Party for its own account, including taxes levied thereon as income to such Party. If provision is made in applicable law or regulation for withholding, such tax shall be deducted from the payment made by a Party (the “Paying Party”) to the other Party (the “Paid Party”) hereunder, shall be paid to the proper taxing authority by the Paying Party, and a receipt of payment of such tax shall be secured and promptly delivered to the Paid Party, provided that, notwithstanding the foregoing, to the extent that any such deduction by Meda with respect to a particular Unit would result in the sum of (i) the actual amount paid to BDSI by Meda with respect to such Unit following such deduction plus (ii) any portion of such withholding or tax paid by Meda with respect to such Unit that is refundable to or recoverable by BDSI under the applicable law(s), regulations, or other binding authority being less than the Product Price for such Unit, Meda shall not be entitled to any such deduction and shall instead be responsible for such payment on behalf of BDSI. Each Party agrees to reasonably assist the other Party in claiming exemption from such deductions or withholdings under any double   20 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   taxation or similar agreement or treaty from time to time in force or in otherwise seeking the return, refund, or credit of any such withheld amount as applicable. (g) Notwithstanding any other provision of this Agreement, if Meda is prevented from making any payments by virtue of the statutes, laws, codes or governmental regulations of the country from which the payment is to be made, then such payment shall be paid by depositing funds in the currency in which it accrued to BDSI’s account in a bank acceptable to BDSI in the country whose currency is involved. Section 4.05 Dispute Resolution. If the parties are unable to reach agreement concerning any matter intended to be resolved pursuant to good faith negotiations between the parties pursuant to Section 4.01 or the definition of Net Unit Royalty as established in Section 1.01 within thirty (30) days of the initiation of such negotiations, upon receipt of written notice from either Party, the unresolved matter will be referred to the parties’ Chief Executive Officers (or, if such office is not held by any individual, highest ranking executive officer) and such officers shall then use commercially reasonable efforts to negotiate in good faith in attempt to resolve such matter. If, within forty five (45) days of being referred to such officers for resolution, such officers are unable to resolve such matter, then the disputed aspects of such matter shall be settled pursuant to arbitration as described in Section 14.03. ARTICLE V COMMERCIALIZATION Section 5.01 Promotion and Marketing Obligations. (a) Meda, at its own expense, will be responsible for all sales and marketing activities related to the Licensed Product in the Territory. (b) Meda agrees to use Commercially Reasonable Efforts to promote the sale, marketing, and distribution of the Licensed Product in each country of the Territory. The ESC shall have the opportunity to review and comment on Meda’s initial plan for commercializing the Licensed Product in the Territory and any subsequent amendments, revisions, or updates to such plan, and to oversee, monitor, advise, and comment on Meda’s execution of such plan(s). Meda, its Affiliates, and Sublicensees shall maintain standards with respect to the quantity and quality of, and expenditures on, marketing and promotion of the Licensed Product, including the ***. Meda agrees that during the first *** after launch of the Licensed Product in the Territory, ***. Meda and its Affiliates, and Sublicensees shall expend reasonably sufficient financial resources to fund the efforts described above. In the event Meda sublicenses any of its rights under this Agreement, the activities of Sublicensees may apply to the satisfaction of the foregoing, provided that, subject to the foregoing, Meda’s obligations under this Agreement shall not be reduced or otherwise affected by any sublicensing by Meda of its rights under this Agreement. Meda shall promptly advise BDSI of any issues that materially and adversely affect its ability to market the Licensed Product in the Territory. In such event, senior executives of Meda and BDSI shall meet and in good faith discuss what actions should be taken in light of such issues.   21 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   (c) Any trademark, logo, design and/or trade dress for the Licensed Products used by Meda, its Affiliates, or Sublicensees in the Territory shall be subject to BDSI’s prior written approval, such approval not to be unreasonably withheld, and comply with Applicable Laws. (d) *** prior to the expected date of the First Commercial Sale and at least *** prior to the beginning of each calendar year thereafter, Meda shall submit to BDSI in writing a marketing, sales and distribution plan for the Licensed Product detailing Meda’s, its Affiliates’, and Sublicensees’ proposed ***. Meda shall provide the ESC a reasonable opportunity to review and comment on such strategy and tactics prior to implementing them. In addition, upon the request of BDSI, Meda shall provide BDSI with copies of any market research reports relating to Licensed Product sales and Licensed Product competition in Meda or its Affiliates possession. Section 5.02 Labeling and Artwork. BDSI shall be provided with copies of any labeling and proposed changes to the labeling of the Licensed Product for BDSI’s review, comment, and approval; any such labeling or proposed changes thereto shall not be effected by Meda unless approved in advance by BDSI, such approval not to be unreasonably withheld. The actual cost of implementing such change will be at Meda’s sole cost and expense, including any materials made obsolete by Meda’s changes to the artwork. All labeling, artwork, and proposed changes thereto shall at all times comply with Applicable Laws. ARTICLE VI REGULATORY COMPLIANCE Section 6.01 Marketing Authorization Holder. Subject to Meda’s obligations upon termination pursuant to Section 13.05, Meda shall be the holder and owner of all Marketing Authorizations and Governmental Approvals in the Territory. Meda agrees that neither it nor its Affiliates will do anything to recklessly, negligently, or intentionally adversely affect a Marketing Authorization or Governmental Approval. Section 6.02 Maintenance of Marketing Authorizations. With respect to the Licensed Product, Meda agrees, at its sole cost and expense, to maintain such Marketing Authorizations and Government Approvals throughout the Term including obtaining any variations or renewals thereof. Section 6.03 Interaction with Competent Authorities. After the Effective Date, each Party shall provide to the other Party a copy of any material correspondence or materials that it receives from a Competent Authority regarding the Licensed Product, in respect of Meda, in the Territory and, in respect of BDSI, in the United States. If such correspondence is not received in English, a summary in English of all material matters addressed thereby. Such correspondence or summary shall be provided within *** of receipt thereof by the relevant Party. BDSI shall be provided reasonable advance written notice of all material meetings, conferences, or calls with Competent Authorities in the Territory concerning the Licensed Product, and BDSI shall be permitted to have one representative attend all such meetings, conferences, or calls. With respect   22 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   to the Licensed Product, Meda shall provide BDSI with copies of any materials relating to any material regulatory matter and, when reasonably practicable, shall provide copies of any documents to be presented to any Competent Authority in respect of such matters prior to their presentation thereto, and, in either case, if such primary materials are not in English, a summary in English of all material matters addressed thereby, so that the ESC, if practicable, shall have an opportunity to review and approve thereof in advance. The materials provided to BDSI under this Article VI with respect to material interactions with any Competent Authority will be forwarded to BDSI within ***. Further, Meda agrees to take such reasonable actions, provide such documentation, and allow such access as necessary to enable BDSI to comply with Section 3.2 and Sections 4.1.1, 4.2, 4.3, 4.4, 4.5.2 and 4.6 of the CDC Agreement and Arius to comply with Article VI of the Arius Two Agreement. Section 6.04 ADE Reporting and Phase IV Surveillance. (a) General. Meda shall, at its sole cost and expense, be responsible for all reporting of ADEs and Phase IV surveillance in the Territory, if and as required by Competent Authorities, provided the ESC shall be provided a copy of any relevant proposed report to such Competent Authorities in advance of its submission thereto in order to provide a reasonable opportunity for the ESC to review and provide comment with respect thereto. All correspondence and communication will be in English. The Party sending the communication will translate as necessary. (b) Safety Related Regulatory Documents. Meda will be responsible for maintaining the Company Core Safety Information (“CCSI”), as included in the Company Core Data Sheet (“CCDS”), in the Territory. BDSI (or its agent) will be responsible for maintaining the CCSI, as included in the Package Insert/Prescribing Information (“PI”), in the United States. (c) Safety Databases. Meda will maintain a pan-European pharmacovigilance database for the Licensed Product in the Territory, and BDSI shall use commercially reasonable efforts to materially comply with any comparable obligations or requirements of any applicable laws in the United States. The database concerned includes all Adverse Reaction reports from spontaneous sources, from scientific literature and PMS reports (serious) and Serious Adverse Events reports from clinical studies coming into the knowledge of Meda. Spontaneous cases will include reports received from both healthcare professionals and consumers. Adverse Event data will be coded to the latest version of the Medical Dictionary for Regulatory Activities (“MedDRA”). Report handling and classifying will be carried out in accordance with Meda’s standard operating procedures, which shall be commercially reasonable and consistent with industry standards. All reasonable assistance and access to information, personnel, or Books & Records (other than electronically-direct database access) requested by BDSI in responding to safety inquiries will be provided by Meda upon request. BDSI (or its agent) will maintain a pharmacovigilance database for the Licensed Product in the United States. The database will include all ADR reports from spontaneous sources, from scientific literature and PMS reports (serious) and SAE reports from clinical studies coming into the knowledge of BDSI’s Pharmacovigilance Department (or its agent). Spontaneous cases will include reports received from both healthcare professionals and   23 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   consumers. AE data will be coded to the latest version of MedDRA. Report handling and classifying will be carried out in accordance with BDSI’s (or its agent’s) SOPs. All reasonable assistance and access requested by Meda in responding to safety inquiries will be provided by BDSI upon request. (d) Reporting of Adverse Drug Reactions (ADRs) i. The parties shall keep each other informed on all safety matters related to the Licensed Product and on any information received from any source concerning any ADR coming to either Party’s knowledge with regard to the Licensed Product. ii. Each Party is responsible for fulfilling the reporting obligations to the appropriate regulatory authorities with respect to the Licensed Product in accordance with the applicable national laws and regulations of the different countries (e.g. Meda within the Territory, BDSI outside the Territory). iii. Independently of any national reporting requirements, the parties hereto shall in relation to the Licensed Product report to each other all SAEs from clinical trials with a reasonable suspicion of causal relationship to the administered study medication and all serious spontaneously reported suspected ADRs within the first ***, but not later than *** after having come to a Party’s attention including a case description and medical causality assessment on the International Adverse Event Report Form (CIOMS form) in English. If required, follow up will be carried out by the Market Authorization holder on all SARs (listed and unlisted) and non-serious unlisted ADRs in the Territory according to their own internal procedures, which shall be commercially reasonable and consistent with industry standards. Non-serious listed ADRs in the Territory shall be followed up by Meda if there is a safety concern. Pregnancy and in utero reports will be followed up by Meda at the expected due date. Reasonable attempts shall be made by Meda to obtain the required minimum information: identifiable patient, reporter, suspect drug, and AE. iv. Life-threatening or fatal SAEs originating from clinical trials in the Territory with a reasonable suspicion of causal relationship to the Licensed Product shall be reported by a Party to the other Party and, if and as required thereby, appropriate Competent Authorities within ***, but not later than ***. In the case of incomplete or insufficient data available, an initial report has to be issued meeting the time frame, followed by reasonably prompt follow up report(s). Any ADRs originated by BDSI are to be reported on CIOMS form as soon as reasonably possible, but no later than *** after first receipt. Meda will report all other ADRs in tabular format (CIOMS line listings) in monthly intervals.   24 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   v. In any case where a change in the risk-benefit-ratio of the Licensed Product becomes evident or safety actions due to ADR seem to be necessary (e.g. change of the label, product information, special information/warnings to the medical profession, patients, authorities or Product Recall ), the Parties hereto will inform each other without delay and use commercially reasonable efforts to harmonize further measures as appropriate. Such exchange of information is realized through direct contacts between the responsible departments. Therefore, both parties undertake to inform each other on any change in the responsible persons, the address, telephone and fax-numbers in due time. If specific safety measures are to be taken with respect to the Licensed Product, Meda will ensure the implementation of such in the Territory and BDSI outside the Territory within mutually agreed timeframes or according to regulatory obligations. vi. Regulatory inquiries related to safety concerns for the Licensed Product received by either Party will be promptly forwarded to the other Party. The Parties shall work in good faith to develop a mutually agreeable response with respect to any such inquiry in the Territory at least *** before the response is required. The aforementioned information shall be addressed to: In case of BDSI: Director, Regulatory Affairs BioDelivery Sciences International, Inc. 2501 Aerial Center Parkway, Suite 205 Morrisville, NC 27560, USA Tel.: 919-653-5164 Fax: 919-653-5161 Email: [email protected] In case of Meda: MEDA GmbH & Co. KG Corporate Pharmacovigilance Benzstrasse 1 D-61352 Bad Homburg v.d.H., Germany Tel.: +49-6172-888-2880 Fax: +49-6172-888-2661 Email: [email protected] (e) Literature for marketed products. Meda will have the primary responsibility for reviewing the world-wide relevant scientific literature for any serious and non-serious unlisted ADRs related to the Licensed Product in the Territory according to Applicable Laws. BDSI will have the primary responsibility for reviewing the world-wide relevant scientific literature for any serious and non-serious unlisted ADRs related to the Licensed Product in the United States as required by applicable laws.   25 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   (f) Signal detection / Safety monitoring. Meda will perform signal detection concerning the Licensed Product according to its own internal documented practices (as outlined in SOPs/guidelines), which shall be commercially reasonable and consistent with industry standards. Any conclusion raised from the subsequent analysis revealing relevant safety concerns regarding the Licensed Product will be communicated to BDSI in due time or immediately if the conclusions affect the safety profile of the Licensed Product. (g) Periodic reports. Meda will be responsible for preparing the periodic reports to be submitted to Competent Authorities in the Territory (Periodic Safety Update Reports (“PSURs”), Annual Safety Reports for clinical trials) in accordance with its own standard operating procedures (“SOPs”), which shall be commercially reasonable and consistent with industry standards, and Applicable Laws. BDSI will, on Meda’s reasonable request provide Meda with all data (e.g. CIOMS line listings for SAEs originating from BDSI’s clinical trials) in its possession which may reasonably be required for regulatory report compilation in the Territory. BDSI (or its agent) will be responsible for preparing the periodic reports to be submitted to regulatory authorities (PSURs, Annual Safety Reports for clinical trials) in accordance with its standard operating procedures (“SOPs”) and applicable regulations in the United States. MEDA will on request provide BDSI (or its agent) with all necessary data (e.g. CIOMS line listings for SAEs origination from clinical trials) if required for such report compilation. Section 6.05 Commercial Sale Testing and Reporting. If, after the date of First Commercial Sale, a Competent Authority requires additional testing, modification or communication related to approved indications of the Licensed Product, then Meda, subject to prior review and approval by BDSI, shall design and implement any such testing, modification, or communication at its own cost. Section 6.06 Assistance. Upon receipt of a written request, each Party shall provide reasonable assistance to the other Party, in connection with such Party’s obligations pursuant to this Article VI, subject to reimbursement of all of its pre-approved out-of-pocket costs by the requesting Party. Section 6.07 Compliance. Meda and BDSI shall comply with all Applicable Laws as set forth in this Agreement, including the provision of information by Meda and BDSI to each other necessary for BDSI and Meda to comply with any applicable reporting requirements. Each Party shall promptly notify the other Party of any comments, responses or notices received from, or inspections by, any applicable Competent Authorities, which relate to or may impact the Licensed Product or the manufacture of the Licensed Product or the sales and marketing of the Licensed Product, and shall promptly inform the other Party of any responses to such comments, responses, notices or inspections and the resolution of any issue raised by any Competent Authorities with respect to the Licensed Product   26 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   ARTICLE VII PATENTS AND TRADEMARKS Section 7.01 Maintenance of Patents and Marks. BDSI shall maintain and protect the Licensed Patent Rights in the Territory, including but not limited to the use of commercially reasonable efforts to defend any interference actions initiated by or in any jurisdiction’s patent office with respect to the Licensed Patent Rights and Marks in the Territory. Notwithstanding the foregoing, (i) upon written request by BDSI, Meda shall provide such assistance as may be necessary to enable BDSI to prosecute and obtain new patents related to any Improvements, with the cost and expense of such assistance to be borne by BDSI to the extent relating to Patent Rights outside the Territory. BDSI shall keep Meda advised by forwarding to Meda copies of all official correspondence (including, but not limited to, applications, office actions, responses, etc.) relating to the prosecution and maintenance of the Licensed Patent Rights, and shall provide Meda an opportunity to comment on any proposed responses, voluntary amendments, submissions, or other actions of any kind to be made with respect to Licensed Patent Rights. In the event that BDSI desires to abandon any Licensed Patent Rights and/or the Marks in the Territory, BDSI shall provide reasonable prior written notice to Meda of its intention to abandon. In the event that BDSI provides such notice to Meda, then BDSI shall, upon Meda’s written request, assign such Licensed Patent Rights and/or Marks in the Territory to Meda, provided, however that such assignment shall include Meda’s acknowledgement of its continued indemnification responsibilities as described in Section 10.02. Upon assignment of such Licensed Patent Rights or Marks to Meda, Meda will thereafter prosecute and maintain the same at its own cost to the extent that Meda desires to do so. Section 7.02 Cooperation. Meda shall make available to BDSI or its authorized attorneys, agents or representatives, its employees and, to the extent reasonably practicable, its consultants or agents as are necessary or appropriate to enable BDSI to file, prosecute and maintain patent applications for the Licensed Patent Rights in the Territory, and with respect to Improvements, anywhere in the world, for a reasonable period of time sufficient for BDSI to obtain the assistance it needs from such personnel. Meda shall be solely responsible for all reasonable, documented costs and expenses incurred in making its attorneys, agents, representatives or consultants available pursuant to the foregoing. Section 7.03 Prosecution of Infringement. During the Term, each Party shall give prompt notice to the other Party of any Third Party act which may infringe Meda’s rights under the Licensed Patent Rights and/or the Marks in the Territory and shall cooperate with the other Party to terminate such infringement. If legal proceedings become necessary, Meda shall have the first right to bring and control such action or proceeding concerning the potential or actual infringement of Meda’s rights under this Agreement, using counsel reasonably acceptable to BDSI, and Meda shall solely bear the cost with respect thereto. The above notwithstanding, without BDSI’s prior written consent Meda may only settle any such claim with BDSI’s prior written consent, such consent not to be unreasonably withheld. BDSI shall provide, at Meda’s expense, such assistance and cooperation to Meda as may be necessary to successfully prosecute any action against such Third Party. Any damages, monetary awards, or other amounts recovered or received in settlement by Meda shall be applied proportionately first to defray the   27 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   unreimbursed costs and expenses (including reasonable attorneys’ fees) incurred by Meda and BDSI in the action. If any balance remains, Meda shall be entitled to retain an amount equal to *** percent (***%) of the portion of such balance with the remaining balance being paid to BDSI by Meda. Notwithstanding the foregoing, if Meda wishes BDSI to share the costs of pursuing any actual, potential, or alleged infringer of Meda’s rights under the Licensed Patent Rights and/or Marks in the Territory, it shall provide written notice thereof to BDSI within *** of Meda’s becoming aware of the actual, potential, or alleged infringement. Upon written notice thereof, the parties shall enter into good faith discussions for a period not to exceed *** concerning the possibility and terms of any such cost-sharing, provided that (i) neither Party shall have any obligation to enter into such an arrangement and (ii) any such arrangement will provide for the sharing of any damages, monetary awards, or other amounts recovered or received in settlement of such matter in a manner, based on the portion of such costs to be shared by BDSI, proportionately more favorable to BDSI than the sharing of any such damages, monetary awards, or other amounts recovered or received in settlement absent such cost-sharing, as contemplated under the first paragraph of this Section 7.03. In the event Meda fails to institute proceedings or undertake reasonable efforts to terminate any Third Party infringement of the Licensed Patent Rights and/or Marks in the Territory within *** of the later of: (a) receiving notification from BDSI of any such infringement or (b) sending notice to BDSI of such action, or the parties are unable to reach an agreement concerning the sharing of the costs of pursuing any actual, potential, or alleged infringer (and increased share of any proceeds from such action for the benefit of BDSI, as contemplated by the preceding paragraph) within *** of Meda’s notice indicating its desire to enter into such discussions, BDSI may take (but shall have no obligation to take) such action as it deems appropriate, including the filing of a lawsuit against such Third Party. In such event Meda will provide such assistance and cooperation to BDSI as may be necessary, at BDSI’s cost and expense, and BDSI shall be entitled to retain the entire balance of any recovery or settlement from any such action. Section 7.04 Infringement Claimed by Third Parties. In the event a Third Party commences a judicial or administrative proceeding against a Party and such proceeding, other than a proceeding to which Section 7.01 applies, pertains to the manufacture, use, sale, marketing, or import of the Licensed Product in the Territory (the “Third Party Claim”), or threatens to commence such a Third Party Claim, the Party against whom such proceeding is threatened or commenced shall give prompt notice to the other Party. Meda shall, using counsel reasonably acceptable to BDSI, at Meda’s own cost and expense, defend any and all such Third Party Claims or proceedings, and BDSI shall, at Meda’s cost and expense, provide such assistance and cooperation to Meda as may be necessary to successfully defend any such Third Party Claims. The above notwithstanding, without BDSI’s prior written consent, Meda may only settle any such claim with BDSI’s prior written consent, such consent not to be unreasonably withheld. The above notwithstanding, if Meda elects not to defend a Third Party Claim that is not based upon, or does not result from, activities of BDSI or a Third Party under an agreement between BDSI and such Third Party, or the grant of rights from BDSI to such Third Party, and involves a material adverse risk to either Party or Net Sales notwithstanding the survivability   28 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   provisions of Section 13.05(e), the License may be terminated or rendered nonexclusive by BDSI to the extent Arius’ License (as defined in Section 3.01 of the Arius Two Agreement) is terminated or rendered nonexclusive by Arius Two pursuant to Section 7.04 of the Arius Two Agreement, upon notice to Meda within *** of Meda’s election not to defend such Third Party Claim, and, in any event and independent of (i) any action or lack thereof by Arius Two under the Arius Two Agreement and (ii) any termination or rendering nonexclusive of the License by BDSI pursuant to the foregoing, BDSI shall have the right to control the defense of such claims at BDSI’s cost and expense using counsel of its own choice. Section 7.05 Payment of Costs and Expenses. Upon its receipt of a reasonably detailed invoice setting forth BDSI’s reasonable, documented costs and expenses incurred pursuant to any provision of this Article VII relating to the Territory, for which Meda shall be liable, Meda shall pay such costs and expenses within 30 days. ARTICLE VIII CONFIDENTIALITY Section 8.01 Confidentiality. During the Term and for a period of five years thereafter, each Party shall maintain all Confidential Information of the other Party as confidential and shall not disclose any such Confidential Information to any Third Party or use any such Confidential Information for any purpose, except (a) as expressly authorized by this Agreement, (b) as required by law, rule, regulation or court order (provided that the disclosing Party shall first notify the other Party, shall use Commercially Reasonable Efforts to obtain confidential treatment of any such information required to be disclosed, and shall disclose only the minimum information required to be disclosed in order to comply), or (c) to its Affiliates, employees, agents, consultants and other representatives to accomplish the purposes of this Agreement or, in the case of BDSI, to (i) satisfy its obligations under the CDC Agreement and Arius’ obligations under the Arius Two Agreement and (ii) develop, market, and/or sell any BEMA-based products, so long as such persons are under an obligation of confidentiality no less stringent than as set forth herein. Each Party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Each Party shall use at least the same standard of care as it uses to protect its own Confidential Information (but not less than a reasonable standard of care) to ensure that its Affiliates, employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the other Party’s Confidential Information. Each Party shall promptly notify the other Party upon discovery of any unauthorized use or disclosure of the other Party’s Confidential Information. Section 8.02 Disclosure of Agreement. Neither Party shall release to any Third Party or publish in any way any non-public information with respect to the terms of this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing a Party may disclose the terms of this Agreement to potential investors, lenders, investment bankers and other financial institutions of its choice solely for purposes of financing the business operations of such Party, or, in the case of BDSI, to any prospective or actual sublicensee, licensor, manufacturer, marketing or other corporate partner, acquirer, or acquisition target; provided such Party only discloses such information   29 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   under conditions of confidentiality on terms substantially similar to those contained in this Article VIII. Nothing contained in this paragraph shall prohibit either Party from filing this Agreement as required by the rules and regulations of the Securities and Exchange Commission, national securities exchanges (including those located in countries outside of the United States) or the Nasdaq Stock Market; provided the disclosing Party discloses only the minimum information required to be disclosed in order to comply with such requirements, including requesting confidential treatment of this Agreement (after consultation with the other Party) and filing this Agreement in redacted form. The Parties agree to cooperate with respect to requests for confidential treatment to be submitted to the Securities and Exchange Commission or any similar foreign authority with respect to certain portions of this Agreement and any redactions thereof for such purposes. ARTICLE IX REPRESENTATIONS AND WARRANTIES Section 9.01 Corporate Power. As of the Effective Date, each Party hereby represents and warrants that such Party is duly organized and validly existing under the laws of the jurisdiction of its organization and has full power and authority to enter into this Agreement and the transactions contemplated hereby and to carry out the provisions hereof. Section 9.02 Due Authorization. As of the Effective Date, each Party hereby represents and warrants that such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. Section 9.03 Binding Obligation. As of the Effective Date, each Party hereby represents and warrants that this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms, except that the enforcement of the rights and remedies created hereby is subject to bankruptcy, insolvency, reorganization and similar laws of general application affecting the rights and remedies of creditors and that the availability of the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. As of the Effective Date, each Party represents and warrants that the execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it, including, with respect to Meda, any competition, antitrust, or similar laws, statutes, regulations, or directives in the Territory. Section 9.04 Legal Proceedings. As of the Effective Date, each Party hereby represents and warrants to the other Party that there is no action, suit or proceeding pending against or affecting, or, to the knowledge of either Party, threatened against or affecting that Party, or any of its assets, before any court or arbitrator or any governmental body, agency or official that would, if decided against either Party, have a material adverse impact on the business, properties, assets, liabilities or financial condition of that Party (that are not already reflected in that Party’s respective financial statements as filed with the Securities and Exchange Commission (or foreign equivalent thereof) or otherwise made public or provided to the other   30 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Party) and which would have a material adverse effect on that Party’s ability to consummate the transactions contemplated by this Agreement. Section 9.05 Limitation on Warranties. Except as expressly set forth in this Agreement, nothing herein shall be construed as a representation or warranty by BDSI to Meda that the Licensed Technology is not infringed by any Third Party, or that the practice of such rights does not infringe any intellectual property rights of any Third Party. Neither Party makes any warranties, express or implied, concerning the success of the Development Program or the commercial utility, merchantability, or fitness for a particular purpose of the Licensed Product. Section 9.06 Limitation of Liability. EXCEPT WITH RESPECT TO CLAIMS OF PATENT INFRINGEMENT, BREACHES OF SECTIONS 3.02(A), 3.02(B), 3.02(C), 3.03, OR 3.04(A) OR ARTICLE VIII, OR THE INDEMNIFICATION PROVIDED UNDER ARTICLE X, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (AS SUCH TERMS ARE DEFINED IN BLACK’S LAW DICTIONARY, SIXTH EDITION) IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER. Section 9.07 Sufficient Rights. BDSI represents and warrants that, subject to Section 3.04 of the Arius Two Agreement, it has and shall maintain during the Term of this Agreement (i) an exclusive license to or ownership of, as applicable, the Licensed Technology, the Marks and any other intellectual property rights which are the subject of Meda’s licenses under this Agreement, (ii) the right to grant the licenses described in this Agreement, and that the grant of such licenses by BDSI will not conflict with the terms of any existing agreement of BDSI concerning the Licensed Technology or the Marks, and (iii) the Control of all such rights and licenses. Section 9.08 No Infringement. BDSI represents and warrants that, to BDSI’s knowledge as of the Effective Date, BDSI is not aware of any Third Party intellectual property rights which would be infringed by the manufacture, use, or sale of the Licensed Product in the Territory. Section 9.09 Intellectual Property. BDSI represents and warrants that (i) the licenses granted to Meda hereunder comprise, to BDSI’s knowledge, all intellectual property rights reasonably necessary for Meda to manufacture, use, and sell the Licensed Product and (ii) Arius Two and Arius are the only Affiliates of Parent with any rights to or ownership of the Licensed Technology or the Marks, and there are no Affiliates of any of the foregoing (other than Arius Two, Arius, and Parent themselves) with any rights to or ownership of any Licensed Technology or Marks. BDSI covenants that it will not, without Meda’s prior written consent, amend any agreement between any of Parent, Arius, and/or Arius Two in any manner which would materially adversely affect Meda’s rights hereunder. Further BDSI represents and warrants that the third party licenses mentioned in Section 3.02(a) of the QLT License have expired or been terminated and do not in any way impair the rights granted to Meda hereunder. Section 9.10 Documents. BDSI represents and warrants that, to its knowledge, all documents provided to Meda by or on behalf of BDSI prior to the Effective Date are materially   31 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   true and correct and no document provided to Meda by or on behalf of BDSI, contains any untrue statement of a relevant material fact or omits to state a relevant material fact necessary not to make the statements contained in the document materially misleading. Section 9.11 Survival Upon Termination of CDC and Arius Two Agreements. BDSI represents and warrants that, subject to Section 13.05(g), any licenses granted to Meda under this Agreement will, as described in the (1) CDC Consent and (2) Arius Two Consent, respectively, executed by (i) CDC and BDSI and (ii) Arius Two, Arius, and Meda, respectively, prior to or in conjunction with the execution of this Agreement, (Y) survive any (a) exclusive licensing and assignment to CDC, upon termination of the CDC Agreement by CDC pursuant to Section 10.2, 10.3, or 10.4 thereof for which BDSI does not exercise its continuation rights under Section 10.7 of the CDC Agreement, of BDSI’s rights under the Licensed Technology, Marks, and other intellectual property rights which are the subject of Meda’s licenses under this Agreement or (b) termination of Arius’ rights under the Arius Two Agreement (or, if applicable, any rights granted to CDC by Arius Two pursuant to a separate agreement executed pursuant to Section 2.04(d) of the Arius Two Agreement) with respect to the Licensed Technology, Marks, and other intellectual property rights which are the subject of Meda’s licenses under this Agreement and (Z) be assigned to CDC or Arius Two, as appropriate, subject to Meda’s continued compliance with the terms of this Agreement, provided that (i) such termination of the CDC Agreement or Arius Two Agreement does not result from and is not related to any breach of this Agreement by Meda and (ii) Meda, as of the date the CDC Agreement and/or Arius Two Agreement, as applicable, is terminated, is not, and has not previously been, in material breach of this Agreement. ARTICLE X INDEMNIFICATION AND INSURANCE Section 10.01 Meda Indemnified by BDSI. BDSI shall indemnify and hold Meda, its Affiliates, and their respective employees, directors and officers, harmless from and against any liabilities or obligations, damages, losses, claims, encumbrances, costs or expenses (including attorneys’ fees) (any or all of the foregoing herein referred to as “Loss”) insofar as a Loss or actions in respect thereof occurs subsequent to the Effective Date arises out of BDSI’s negligence or intentional misconduct. BDSI’s obligations to indemnify Meda hereunder shall not apply to the extent any such Loss arises out of or is based on any (a) inactions or actions of Meda or its Affiliates for which Meda is obligated to indemnify BDSI under Section 10.02 or (b) negligence or intentional misconduct of Meda or its Affiliates. Section 10.02 BDSI Indemnified by Meda. Meda shall indemnify and hold BDSI, its Affiliates, Arius Two and CDC, and all of the employees, directors and officers of any of the foregoing, harmless from and against any Loss insofar as such Loss or actions in respect thereof occurs subsequent to the Effective Date and arises out of or is based upon (a) any misrepresentation or breach of any of the warranties, covenants or agreements made by Meda in this Agreement; (b) Meda’s, its Affiliates’, or their Sublicensees’ development, use, marketing, sale, distribution, promotion, handling, or storage of the Licensed Product or any Demonstration Samples; (c) any product liability claim that is brought against BDSI by any Third Party due to   32 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   the use of the Licensed Product in the Territory; or (d) Meda’s prosecution or defense of a Third Party infringement claim pursuant to Article VII. Meda’s obligations to indemnify BDSI hereunder shall not apply to the extent any such Loss arises out of or is based on the negligence or intentional misconduct of BDSI, and Meda’s obligations to indemnify any licensor of BDSI or its Affiliates shall not apply to the extent any such Loss arises out of or is based on the negligence or intentional misconduct of Arius Two or CDC. Section 10.03 Prompt Notice Required. No claim for indemnification hereunder shall be valid unless notice of the matter which may give rise to such claim is given in writing by the indemnitee (the “Indemnitee”) to the persons against whom indemnification may be sought (the “Indemnitor”) as soon as reasonably practicable after such Indemnitee becomes aware of such claim, provided that the failure to notify the Indemnitor shall not relieve the Indemnitor from any liability except to the extent that such failure to notify actually adversely impacts the Indemnitor’s ability to defend such claim. Such notice shall state that the Indemnitor is required to indemnify the Indemnitee for a Loss and shall specify the amount of Loss and relevant details thereof. The Indemnitor shall notify Indemnitee no later than 60 days from such notice of its intention to assume the defense of any such claim. In the event the Indemnitor fails to give such notice within that time the Indemnitor shall no longer be entitled to assume such defense. Section 10.04 Defense and Settlement. The Indemnitor shall at its expense, have the right, subject to the limitations of this Section 10.04, to settle and defend, through counsel reasonably satisfactory to the Indemnitee, any action which may be brought in connection with all matters for which indemnification is available. In such event the Indemnitee of the Loss in question and any successor thereto shall permit the Indemnitor full and free access to its books and records and otherwise fully cooperate with the Indemnitor in connection with such action; provided that this Indemnitee shall have the right fully to participate in such defense at its own expense. The defense by the Indemnitor of any such actions shall not be deemed a waiver by the Indemnitor of its right to assert a claim with respect to the responsibility of the Indemnitor with respect to the Loss in question. The Indemnitor shall not settle or compromise any claim against the Indemnitee without the prior written consent of the Indemnitee, provided that such consent shall not be unreasonably withheld. No Indemnitee shall pay or voluntarily permit the determination of any liability which is subject to any such action while the Indemnitor is negotiating the settlement thereof or contesting the matter, except with the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld. If the Indemnitor fails to give Indemnitee notice of its intention to defend any such action as provided herein, the Indemnitee involved shall have the right to assume the defense thereof with counsel of its choice, at the Indemnitor’s expense, and defend, settle or otherwise dispose of such action. With respect to any such action which the Indemnitor shall fail to promptly defend, the Indemnitor shall not thereafter question the liability of the Indemnitor hereunder to the Indemnitee for any Loss (including counsel fees and other expenses of defense). Section 10.05 Insurance. Each Party shall, at its sole cost and expense, obtain and keep in force comprehensive general liability insurance, including any applicable self-insurance coverage, with bodily injury, death and property damage including contractual liability and product liability coverage, of the types and in amounts which are (i) reasonable and customary in the pharmaceutical industry for companies of comparable size and activities and (ii) reasonably   33 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   sufficient to enable Arius to comply with the terms of the Arius Two Agreement and BDSI to comply with the terms of the CDC Agreement, provided that, without limitation of the foregoing, Meda’s insurance coverage shall include comprehensive general product liability and tort liability insurance each in amounts not less than US$*** per incident and US$*** annual aggregate and name BDSI as an additional insured. Each Party will provide written proof of the existence of such insurance to the other Party upon request. The minimum amounts of insurance coverage required shall not be construed to create or limit a Party’s liability with respect to its indemnification under this Agreement. ARTICLE XI COVENANTS Section 11.01 Access to Books and Records. Each Party covenants and agrees that it shall permit the other Party (or any Third Party granted such rights under this Agreement) to exercise such inspection rights as set forth in this Agreement. Section 11.02 Marketing Expenses. Meda covenants and agrees that, as between Meda and BDSI, Meda shall be solely responsible for the cost and implementation of all marketing, sales, promotional and related activities concerning the marketing, sale and promotion of the Licensed Products in the Territory. Section 11.03 Marketing Efforts. Meda covenants and agrees that it will obtain all Governmental Approvals necessary to market and sell the Licensed Product in such countries in the Territory as are required by Section 3.02(e) and any additional countries in the Territory in which Meda determines it shall, in its sole discretion, seek to sell Licensed Products. Prior to marketing or selling a Licensed Product in a particular country in the Territory, Meda will obtain all Governmental Approvals necessary to market and sell the Licensed Product in such country. Section 11.04 Compliance. Meda covenants and agrees that it shall comply with all Applicable Laws affecting the use, possession, distribution, advertising and all forms of promotion in connection with the sale and distribution of the Licensed Products and the Demonstration Samples in the Territory. Notwithstanding anything to the contrary, any failure of Meda, any Affiliate thereof, or any Sublicensee to adhere to any Applicable Laws in any country or supranational jurisdiction of the Territory concerning the handling of narcotics which adversely affects the future manufacture, use, shipment, handling, sale, marketing, or distribution of fentanyl (or any product incorporating fentanyl) shall be deemed a material breach of this Agreement entitling BDSI to terminate this Agreement immediately pursuant to Section 13.03 in respect of such country or supranational jurisdiction. Section 11.05 Reports. Meda covenants and agrees that, except as otherwise specified in this Agreement, Meda shall have the obligation and responsibility for and shall make any and all necessary reports to each Competent Authority with respect to the Licensed Product and shall provide BDSI with a complete copy of any such report simultaneously with its submission of the report to each Competent Authority; if any such report is submitted to the appropriate Competent Authority in a language other than English, Meda shall also provide BDSI with a summary of the   34 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   material matters addressed in such report in English. Meda covenants and agrees that, except as otherwise specified in this Agreement, Meda shall, if relevant, have the obligation and responsibility for and shall make any and all necessary reports in respect of the safe and lawful handling of the Licensed Products as a narcotic substance to each Competent Authority, and shall provide BDSI with a complete copy of any such report simultaneously with the submission of the report to each Competent Authority; if any such report is submitted to the appropriate Competent Authority in a language other than English, Meda shall also provide BDSI with a detailed summary of the material matters addressed in such report in English. Section 11.06 Further Actions. Upon the terms and subject to the conditions hereof, each of the Parties hereto shall use its Commercially Reasonable Efforts to (a) take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under Applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (b) obtain from Competent Authorities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by the Parties in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement, and (c) make all necessary filings, and thereafter make any other required submissions, with respect to this transaction under (i) the United States’ Securities Exchange Act of 1934, as amended and the United States’ Securities Act of 1933, as amended, and the rules and regulations thereunder and any other applicable securities laws and (ii) any other Applicable Law. The Parties hereto shall cooperate with each other in connection with the making of all such filings, including by providing copies of all such documents to the other Party’s counsel (subject to appropriate confidentiality restrictions) prior to filing and, if requested, by accepting all reasonable additions, deletions or changes suggested in connection therewith. Section 11.07 Protection of the Marks. Meda covenants and agrees that neither it nor its Affiliates shall publish, employ, or cooperate in the publication of any misleading or deceptive advertising material with regard to the Parties, the Licensed Product, the Licensed Technology, the Marks, or any trademarks of BDSI. Section 11.08 Equitable Relief. The Parties understand and agree that because of the difficulty of measuring economic losses to the non-breaching Party as a result of a breach of the covenants set forth in Article VIII or in this Article XI, and because of the immediate and irreparable damage that may be caused to the non-breaching Party for which monetary damages would not be a sufficient remedy, the Parties agree that the non-breaching Party will be entitled to seek specific performance, temporary and permanent injunctive relief, and such other equitable remedies to which it may then be entitled against the breaching Party. This Section 11.08 shall not limit any other legal or equitable remedies that the non-breaching Party may have against the breaching Party for violation of the covenants set forth in Article VIII or in this Article XI. The Parties agree that the non-breaching Party shall have the right to seek relief for any violation or threatened violation of Article VIII or this Article XI by the breaching Party from any court of competent jurisdiction in any jurisdiction authorized to grant the relief necessary to prohibit the violation or threatened violation of Article VIII or this Article XI. This Section 11.08 shall apply with equal force to the breaching Party’s Affiliates.   35 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Section 11.09 ***. ARTICLE XII PRODUCT RECALL Section 12.01 Product Recall Determination. If at any time or from time to time, a Competent Authority requests Meda to conduct a Product Recall of the Licensed Product in the Territory or if a voluntary Product Recall of the Licensed Product in the Territory is contemplated by Meda, Meda shall immediately notify BDSI in writing, and except as otherwise set forth in this Article XII, Meda will, at its sole cost and expense, conduct such Product Recall in as reasonable, prudent, and expeditious a manner as possible to preserve the goodwill and reputation of the Licensed Product and the goodwill and reputation of the Parties, provided that: (a) Meda shall not carry out a voluntary Product Recall in the Territory with respect to the Licensed Product without the prior written approval of BDSI, such approval not to be unreasonably withheld (for the avoidance of doubt, any Product Recall that is reasonably deemed necessary in order to avoid serious personal injury shall not be considered as a voluntary Product Recall, provided that Meda shall provide BDSI the opportunity to advise and comment with respect to any such Product Recall prior to its execution); and (b) the Parties shall reasonably cooperate, at Meda’s expense, in the conduct of any Product Recall for the Licensed Product in the Territory. Notwithstanding the foregoing, Meda may, without BDSI’s prior consent, immediately effect any Product Recall (A) resulting from any death or life-threatening adverse event associated with the Licensed Product or (B) required to comply with any regulatory or legal requirements, guidelines, directives, orders, or injunctions with respect to the Licensed Product. In the event Meda does not undertake such a Product Recall in a reasonable period of time, BDSI shall be entitled to do so without Meda’s prior written consent. Section 12.02 Product Recall Management. Meda shall have the right to control and/or conduct any Product Recall in the Territory, subject to Section 12.01. The Product Recall shall be the sole responsibility of Meda or its Affiliates and shall be carried out by Meda or its Affiliates in as reasonable, prudent, and expeditious a manner as possible to preserve the goodwill and reputation of the Licensed Product and the goodwill and reputation of the Parties, provided that BDSI shall share any such Product Recall responsibilities to the extent assumed by BDSI pursuant to the Supply Agreement. Meda shall maintain records of all sales and distribution of Licensed Product and customers in the Territory sufficient to reasonably adequately administer a Product Recall, for the period required by Applicable Law, and make such records available to BDSI or any designee thereof immediately upon request. Section 12.03 Product Recall Costs. Notwithstanding Section 12.02, except as may be provided in the Supply Agreement, Meda shall bear all costs and expenses related to the conduct of any Product Recall in the Territory.   36 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Section 12.04 Notification of Threatened Action. Throughout the duration of this Agreement and with respect to all Licensed Products the parties shall immediately notify each other of any information a Party receives regarding any threatened or pending action, inspection or communication by or from a concerned Competent Authority which may affect the safety or efficacy claims of the Licensed Product or the continued marketing of the Licensed Product. Upon receipt of such information during the duration of this Agreement, Meda shall not take any action whatsoever without BDSI’s prior review and approval, such approval shall not be unreasonably withheld. ARTICLE XIII TERM AND TERMINATION Section 13.01 Term. This Agreement shall commence as of the Effective Date and shall only expire on the termination of this Agreement. Section 13.02 Termination by Either Party for Cause. Either Party may terminate this Agreement prior to the expiration of the Term upon the occurrence of any of the following: (a) Upon or after the cessation of operations of the other Party or the bankruptcy, insolvency, dissolution or winding up of the other Party (other than dissolution or winding up for the purposes or reconstruction or amalgamation); or (b) Upon or after the breach of any material provision of this Agreement by the other Party (other than a failure to pay by Meda, which is addressed in Section 13.03(d) below), if the breaching Party has not cured such breach, if capable of being cured within such time period, within 60 days after written notice thereof by the non-breaching Party, provided that, notwithstanding the foregoing, BDSI shall be entitled to terminate this Agreement pursuant to Section 13.03 without providing the aforementioned opportunity to cure. Section 13.03 Termination by BDSI. BDSI may, by written notice to Meda, terminate this Agreement upon the occurrence of any of the following: (a) Upon the failure by Meda to pay the license fee pursuant to Section 3.01. (b) On a country by country basis upon the loss, revocation, suspension, termination, or expiration of Meda’s license to sell narcotics in any country in the Territory, if Meda fails to take the actions necessary to reinstate such license within sixty (60) days of such loss, revocation, suspension, termination, or expiration, or any material breach of Section 11.04 which is not remedied within sixty (60) days thereof. If such loss, revocation, suspension, termination, or expiration of Meda’s license to sell narcotics occurs simultaneously in three (3) of the following countries, ***, BDSI may terminate the license ***. (c) Upon or after the breach of any material provision of the Supply Agreement by Meda (other than a failure to pay by Meda, which is addressed in Section 13.03(d) below), if Meda has not cured such breach, if capable of being cured within such time period,   37 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   within *** after written notice thereof by the non-breaching Party, provided that, notwithstanding the foregoing, BDSI shall be entitled to terminate this Agreement pursuant to Section 13.03(d) without providing the aforementioned opportunity to cure. (d) Upon the failure by Meda to pay any amount in excess of US$*** under this Agreement or the Supply Agreement within *** from receipt of a second written notice (as given pursuant to Section 14.06 hereof) thereof from BDSI (with respect to products supplied under the Supply Agreement, the invoice accompanying such products or otherwise provided in conjunction with their shipment shall not be deemed the first “notice” for purposes of this paragraph), with a copy of such second notice (as given pursuant to Section 14.06 hereof) to Meda´s CEO at the address referenced in Section 14.06. If any payment, or portion thereof, due under this Agreement is the subject of a reasonable good faith dispute (a “Disputed Amount”) between Meda and BDSI, BDSI shall not be entitled to terminate this Agreement with respect to any failure by Meda to pay the Disputed Amount until such dispute has been resolved by the parties (including, if necessary, pursuant to any arbitration under Section 14.03). (e) Upon the occurrence of any material misrepresentation or omission in any Royalty Statement, which misrepresentation or omission is caused by Meda’s willful misconduct, gross negligence, or bad faith. Section 13.03A Termination for Discontinuation. BDSI, following the earliest of (i) the expiration of the Initial Term in the ***, (ii) the expiration of all Patent Rights owned or exclusively in-licensed by BDSI claiming the Licensed Product in the United States, or (iii) ***, shall have the right, in its sole discretion, to terminate this Agreement upon thirty (30) days’ notice. Meda, following the expiration of the Initial Term in each of***, shall have the right, in its sole discretion, to terminate this Agreement upon *** notice. If BDSI terminates the Agreement under this Section 13.03A, ***, provided that upon any such termination by BDSI under this Section 13.03A, (i) the Parties’ obligations under the Supply Agreement shall continue until its expiration or termination in accordance with its terms, ***. Section 13.04 Remedies. All of the non-breaching Party’s remedies with respect to a breach of this Agreement shall be cumulative, and the exercise of one remedy under this Agreement by the non-defaulting Party shall not be deemed to be an election of remedies. These remedies shall include the non-breaching Party’s right to sue for damages for such breach without terminating this Agreement. Section 13.05 Effect of Termination. (a) Upon any termination of this Agreement by either party pursuant to Section 13.02 or 13.03, Meda shall reimburse BDSI for Development Costs reasonably incurred or committed to by BDSI in accordance with the Development Plan prior to the effective date of such termination and for which Meda is otherwise obligated to reimburse BDSI pursuant to this Agreement, provided that (1) BDSI shall use Commercially Reasonable Efforts to minimize such costs and expenses between the termination notice date and the date of termination and (2) Meda shall not be required to reimburse any such costs incurred by BDSI to the extent they represent   38 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   the cost of performing specific activities which activities themselves constitute a breach of this Agreement. (b) Upon any termination of this Agreement by either Party under Section 13.02 or 13.03, or any termination of this Agreement by Meda under Section 13.03A, (i) Meda’s rights under the Licensed Patent Rights, Marks, and the Licensed Technology shall terminate and (ii) Meda shall use its best efforts, if and as requested by BDSI, to have assigned to BDSI any manufacturing or other contracts entered into by Meda concerning the development, manufacture, marketing, distribution, or sale of the Licensed Product. (c) Upon any termination of this Agreement by BDSI under Section 13.02 or 13.03 or by Meda under 13.03A, Meda hereby grants and assigns, to the extent not previously assigned to BDSI, to BDSI all right, title and interest in, to or under all Governmental Approvals, Books and Records, the Clinical Documentation, the Results, the Marketing Authorizations and all other data, reports, studies, analysis or similar items created or obtained by or on behalf of Meda in connection with the development, marketing or commercialization of Licensed Products in the Territory (or, if terminated by BDSI with respect to a particular country in the Territory under Section 13.03(b), in such country), and subject to any sublicenses, free, clear of any and all liens, claims, and encumbrances. Meda shall deliver all such items, including any copies thereof, to BDSI within five days of termination of this Agreement by BDSI pursuant to Section 13.02 or 13.03 or by Meda pursuant to 13.03A and agrees to take such actions as BDSI may reasonably request in order to effectuate the assignment set forth in this paragraph. Further, Meda hereby irrevocably appoints BDSI (which appointment is coupled with an interest) as its attorney in fact to execute and deliver in the name of and on behalf of Meda all documentation necessary to effectuate the assignment set forth in this paragraph. (d) Upon termination of this Agreement by BDSI under Section 13.02 or 13.03, as elected by BDSI, Meda (and/or its Affiliates, if and as applicable) shall either (i) have the right, for a period of three months from the date of termination to distribute and sell existing inventory of Licensed Products, provided that such Licensed Products shall be sold at a price no less than ***% of the then current fair market value and that such sales shall be subject to the applicable terms and conditions of this Agreement, (ii) sell remaining inventory of Licensed Product and Demonstration Samples to BDSI at the purchase price paid by Meda or its Affiliates for such inventory (or, if manufactured by Meda or its Affiliates, the cost and expense of such manufacture), or (iii) destroy remaining inventory of Licensed Product and Demonstration Samples in accordance with Applicable Law, providing BDSI with proof of destruction in writing sufficient to comply with Applicable Law. Any sales of Licensed Product or Demonstration Samples made by Meda to BDSI pursuant to clause (ii) in the preceding sentence shall be made by Meda within *** of Meda’s receipt of BDSI’s written notice electing to make such purchase, and shall be shipped to BDSI appropriately packaged and stored. All transportation costs in connection with such sale, including without limitation, insurance, freight and duties, shall be paid by Meda. Amounts owed by BDSI to Meda pursuant to this Section 13.05(d) for the Licensed Product or Demonstration Samples sold to BDSI shall be paid by BDSI within 30 days after receipt by BDSI of an appropriately detailed invoice from Meda for the amount so owing to it by BDSI under this Section 13.05(d).   39 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   (e) Except as otherwise provided in this Agreement, expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Except as set forth below or elsewhere in this Agreement, the obligations and rights of the Parties under Sections 2.01(c), 2.04(a), 2.05, 3.03 (with respect to BDSI’s rights to Meda Marks), 3.04(a), 3.05, 4.05, 7.02, 9.06, 9.11, 11.01, 11.04, 11.05 (with respect to Meda’s activities during the Term and, if applicable, Licensed Products sold by Meda following termination in accordance with this Agreement), 11.06, and 11.07 and Articles I, VIII, X, XII (with respect to Licensed Products sold by Meda), XIII, and XIV shall survive expiration or termination of this Agreement (f) Subject to the provisions of this Section 13.05, within *** following the expiration or termination of this Agreement, each Party shall return to the other Party, or destroy, upon the written request of the other Party, any and all Confidential Information of the other Party in its possession and upon a Party’s request, such destruction (or delivery) shall be confirmed in writing to such Party by a responsible officer of the other Party. (g) In the event (i) BDSI’s rights with respect to the Licensed Product under the Licensed Technology, Marks, and any other intellectual property rights which are the subject of Meda’s licenses under this Agreement are, in the case of a termination of the CDC Agreement by CDC pursuant to Section 10.2, 10.3, or 10.4 thereof for which BDSI does not exercise its continuation rights under Section 10.7 of the CDC Agreement, exclusively licensed and assigned to CDC or (ii) Arius’ rights under the Arius Two Agreement (or, if applicable, any rights granted to CDC by Arius Two pursuant to a separate agreement, as contemplated by Section 2.04(d) of the Arius Two Agreement) with respect to the Licensed Product under the Licensed Technology, Marks, and any other intellectual property rights which are the subject of Meda’s licenses under this Agreement are terminated as a result of a termination of the Arius Two Agreement (or, if applicable, subsequent agreement between CDC and Arius Two entered into pursuant to Section 2.04(d) of the Arius Two Agreement) then with respect to Arius Two, this Agreement, and with respect to CDC, the rights and benefits of BDSI under the Agreement, in each case, to the extent not imposing obligations in excess of those imposed on CDC or Arius Two, respectively, under the CDC Agreement or Arius Two Agreement, respectively, and Arius Two in the Arius Two Consent, respectively, shall be automatically assigned to CDC or Arius Two, as described in the CDC Consent and Arius Two Consent, as applicable, to provide for Meda’s continued quiet enjoyment of the rights granted to it under this Agreement in accordance with its terms. ARTICLE XIV MISCELLANEOUS Section 14.01 Assignment. Except as explicitly contemplated by this Agreement, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld); provided, however, that BDSI may assign this Agreement and its rights and obligations hereunder without Meda’s consent (a) in connection with the transfer or sale of all or substantially all of the business of BDSI to which this Agreement relates to a Third Party, whether by merger, sale of stock, sale of assets or otherwise, or (b) to any   40 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Affiliate of BDSI. Notwithstanding the foregoing, any such assignment to an Affiliate shall not relieve BDSI of its responsibilities for performance of its obligations under this Agreement. The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any purported assignment not in accordance with this Agreement shall be void. Section 14.02 Force Majeure. Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including, but not limited to, fire, floods, embargoes, terrorism, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party, or for any other reason which is completely beyond the reasonable control of the Party (collectively a “Force Majeure”); provided that the Party whose performance is delayed or prevented shall continue to use good faith diligent efforts to mitigate, avoid or end such delay or failure in performance as soon as practicable. Section 14.03 Governing Law; Jurisdiction; Dispute Resolution. This Agreement shall be governed by and construed under the state laws of the State of New York, without reference to its conflicts of laws principles. All disputes arising under or in connection with this agreement shall be finally settled by binding arbitration, initiated by either Party on ten (10) days notice to the other Party, under the Rules of Arbitration of the International Chamber of Commerce (“ICC”), applying the laws of the State of New York, without regards to its conflicts of law provisions, before three (3) independent, neutral arbitrators experienced in the international pharmaceutical industry. The place of arbitration shall be New York, New York. Meda and BDSI shall each be entitled to select one (1) such arbitrator, with the two such arbitrators so selected selecting the third such arbitrator. In the event either Party fails to select its arbitrator within such ten (10) day period, the arbitrator selected by the other Party within such ten (10) day period shall be entitled to select such arbitrator. The arbitration shall be conducted in English. The decision of the arbitrators will be final and binding on the parties, and any decision of the arbitrators may be enforced in any court of competent jurisdiction. Notwithstanding the foregoing, any Party may seek injunctive, equitable, or similar relief from a court of competent jurisdiction as necessary to enforce its rights hereunder without the requirement of arbitration. Section 14.04 Waiver. Except as specifically provided for herein, the waiver from time to time by either of the parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement. Section 14.05 Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Any provision of this Agreement held invalid or unenforceable in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.   41 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   Section 14.06 Notices. All notices and other communications provided for herein shall be dated and in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered personally, by e-mail or by facsimile machine, receipt confirmed, (b) on the following business day, if delivered by a nationally recognized overnight courier service, with receipt acknowledgement requested, or (c) three business days after mailing, if sent by registered or certified mail, return receipt requested, postage prepaid, in each case, to the Party to whom it is directed at the following address (or at such other address as any Party hereto shall hereafter specify by notice in writing to the other parties hereto):   If to BDSI:    BioDelivery Sciences International, Inc.    2501 Aerial Center Parkway, Suite 205    Morrisville, North Carolina 27560 USA    Attn: Mark Sirgo, Chief Executive Officer    Telephone: (919) 653-5160    Facsimile:   (919) 653-5161 Copies to:    Wyrick Robbins Yates & Ponton LLP    4101 Lake Boone Trail, Suite 300    Raleigh, North Carolina 27607 USA    Attn: Larry E. Robbins, Esq.    Telephone: (919) 781-4000    Facsimile:   (919) 781-4865 If to Meda:    Meda AB    Box 906    Pipers vag 2A    17009    Solna    Sweden    Attn: Anders Lonners, CEO    Telephone: +46 8 630 19 00    Facsimile:  +46 8-630 19 19 Copies to:    Ramberg Advokater KB    Box 7531    Norrmalmstorg 1    103 93 Stockholm    Attn: Christer Nordén    Telephone: + 46 8-546 546 00    Facsimile:  + 46 8-546 546 99 Section 14.07 Independent Contractors. It is expressly agreed that BDSI and Meda shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership or agency of any kind. Neither BDSI nor Meda shall have the authority   42 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party. Section 14.08 Rules of Construction. The Parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document. Whenever the context hereof shall so require, the singular shall include the plural, the male gender shall include the female gender and neuter, and vice versa. Section 14.09 Publicity. Meda and BDSI shall consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and neither shall issue any such press release or make any such public statement without the prior consent of the other, which consent shall not be unreasonably withheld; provided, however, (a) that a Party may, without the prior consent of the other Party, issue such press release or make such public statement as may upon the advice of counsel be required by law or the rules and regulations of the Nasdaq or any other stock exchange, or (b) if it has used reasonable efforts to consult with the other Party prior thereto, (such consent shall be deemed to have been given if the recipient of the press release or public statement fails to respond to the other Party within 48 hours after the recipient’s receipt of such press release or public statement). No such consent of the other Party shall be required to release information which has previously been made public. Section 14.10 Entire Agreement; Amendment. This Agreement (including the Exhibits attached hereto) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the parties hereto with respect to the subject matter hereof and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations conditions or understandings, either oral or written, between the parties other than as set forth herein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. Section 14.11 Inspection Rights. Upon five days prior written notice from either Party (the “Requesting Party”), the Party receiving such notice (the “Audited Party”) shall permit an independent certified public accountant selected by the Requesting Party and reasonably acceptable to the Audited Party to audit and/or inspect only those books and records (including but not limited to financial records) as may be necessary pursuant to the terms of the applicable Section of this Agreement granting the applicable inspection rights to the Requesting Party pursuant to this Section 14.11. Any such independent accounting firm shall be subject to the confidentiality provisions of this Agreement. A copy of any report provided to a Party by the accountant shall be given concurrently to the other Party. Subject to the terms of this paragraph, such inspection shall be conducted (a) at the sole cost of the Requesting Party and (b) during the Audited Party’s normal business hours. If the applicable audit involves the calculation of payments to be made by one Party to the other Party and such accounting firm concludes that such calculations erroneously resulted in an overpayment or underpayment by one Party to the other Party with respect to any payment(s) due hereunder (a “Calculation Error”), within 30 days   43 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   of the date of delivery of such accounting firm’s report concluding that a Calculation Error occurred, the amount overpaid shall be repaid or the amount underpaid shall be augmented as necessary to correct the underpayment or overpayment caused by such Calculation Error, and if such Calculation Error resulted in an overpayment to or an underpayment from the Party responsible for such error, such Party shall pay interest on such amount at the Prime Rate of Interest plus three percent (3%). If the Audited Party was responsible for the Calculation Error and such Calculation Error was greater than 5% of the proper amount payable with respect to any particular Royalty Quarter, the Audited Party shall be solely responsible for the reasonable, documented costs associated with the audit. The rights granted to BDSI under this Section 14.11 may be exercised by CDC or Arius Two in a manner consistent with similar rights established with respect to each of them in Section 6.10 of the CDC Agreement and Sections 2.01(c), 2.04(b), 4.04(d), and 14.12 of the Arius Two Agreement, as applicable. Section 14.12 Headings. The captions contained in this Agreement are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles hereof. Section 14.13 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. Signatures to this Agreement may be transmitted via facsimile and such signatures shall be deemed to be originals. Section 14.14 Third Party Beneficiary. CDC shall be an intended third party beneficiary to this Agreement for the sole purpose of enforcing Section 13.05(g) of this Agreement. [Signature page to follow.]   44 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers as of the Effective Date.   ARIUS PHARMACEUTICALS, INC. By:   /s/ Mark A. Sirgo Name:   Mark A. Sirgo Title:   President BIODELIVERY SCIENCES INTERNATIONAL, INC. By:   /s/ Mark A. Sirgo Name:   Mark A. Sirgo Title:   President and CEO MEDA AB By:   /s/ Anders Lonner Name:   Anders Lonner Title:   CEO   45 -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT A CDC AGREEMENT -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT B DEVELOPMENT PROGRAM *** -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT C LICENSED PATENT RIGHTS   Filing Date    App. No.    Country    Title    Priority    Status/Action 16 Oct 1997    US97/18605    PCT    Pharmaceutical Carrier Device Suitable for Delivery of Pharmaceutical Compounds to Mucosal Surfaces    PCT of ‘519    Entered national phase 29 Apr 1999    US99/09378    PCT    Pharmaceutical Carrier Device Suitable for Delivery of Pharmaceutical Compounds to Mucosal Surfaces    PCT of ‘703    Entered national phase 16 Aug 2004    US2004/026531    PCT    Adhesive Bioerodible Transmucosal Drug Delivery System    PCT of 10,706,603    Entered national phase —      —      EP    Same    Nat. Stage of PCT 18605    Issued. EP 0 973 497 B11 Expires on 16 Oct 2017 —      —      EP    Same    Nat. Stage of PCT09378    Issued. EP 1 079 813 B12 Expires: 16 Oct 2017 —      —      EP    Same    Nat. Stage of PCT026531    Pending   1 For PCT application US97/18605: it has issued in the following European countries with the expiration date of 16 Oct 2017: Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, United Kingdom, Greece, Ireland, Italy, Netherlands, and Sweden.   2 For PCT application US99/0378: it has issued in the following European countries with the expiration date of 16 Oct 2017: Austria, Belgium, Switzerland/Liechtenstein, Cyprus, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal and Sweden. Patents are pending in Cyprus and Monaco. -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT D ARIUS TWO AGREEMENT -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT E TERRITORY Albania Andorra Austria Belarus Belgium Bosnia-Herzegovina Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland Former Yugoslav Republic of Macedonia France Germany Greece Hungary Iceland Ireland Italy Latvia Liechtenstein Lithuania Luxembourg Malta Moldova Monaco Montenegro Norway Poland Portugal Romania San Marino Serbia Slovakia Slovenia Spain Sweden Switzerland The Netherlands The United Kingdom Turkey Ukraine Vatican City -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT F SUPPLY AGREEMENT -------------------------------------------------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** Note: The portions hereof for which confidential treatment are being requested are denoted with “***”.   EXHIBIT G MARKS BEMA BEMA FENTANYL

  Exhibit 10.1 AMENDED AND RESTATED NON-EXCLUSIVE CONSULTING AGREEMENT         This Amended and Restated Non-Exclusive Consulting Agreement (“Agreement”) is entered into and effective as of the 26th of April, 2006, to amend and restate the Non-Exclusive Consulting Agreement entered into effective as of the 16th day of August, 2005, between Edward F. Houff (“Consultant” or “Houff”), and Kaiser Aluminum & Chemical Corporation, a corporation with offices located at 27422 Portola Parkway, #350, Foothill Ranch, CA 92610-2831 (“Kaiser”).         WHEREAS, effective August 15, 2005, Kaiser has terminated Consultant as a Kaiser employee “Without Cause,” and such termination constitutes a “Pro-Rating Event” for the purposes of determining Consultant’s entitlement to severance and termination benefits under the Key Employment Retention Program (“KERP”) approved by the Bankruptcy Court in Kaiser’s chapter 11 proceedings, including Consultant’s Severance Agreement, Retention Agreement and Change in Control Severance Agreement (a summary listing of such benefits and the references thereto is attached to this Agreement and incorporated herein by reference); and         WHEREAS, Consultant acknowledges that as a result of termination of Consultant’s employment Consultant is not entitled to any benefits under his Change in Control Severance Agreement (the “CIC Agreement”) and, in recognition of the foregoing, has, by execution of this Agreement, permanently waived and released Kaiser from and against any and all claims for “Change in Control” and “Tax Gross-Up” termination benefits in connection with the KERP, including any claims for benefits under his CIC Agreement; and         WHEREAS, Kaiser desires to have Consultant perform certain services for Kaiser as set forth herein, and Consultant is willing to perform such services;         NOW THEREFORE, in consideration of the mutual promises contained herein the parties hereto agree as follows: 1.   Term         The term of this Agreement shall commence as of August 1, 2005 and shall continue in effect through June 30, 2006. Termination of this Agreement, except for cause, before June 30, 2006, may occur only by mutual consent or the death or permanent and total disability of Consultant as a result of bodily injury, disease or mental disorder. This Agreement may be renewed for such term, and upon such terms and conditions, as the parties may agree in a further writing. 2.   Services         2.1 Consultant shall perform non-exclusive consulting services for Kaiser primarily in the nature of the services provided when consultant was Chief Restructuring Officer and Senior Vice President of Kaiser, which employment ended on August 15, 2005. A listing of subject areas in which Kaiser and Consultant have agreed that Consultant will provide services to the Company is attached to this Agreement and incorporated herein by reference. To the extent any services will not be completed by the expiration of the term of this Agreement and Consultant and Kaiser have not agreed to the terms of an extension, Consultant shall fully cooperate with Kaiser in all matters relating to the winding up of Consultant’s pending work on behalf of Kaiser and the orderly transfer of any such pending work to other employees or representatives of Kaiser as may be designated by Kaiser.         2.2 Any additional services by Consultant beyond those referenced in paragraph 2.1 above shall be performed by Consultant as agreed between Consultant and Kaiser and as authorized by Kaiser’s CEO, Jack A. Hockema, or such other person as Consultant may agree.   --------------------------------------------------------------------------------           2.3 Consultant shall at all times act in accordance with his own best judgment, experience and expertise as an independent Consultant. Consultant shall routinely communicate the status and progress of the services being performed by Consultant to Kaiser’s CEO, General Counsel, CFO, senior management and outside professionals, as appropriate, and solicit input and direction with respect to tactical and strategic decisions required to be made in connection with the services to be performed that are likely to affect the business, operations or liabilities of Kaiser and its affiliates both during and after emergence.         2.4 Consultant may perform consulting services for persons other than Kaiser so long as such other consulting services do not present an actual conflict of interest for Consultant. Consultant agrees to inform Kaiser when consulting services are being performed for others, and will provide a certification that no conflict exists. Consultant will use his best efforts to arrange his schedule and other work to ensure that Kaiser work remains a priority for Consultant’s work, resources and time. Should Consultant request a waiver of any potential conflict with respect to either interest or time, Kaiser will not unreasonably withhold its consent to waiver.         2.5 Upon the effective date of Kaiser’s plan of reorganization and its emergence from Chapter 11, Consultant will resign as Chief Restructuring Officer of Kaiser and the delegation of authority granted to Consultant shall terminate and be of no further force or effect. Except as set forth in the preceding sentence, Kaiser’s emergence from Chapter 11 will have no effect on this Agreement or the consulting services to be performed. 3.   Fees and Reimbursements/Invoices         3.1 For the initial term of the Agreement (through February 14, 2006), Consultant’scompensation will be as follows:           3.1.1 A base fee of $43,200 per month (“Base Fee”), exclusive of expenses, for which Consultant will provide up to 120 hours of services. Travel time that is not covered by other work will be counted at one-half the number of hours, and there will be no premium for weekend or holiday work. This amount will be pro-rated for the partial months of August 2005 and February 2006.           3.1.2 Monthly hours worked in excess of 120, up to a maximum of 200 (“Additional Fee”), exclusive of expenses, will be billed at $360 per hour, subject to the same terms and conditions for travel, weekend and holiday work as provided in paragraph 3.1.1.           3.1.3 Regardless of the number of hours actually worked in any month, Consultant agrees that Kaiser will not be charged for any work in excess of 200 hours per month, exclusive of expenses.         3.2 After the initial term of the Agreement, Consultant’s compensation will be as follows:           3.2.1 The prorated Base Fee for February 15, 2006, through February 28, 2006, shall be $22,500, exclusive of expenses, for which Consultant will provide up to 50 hours of services. Travel time that is not covered by other work will be counted at one-half the number of hours, and there will be no premium for weekend or holiday work. The Additional Fee during this period for hours worked in excess of 50, up to a maximum of 75, exclusive of expenses, will be billed at $450 per hour, subject to the same terms and conditions for travel, weekend and holiday work as provided above.       Amended and Restated Non-Exclusive Consulting Agreement 2   Edward. F. Houff   --------------------------------------------------------------------------------             3.2.2 The prorated Base Fee for March 1, 2006, through March 31, 2006, shall be $33,750, exclusive of expenses, for which Consultant will provide up to 75 hours of services. Travel time that is not covered by other work will be counted at one-half the number of hours, and there will be no premium for weekend or holiday work. The Additional Fee during this period for hours worked in excess of 75, up to a maximum of 100, exclusive of expenses, will be billed at $450 per hour, subject to the same terms and conditions for travel, weekend and holiday work as provided above.           3.2.3 The prorated Base Fee for April 1, 2006, through April 30, 2006, shall be $22,500, exclusive of expenses, for which Consultant will provide up to 50 hours of services. Travel time that is not covered by other work will be counted at one-half the number of hours, and there will be no premium for weekend or holiday work. The Additional Fee during this period for hours worked in excess of 50, up to a maximum of 75, exclusive of expenses, will be billed at $450 per hour, subject to the same terms and conditions for travel, weekend and holiday work as provided above.           3.2.4 The prorated Base Fee for May 1, 2006 through June 30, 2006, shall be $22,500 monthly, exclusive of expenses, for which Consultant will provide up to 50 hours of services per month. Travel time that is not covered by other work will be counted at one-half the number of hours, and there will be no premium for weekend or holiday work. The Additional Fee during this period for hours worked in excess of 50 per month, up to a maximum of 75 hours per month, exclusive of expenses, will be billed at $450 per hour, subject to the same terms and conditions for travel, weekend and holiday work as provided above.         3.3 Both parties agree that Consultant is not an employee for state or federal tax purposes. Consultant shall be solely responsible for payment of all FICA and federal, state and local income taxes payable on compensation received hereunder. All travel time in connection with this Agreement will be prorated as required and compensated at the above rates. In addition, upon submission of proper documentation, Kaiser will reimburse Consultant for all reasonable and customary expenses incurred while providing consulting services. The term “reasonable and customary” shall mean expenses incurred consistent with Kaiser’s corporate policies on reimbursement of travel and related expenses and also include costs for telephone, fax and mobile phone charges when used for Kaiser business, but shall not include any costs or expenses incurred by Consultant to provide his own working environment (office space, parking, etc.).         3.4 Consultant’s compensation and expense reimbursement shall be paid as follows:           3.4.1 Beginning in September 2005 and each month thereafter during the term of the Agreement, Consultant’s Base Fee will be paid automatically by Kaiser by wire transfer monthly on the first business day between the first and fifth day of the month.           3.4.2 Beginning in September 2005 and each month thereafter during the term of the Agreement, by the fifth day of the month, Consultant will provide an invoice for the previous month that provides a summary of time and activities as to the Base Fee, and a reasonably detailed description of services and time, rounded up to the nearest tenth of the hour for any Additional Fee earned during the previous month. Consultant will also submit a reasonably detailed schedule of expenses for reimbursement including receipts. Bills and receipts may be submitted electronically.           3.4.3 Statements for services and requests for expense reimbursement shall be submitted to       Amended and Restated Non-Exclusive Consulting Agreement 3   Edward. F. Houff   --------------------------------------------------------------------------------   Kaiser Aluminum & Chemical Corp Attn: John M. Donnan, Vice President and General Counsel 27422 Portola Parkway, #350 Foothill Ranch, CA 92610-2831 Fax: (949) 614-1867 [email protected]                     3.4.4 Kaiser will promptly review the statements submitted with respect to the Additional Fee and requests for expense reimbursement, and will pay all undisputed Additional Fee and expense reimbursement amounts within 30 days of Kaiser’s receipt of such statement. Kaiser may request additional information concerning the content of the Base Fee description and time but may not withhold payment of the Base Fee. Questions regarding any Additional Fee and/or expenses will be addressed promptly with a view toward reaching an agreement, and payment for any questioned Additional Fee and/or expense amounts will be paid on the later of 30 days after the statement was received or 10 days after the questions are resolved. 4.   Independent Contractor         4.1 Consultant shall perform services hereunder as an independent contractor and not as an employee. He shall have no power or authority to act for, legally represent, or commit Kaiser in any way unless Kaiser expressly authorizes him to do so.         4.2 Consultant understands and agrees that during the period of this Agreement and any extensions thereto he is not entitled to participate in or accrue benefits, and Consultant hereby expressly waives any claim to participate in or accrue benefits, under Kaiser’s employee benefit plans, including but not limited to KRP, Plan B, Severance Pay and Benefits Continuation, Personal Choice, Life Insurance, Sick Leave with Salary Continuation, Long Term Disability, Accidental Death and Dismemberment, Medical and Dental plans for services performed hereunder, except as he is entitled to receive any such benefits as a result of his termination without cause as an employee on August 15, 2005. For the avoidance of doubt, the parties agree that any and all benefits to which Consultant may be entitled must derive, if at all, from his term of employment at Kaiser, and not from his service as a Consultant. In addition, Consultant is not entitled to participate in any employee bonus plans as a result of his service as a Consultant. 5.   Protection of Confidential Information         5.1 All work product of Consultant in the performance of this Agreement, including without limitation, analyses, reports, photographs, data and other information, including any inventions or discoveries made by Consultant, shall be the property of Kaiser and shall be considered Confidential Information. Any information disclosed to Consultant by Kaiser or others in connection with service for Kaiser under this Agreement shall also be considered Confidential Information, and shall, as between Kaiser and Consultant, be the property of Kaiser.         5.2 Except as Kaiser may authorize in writing, Consultant shall not disclose any Confidential Information or use it for any purpose other than the performance of his services under this Agreement. Promptly upon Kaiser’s request, and in any event upon the termination of this Agreement, Consultant shall deliver to Kaiser all such material (including all copies made thereof) which Consultant has in his possession.       Amended and Restated Non-Exclusive Consulting Agreement 4   Edward. F. Houff   --------------------------------------------------------------------------------           5.3 Upon termination of this Agreement for any reasons, Consultant will, except as otherwise agreed to in writing by the parties, return to Kaiser all property belonging to Kaiser, including without limitation, computer equipment, computer programs, cellular telephones, beepers or other property belonging to Kaiser, and documents, property and data of any nature and in any form, including electronic or magnetic form, reflecting any confidential information described above. 6.   Applicable Law/Entire Agreement         6.1 This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Texas, except that conflicts of laws/provisions of Texas law shall not be applied for the purpose of making other law applicable.         6.2 This Agreement, the Severance Agreement, the Retention Agreement and that certain Release executed pursuant to the terms of the Severance Agreement constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties relating to Consultant’s activities as a Consultant and the termination of Consultant’s employment with Kaiser, including, but not limited to the effect of such termination under the KERP and related agreements. It may not be amended, supplemented or superseded except by a written agreement signed by both parties. 7.   Dispute Resolution         7.1 If a dispute arises out of or related to this Agreement, and if the dispute cannot be settled through direct discussions, then Kaiser and Consultant agree to first endeavor to settle the dispute in an amicable and good faith manner by mediation before a mutually agreeable mediator, before having recourse to any other proceeding or forum.         7.2 Any controversy or claim arising out of or relating to this Agreement or the breach thereof that cannot be resolved by good faith mediation shall on the written request of the complaining party served on the other within thirty (30) calendar days of the event which forms the basis of the controversy or claim, be submitted and resolved by final and binding arbitration in a manner consistent with the rules of the American Arbitration Association. Service of the written demand for arbitration shall be made by certified mail, with a return receipt requested. Time is of the essence. If the request is not served within said thirty (30) days of the date a cause of action arises, the complaining party’s claim(s) shall be forever waived and barred before any and all forums, including, without limitation, arbitration or judicial forums. The Arbitrator shall have no authority to alter, amend, modify or change any of the terms of the Agreement. The decision of the Arbitrator shall be final and binding and judgment thereon may be entered in any court having jurisdiction thereof. The parties shall equally divide all costs of the arbitration, but the parties shall bear their own expenses for attorney’s fees and witness costs.         7.3 The parties intend that the dispute resolution procedures outlined herein are mandatory and shall be the exclusive means of resolving all disputes, between Consultant and Kaiser and/or Kaiser’s employees, directors, officers, officers or managers involving or arising out of this Agreement. However, this provision does not prevent either Party from first seeking injunctive relief if necessary to enforce the terms of this Agreement. 8.   Notices       Amended and Restated Non-Exclusive Consulting Agreement 5   Edward. F. Houff   --------------------------------------------------------------------------------           All notices, correspondence, consents, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given when actually received. Such notices may be given personally, by registered or certified mail, by email, or by facsimile transmission:           if to Consultant:   Edward F. Houff       Emergence Strategies LLC       204 East Montgomery Street       Baltimore MD 21230       Fax: 800-853-3676       Phone: 410.659.9991       Email: [email protected]   if to Kaiser:   Kaiser Aluminum & Chemical Corp.       Attn: John M. Donnan, Vice President and General Counsel       27422 Portola Parkway, #350       Foothill Ranch, CA 92610-2831       Phone: (949) 614-1767       Fax: (949) 614-1867       [email protected] or to such other address as either party shall have last designated by notice to the other party hereto. 9.   Waiver         Failure of either Kaiser or Consultant to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions nor in any way affect the validity of this Agreement or any part thereof or the right of either party thereafter to enforce each and every provision thereof. The waiver of any provisions of this Agreement or any breach thereof shall not constitute waiver of any subsequent breach of the same or any other provisions of this Agreement. 10.   Knowing and Voluntary Waiver         Consultant understands and agrees that he:   a.   Has carefully read and fully understands all of the provisions of this Agreement, the KERP and agreements entered into by Consultant under the KERP, including Consultant’s Severance Agreement, Retention Agreement and CIC Agreement and the effect of his termination of Employment under this Agreement, the KERP and Consultant’s Severance Agreement, Retention Agreement and CIC Agreement.     b.   Has had an opportunity to negotiate the terms of this Agreement.     c.   Is, through this Agreement, waiving right to employee benefits and/or any future claim to benefits set forth in paragraph 4.2 of this Agreement, stemming from activities as a Consultant during the period of this Agreement on and after August 1, 2005.     d.   Knowingly and voluntarily intends to be legally bound by the terms of this Agreement.       Amended and Restated Non-Exclusive Consulting Agreement 6   Edward. F. Houff   --------------------------------------------------------------------------------     e.   Was advised and hereby is advised in writing to consider the terms of this Agreement and consult with an attorney of his choice prior to executing this Agreement. 11.   Survival         The obligations of Consultant under Section 5, 6 and 7 of this Agreement shall survive termination or expiration of this Agreement.         IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of the date first set forth above.               CONSULTANT:       KAISER ALUMINUM & CHEMICAL CORP.                       By:                   Edward F. Houff                     John M. Donnan                       Vice President and General Counsel       Amended and Restated Non-Exclusive Consulting Agreement 7   Edward. F. Houff   --------------------------------------------------------------------------------   List of Subject Areas as to which Kaiser Desires and Consultant Agrees to Provide Services       n   Regularly Scheduled Omnibus and Special bankruptcy court hearings n   Disclosure Statement, POR, Solicitation, Confirmation hearings — complete n   Hearings and appellate work relating to bankruptcy issues, including stay proceedings n   PBGC Appeal of Distress Termination n   Insurance coverage litigation and settlements n   Trentwood environmental matters and criminal investigation n   Senior/Sub Note/Gramercy Subordination Litigation and liquidating plan confirmation and appeals, including stay proceedings n   Asbestos and other Tort Claim resolution and negotiations n   Asbestos workers’ compensation n   Communications with committees and futures representatives n   C11 communications with the Board n   New Board Search Committee — complete n   Environmental reorganization matters — complete n   Claims resolution issues n   Monument Select litigation — complete n   Testimony and/or declarations as required to support particular pleadings n   Other assignments as agreed             EFH Initials   JMD Initials       Amended and Restated Non-Exclusive Consulting Agreement 8   Edward. F. Houff   --------------------------------------------------------------------------------   SUMMARY OF BENEFITS DUE AND REFERENCES TO APPLICABLE BENEFIT AGREEMENTS           n   All benefits that are due and payable to Consultant under the Kaiser Key Employee Retention Program (KERP), Consultant’s Severance Agreement (“Severance Agreement”), Consultant’s Retention Agreement, each as approved by the Bankruptcy Court in 2002 in Kaiser’s chapter 11 proceedings, for a “Termination Without Cause” and a “Pro-Rating Event,” as those terms are used in the appropriate documents that generally describe and are specific to Edward F. Houff, will be paid as and when due under those plans and agreements as a result of Mr. Houff’s termination effective August 15, 2005.           n   No material change or alteration to such benefits is intended from the KERP and related plans and agreements that were approved by the Bankruptcy Court           n   These severance benefits include, as of the termination on August 15, 2005     q   Base pay times a multiplier of 2     q   Withheld retention payments equaling $400,000     q   “Welfare benefits” for 2 years as provided for in the Severance Agreement and all other benefits provided by the severance plan implemented at part of the KERP (note: does NOT include car lease continuation)     q   Normal end of service benefits and rights as a Kaiser employee (e.g. unused vacation days for 2005, accrued but unused for 2006) unrelated to Severance Agreement           n   Deferred benefits under the KERP/Severance program     q   LTI for 2002 through 2004 calculated and paid in accordance with the LTI program and KERP (half at emergence, half at emergence + 1 yr)           n   Other bargained for benefits     q   $25,000 one-time moving expense payment (to be paid upon the earlier of an actual move or upon termination of the Agreement) (complete)     q   2005 Short-Term Incentive Compensation, prorated for the period from January 1 to August 15, 2005, not to exceed $25,000, to be paid before March 15, 2006. (complete)             EFH Initials   JMD Initials       Amended and Restated Non-Exclusive Consulting Agreement 9   Edward. F. Houff  

Exhibit 10.1 PROMISSORY NOTE $150,000,000.00 July 10, 2006      FOR VALUE RECEIVED, MALL AT LEHIGH VALLEY, L.P., a Delaware limited partnership, as borrower, having an address at c/o Simon Property Group, 225 W. Washington Street, Indianapolis, Indiana 46204 (“Borrower”), hereby promises to pay to the order of JPMORGAN CHASE BANK, N.A., a banking association chartered under the laws of the United States of America, having an address at 270 Park Avenue, New York, New York 10017-2014 ("Lender"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of ONE HUNDRED FIFTY-MILLION AND 00/100 DOLLARS ($150,000,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the rate set forth in Article 2 of the Loan Agreement, and to be paid in accordance with the terms of this Note and that certain Loan Agreement dated the date hereof between Borrower and Lender (the "Loan Agreement"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 – PAYMENT TERMS      Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rate and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2 – DEFAULT AND ACCELERATION      The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on or before the Maturity Date or on the happening of any other Event of Default; provided, however, Borrower shall not be in default so long as there is sufficient money in the Cash Management Account for payment of all amounts then due and payable (including any deposits into Reserve Accounts) and Lender’s access to such money has not been constrained or constricted in any manner. ARTICLE 3 – LOAN DOCUMENTS      This Note is secured by the Mortgage and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgage and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. -------------------------------------------------------------------------------- ARTICLE 4 – SAVINGS CLAUSE      Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the maximum lawful rate or amount, (b) in calculating whether any interest exceeds the lawful maximum, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender, and (c) if through any contingency or event, Lender receives or is deemed to receive interest in excess of the lawful maximum, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender without prepayment premium or penalty, or if there is no such indebtedness, shall immediately be returned to Borrower. ARTICLE 5 – NO ORAL CHANGE      This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6 – WAIVERS      Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind except as provided in the Loan Agreement. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals comprising the limited liability company, and the term "Borrower," as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company shall not thereby be released from any liability absent an express release in writing. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership shall not thereby be released from any liability absent an express release in writing. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder absent an express release in writing. Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such borrowing entity which may be set forth in the Loan Agreement, the Mortgage or any other Loan Documents. If Borrower consists of more than one person or party, the obligations and liabilities of each person or party shall be joint and several. --------------------------------------------------------------------------------   ARTICLE 7 – TRANSFER      Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer other than in connection with a Securitization, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter arising from events thereafter occurring; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8 – EXCULPATION      The provisions of Article 15 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein. ARTICLE 9 – GOVERNING LAW      This Note shall be governed, construed, applied and enforced in accordance with the laws of the State of New York and applicable laws of the United States of America. ARTICLE 10 – NOTICES      All notices or other written communications hereunder shall be delivered in accordance with Section 16.1 of the Loan Agreement. ARTICLE 11 – CONFLICT      If any provision of this Note shall conflict with any provision of the Loan Agreement the provisions of the Loan Agreement shall control. [NO FURTHER TEXT ON THIS PAGE]   --------------------------------------------------------------------------------      IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. BORROWER: MALL AT LEHIGH VALLEY, L.P., a Delaware limited partnership By:   LEHIGH VALLEY MALL GP, LLC,          a Delaware limited liability company, its general          partner          By:   LEHIGH VALLEY ASSOCIATES, a                   Pennsylvania limited partnership, its sole                   member                   By:   DELTA VENTURES, INC., a                            Pennsylvania corporation, its                            authorized general partner                            By:   /s/ Stephen E. Sterrett                                          Name: Stephen E. Sterrett                                     Title: Vice President --------------------------------------------------------------------------------

  Exhibit 10.5 SECURITY AGREEMENT This SECURITY AGREEMENT, dated as of July 19, 2006 (the “Agreement”) is by and among SatCon Technology Corporation, a company duly organized and validly existing under the laws of Delaware (the “Company”), the Purchasers identified on the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”) and Iroquois Master Fund Ltd., as agent for the Purchasers (in such capacity, together with its successors in such capacity, the “Agent”). The Company and each of the Purchasers are parties to a Securities Purchase Agreement dated as of July 19, 2006 (as modified and supplemented and in effect from time to time, the “Purchase Agreement”), that provides, subject to the terms and conditions thereof, for the issuance and sale by the Company to each of the Purchasers, severally and not jointly, Notes and Warrants as more fully described in the Purchase Agreement. To induce each of the Purchasers to enter into the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined).  Accordingly, the parties hereto agree as follows: SECTION 1.               DEFINITIONS.  EACH CAPITALIZED TERM USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE THE MEANING ASSIGNED TO SUCH TERM IN THE PURCHASE AGREEMENT.  IN ADDITION, AS USED HEREIN: “Accounts” shall have the meaning ascribed thereto in Section 3(d) hereof. “Business” shall mean the businesses from time to time, now or hereafter, conducted by the Company and its Subsidiaries. “Collateral” shall have the meaning ascribed thereto in Section 3 hereof. “Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter acquired by the Company, that are associated with the Business. “Copyrights” shall mean all copyrights, copyright registrations and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto. “Documents” shall have the meaning ascribed thereto in Section 3(j) hereof. “Equipment” shall have the meaning ascribed thereto in Section 3(h) hereof. --------------------------------------------------------------------------------   “Event of Default” shall have the meaning ascribed thereto in Section 8 of the Notes. “Excluded Collateral” shall mean the assets of the Company which secure the Permitted Indebtedness and the assets listed on Annex 2 hereto. “Instruments” shall have the meaning ascribed thereto in Section 3(e) hereof. “Intellectual Property” shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the Business; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, manuals, materials standards, processing standards, catalogs, computer and automatic machinery software and programs, and the like pertaining to the operation by the Company of the Business; (d) all sales data and other information relating to sales now or hereafter collected and/or maintained by the Company that pertain to the Business; (e) all accounting information which pertains to the Business and all media in which or on which any of the information or knowledge or data or records which pertain to the Business may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Company pertaining to the operation by the Company and its Subsidiaries of the Business; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Company in respect of any of the items listed above. “Inventory” shall have the meaning ascribed thereto in Section 3(f) hereof. “Issuers” shall mean, collectively, the respective entities identified on Annex 1 hereto, and all other entities formed by the Company or entities in which the Company owns or acquires any capital stock or similar interest.  “Motor Vehicles” shall mean motor vehicles, tractors, trailers and other like property, whether or not the title thereto is governed by a certificate of title or ownership. “Patent Collateral” shall mean all Patents, whether now owned or hereafter acquired by the Company that are associated with the Business. “Patents” shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world. --------------------------------------------------------------------------------   “Permitted Indebtedness” shall mean the Company’s existing indebtedness, liabilities and obligations as disclosed on Annex 5 hereto, any future capitalized leases, purchase money indebtedness or other indebtedness of the Company permitted under the Purchase Agreement and the Notes. “Permitted Liens” shall mean (i) the Company’s existing Liens as disclosed in the Current SEC Report and Annex 6 hereto, (ii) the security interests created by this Agreement, (iii) Liens of local or state authorities for franchise, real estate or other like taxes, (iv) statutory Liens of landlords and liens of carriers, warehousemen, bailees,  mechanics, materialmen and other like Liens imposed by law, created in the ordinary course of business and for amounts which are not more than sixty days past due, (v) Liens for taxes which are not yet due and payable or are being contested in good faith and by appropriate proceedings, and (vi) Liens which do not materially affect the value of the Company’s property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. “Pledged Stock” shall have the meaning ascribed thereto in Section 3(a) hereof. “Real Estate” shall have the meaning ascribed thereto in Section 3(l) hereof. “Secured Obligations” shall mean, collectively, the principal of and interest on the Notes issued or issuable (as applicable) by the Company and held by the applicable Purchaser, and all other amounts from time to time owing to such Purchasers by the Company under the Purchase Agreement and the Notes.  “Stock Collateral” shall mean, collectively, the Collateral described in clauses (a) through (c) of Section 3 hereof and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers. “Trademark Collateral” shall mean all Trademarks, whether now owned or hereafter acquired by the Company, that are associated with the Business.  Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark which would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral. “Trademarks” shall mean all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark. “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. --------------------------------------------------------------------------------   SECTION 2.               REPRESENTATIONS AND WARRANTIES.  THE COMPANY REPRESENTS AND WARRANTS TO EACH OF THE PURCHASERS THAT: A.                                       THE COMPANY IS THE SOLE BENEFICIAL OWNER OF THE COLLATERAL AND NO LIEN EXISTS OR WILL EXIST UPON ANY COLLATERAL AT ANY TIME (AND, WITH RESPECT TO THE STOCK COLLATERAL, NO RIGHT OR OPTION TO ACQUIRE THE SAME EXISTS IN FAVOR OF ANY OTHER PERSON), EXCEPT FOR PERMITTED LIENS AND THE PLEDGE AND SECURITY INTEREST IN FAVOR OF EACH OF THE PURCHASERS CREATED OR PROVIDED FOR HEREIN, WHICH PLEDGE AND SECURITY INTEREST CONSTITUTES A FIRST PRIORITY PERFECTED PLEDGE AND SECURITY INTEREST IN AND TO ALL OF THE COLLATERAL (OTHER THAN INTELLECTUAL PROPERTY REGISTERED OR OTHERWISE LOCATED OUTSIDE OF THE UNITED STATES OF AMERICA); B.                                      THE PLEDGED STOCK DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY IN THE ENTITIES IDENTIFIED IN ANNEX 1 HERETO IS, AND ALL OTHER PLEDGED STOCK, WHETHER ISSUED NOW OR IN THE FUTURE, WILL BE, DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, FREE AND CLEAR OF ALL LIENS OTHER THAN PERMITTED LIENS, AND NONE OF SUCH PLEDGED STOCK IS OR WILL BE SUBJECT TO ANY CONTRACTUAL RESTRICTION, PREEMPTIVE AND SIMILAR RIGHTS, OR ANY RESTRICTION UNDER THE CHARTER OR BY-LAWS OF THE RESPECTIVE ISSUERS OF SUCH PLEDGED STOCK, UPON THE TRANSFER OF SUCH PLEDGED STOCK (EXCEPT FOR ANY SUCH RESTRICTION CONTAINED HEREIN; C.                                       THE PLEDGED STOCK DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY IN THE ENTITIES IDENTIFIED IN ANNEX 1 HERETO CONSTITUTES ALL OF THE ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OF ANY CLASS OF SUCH ISSUERS BENEFICIALLY OWNED BY THE COMPANY ON THE DATE HEREOF (WHETHER OR NOT REGISTERED IN THE NAME OF THE COMPANY), AND SAID ANNEX 1 CORRECTLY IDENTIFIES, AS AT THE DATE HEREOF, THE RESPECTIVE ISSUERS OF SUCH PLEDGED STOCK; D.                                      THE COMPANY OWNS AND POSSESSES THE RIGHT TO USE, AND HAS DONE NOTHING TO AUTHORIZE OR ENABLE ANY OTHER PERSON TO USE, ALL OF ITS COPYRIGHTS, PATENTS AND TRADEMARKS, AND ALL REGISTRATIONS OF ITS MATERIAL COPYRIGHTS, PATENTS AND TRADEMARKS ARE VALID AND IN FULL FORCE AND EFFECT.  EXCEPT AS MAY BE SET FORTH IN SAID ANNEX 3 AND EXCEPT FOR PERMITTED LIENS, THE COMPANY OWNS AND POSSESSES THE RIGHT TO USE ALL MATERIAL COPYRIGHTS, PATENTS AND TRADEMARKS, NECESSARY FOR THE OPERATION OF THE BUSINESS; E.                                       TO THE COMPANY’S KNOWLEDGE, (I) EXCEPT AS SET FORTH IN ANNEX 3 HERETO, THERE IS NO VIOLATION BY OTHERS OF ANY RIGHT OF THE COMPANY WITH RESPECT TO ANY MATERIAL COPYRIGHTS, PATENTS OR TRADEMARKS, RESPECTIVELY, AND (II) THE COMPANY IS NOT, IN CONNECTION WITH THE BUSINESS, INFRINGING IN ANY RESPECT UPON ANY COPYRIGHTS, PATENTS OR TRADEMARKS OF ANY OTHER PERSON; AND NO PROCEEDINGS HAVE BEEN INSTITUTED OR ARE PENDING AGAINST THE COMPANY OR, TO THE COMPANY’S KNOWLEDGE, THREATENED, AND NO CLAIM AGAINST THE COMPANY HAS BEEN RECEIVED BY THE COMPANY, ALLEGING ANY SUCH VIOLATION, EXCEPT AS MAY BE SET FORTH IN SAID ANNEX 3, AND EXCEPT, IN EACH CASE FOR --------------------------------------------------------------------------------   MATTERS WHICH SINGLY OR IN THE AGGREGATE COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT; AND F.                                         THE COMPANY DOES NOT OWN ANY MATERIAL TRADEMARKS REGISTERED IN THE UNITED STATES OF AMERICA TO WHICH THE LAST SENTENCE OF THE DEFINITION OF TRADEMARK COLLATERAL APPLIES. SECTION 3.               COLLATERAL.  AS COLLATERAL SECURITY FOR THE PROMPT PAYMENT IN FULL WHEN DUE (WHETHER AT STATED MATURITY, BY ACCELERATION OR OTHERWISE) OF THE SECURED OBLIGATIONS, THE COMPANY HEREBY PLEDGES, GRANTS, ASSIGNS, HYPOTHECATES AND TRANSFERS TO THE AGENT, ON BEHALF OF THE PURCHASERS AS HEREINAFTER PROVIDED, A SECURITY INTEREST IN AND LIEN UPON ALL OF THE COMPANY’S RIGHT, TITLE AND INTEREST IN, TO AND UNDER ALL PERSONAL PROPERTY AND OTHER ASSETS OF THE COMPANY, WHETHER NOW OWNED OR HEREAFTER ACQUIRED BY OR ARISING IN FAVOR OF THE COMPANY, WHETHER NOW EXISTING OR HEREAFTER COMING INTO EXISTENCE, AND REGARDLESS OF WHERE LOCATED, EXCEPT FOR THE EXCLUDED COLLATERAL (ALL BEING COLLECTIVELY REFERRED TO HEREIN AS “COLLATERAL”), INCLUDING: A.                                       THE COMPANY’S DIRECT OR INDIRECT OWNERSHIP INTEREST IN THE RESPECTIVE SHARES OF CAPITAL STOCK OF THE ISSUERS AND ALL OTHER SHARES OF CAPITAL STOCK OF WHATEVER CLASS OF THE ISSUERS, NOW OR HEREAFTER OWNED BY THE COMPANY, TOGETHER WITH IN EACH CASE THE CERTIFICATES EVIDENCING THE SAME (COLLECTIVELY, THE “PLEDGED STOCK”); B.                                      ALL SHARES, SECURITIES, MONEYS OR PROPERTY REPRESENTING A DIVIDEND ON ANY OF THE PLEDGED STOCK, OR REPRESENTING A DISTRIBUTION OR RETURN OF CAPITAL UPON OR IN RESPECT OF THE PLEDGED STOCK, OR RESULTING FROM A SPLIT-UP, REVISION, RECLASSIFICATION OR OTHER LIKE CHANGE OF THE PLEDGED STOCK OR OTHERWISE RECEIVED IN EXCHANGE THEREFOR, AND ANY SUBSCRIPTION WARRANTS, RIGHTS OR OPTIONS ISSUED TO THE HOLDERS OF, OR OTHERWISE IN RESPECT OF, THE PLEDGED STOCK; C.                                       WITHOUT AFFECTING THE OBLIGATIONS OF THE COMPANY UNDER ANY PROVISION PROHIBITING SUCH ACTION HEREUNDER OR UNDER THE PURCHASE AGREEMENT OR THE NOTES, IN THE EVENT OF ANY CONSOLIDATION OR MERGER IN WHICH ANY ISSUER IS NOT THE SURVIVING CORPORATION, ALL SHARES OF EACH CLASS OF THE CAPITAL STOCK OF THE SUCCESSOR CORPORATION (UNLESS SUCH SUCCESSOR CORPORATION IS THE COMPANY ITSELF) FORMED BY OR RESULTING FROM SUCH CONSOLIDATION OR MERGER (THE PLEDGED STOCK, TOGETHER WITH ALL OTHER CERTIFICATES, SHARES, SECURITIES, PROPERTIES OR MONEYS AS MAY FROM TIME TO TIME BE PLEDGED HEREUNDER PURSUANT TO CLAUSE (A) OR (B) ABOVE AND THIS CLAUSE (C) BEING HEREIN COLLECTIVELY CALLED THE “STOCK COLLATERAL”); D.                                      ALL ACCOUNTS AND GENERAL INTANGIBLES (EACH AS DEFINED IN THE UNIFORM COMMERCIAL CODE) OF THE COMPANY CONSTITUTING ANY RIGHT TO THE PAYMENT OF MONEY, INCLUDING (BUT NOT LIMITED TO) ALL MONEYS DUE AND TO BECOME DUE TO THE COMPANY IN RESPECT OF ANY LOANS OR ADVANCES FOR THE PURCHASE PRICE OF INVENTORY OR EQUIPMENT OR OTHER GOODS SOLD OR LEASED OR FOR SERVICES RENDERED, ALL MONEYS DUE AND TO BECOME DUE TO THE COMPANY UNDER ANY --------------------------------------------------------------------------------   GUARANTEE (INCLUDING A LETTER OF CREDIT) OF THE PURCHASE PRICE OF INVENTORY OR EQUIPMENT SOLD BY THE COMPANY AND ALL TAX REFUNDS (SUCH ACCOUNTS, GENERAL INTANGIBLES AND MONEYS DUE AND TO BECOME DUE BEING HEREIN CALLED COLLECTIVELY “ACCOUNTS”); E.                                       ALL INSTRUMENTS, CHATTEL PAPER OR LETTERS OF CREDIT (EACH AS DEFINED IN THE UNIFORM COMMERCIAL CODE) OF THE COMPANY EVIDENCING, REPRESENTING, ARISING FROM OR EXISTING IN RESPECT OF, RELATING TO, SECURING OR OTHERWISE SUPPORTING THE PAYMENT OF, ANY OF THE ACCOUNTS, INCLUDING (BUT NOT LIMITED TO) PROMISSORY NOTES, DRAFTS, BILLS OF EXCHANGE AND TRADE ACCEPTANCES (HEREIN COLLECTIVELY CALLED “INSTRUMENTS”); F.                                         ALL INVENTORY (AS DEFINED IN THE UNIFORM COMMERCIAL CODE) OF THE COMPANY AND ALL GOODS OBTAINED BY THE COMPANY IN EXCHANGE FOR SUCH INVENTORY (HEREIN COLLECTIVELY CALLED “INVENTORY”); G.                                      ALL INTELLECTUAL PROPERTY AND ALL OTHER ACCOUNTS OR GENERAL INTANGIBLES OF THE COMPANY NOT CONSTITUTING INTELLECTUAL PROPERTY OR ACCOUNTS; H.                                      ALL EQUIPMENT (AS DEFINED IN THE UNIFORM COMMERCIAL CODE) OF THE COMPANY (HEREIN COLLECTIVELY CALLED “EQUIPMENT”); I.                                          EACH CONTRACT AND OTHER AGREEMENT OF THE COMPANY RELATING TO THE SALE OR OTHER DISPOSITION OF INVENTORY OR EQUIPMENT; J.                                          ALL DOCUMENTS OF TITLE (AS DEFINED IN THE UNIFORM COMMERCIAL CODE) OR OTHER RECEIPTS OF THE COMPANY COVERING, EVIDENCING OR REPRESENTING INVENTORY OR EQUIPMENT (HEREIN COLLECTIVELY CALLED “DOCUMENTS”); K.                                       ALL RIGHTS, CLAIMS AND BENEFITS OF THE COMPANY AGAINST ANY PERSON ARISING OUT OF, RELATING TO OR IN CONNECTION WITH INVENTORY OR EQUIPMENT PURCHASED BY THE COMPANY, INCLUDING, WITHOUT LIMITATION, ANY SUCH RIGHTS, CLAIMS OR BENEFITS AGAINST ANY PERSON STORING OR TRANSPORTING SUCH INVENTORY OR EQUIPMENT; L.                                          ALL ESTATES IN LAND TOGETHER WITH ALL IMPROVEMENTS AND OTHER STRUCTURES NOW OR HEREAFTER SITUATED THEREON, TOGETHER WITH ALL RIGHTS, PRIVILEGES, TENEMENTS, HEREDITAMENTS, APPURTENANCES, EASEMENTS, INCLUDING, BUT NOT LIMITED TO, RIGHTS AND EASEMENTS FOR ACCESS AND EGRESS AND UTILITY CONNECTIONS, AND OTHER RIGHTS NOW OR HEREAFTER APPURTENANT THERETO (“REAL ESTATE”); M.                                    ALL OTHER TANGIBLE OR INTANGIBLE PROPERTY OF THE COMPANY, INCLUDING, WITHOUT LIMITATION, ALL PROCEEDS, PRODUCTS AND ACCESSIONS OF AND TO ANY OF THE PROPERTY OF THE COMPANY DESCRIBED IN CLAUSES (A) THROUGH (L) ABOVE IN THIS SECTION 3 (INCLUDING, WITHOUT LIMITATION, ANY PROCEEDS OF INSURANCE THEREON), AND, TO THE EXTENT RELATED TO ANY PROPERTY DESCRIBED IN SAID CLAUSES OR SUCH PROCEEDS, PRODUCTS AND ACCESSIONS, ALL BOOKS, --------------------------------------------------------------------------------   CORRESPONDENCE, CREDIT FILES, RECORDS, INVOICES AND OTHER PAPERS, INCLUDING WITHOUT LIMITATION ALL TAPES, CARDS, COMPUTER RUNS AND OTHER PAPERS AND DOCUMENTS IN THE POSSESSION OR UNDER THE CONTROL OF THE COMPANY OR ANY COMPUTER BUREAU OR SERVICE COMPANY FROM TIME TO TIME ACTING FOR THE COMPANY. SECTION 4.               FURTHER ASSURANCES; REMEDIES.  IN FURTHERANCE OF THE GRANT OF THE PLEDGE AND SECURITY INTEREST PURSUANT TO SECTION 3 HEREOF, THE COMPANY HEREBY AGREES WITH THE AGENT AND EACH OF THE PURCHASERS AS FOLLOWS: 4.01         DELIVERY AND OTHER PERFECTION.  THE COMPANY SHALL: A.                                       IF ANY OF THE ABOVE-DESCRIBED SHARES, SECURITIES, MONIES OR PROPERTY REQUIRED TO BE PLEDGED BY THE COMPANY UNDER CLAUSES (A), (B) AND (C) OF SECTION 3 HEREOF ARE RECEIVED BY THE COMPANY, FORTHWITH EITHER (X) TRANSFER AND DELIVER TO THE AGENT SUCH SHARES OR SECURITIES SO RECEIVED BY THE COMPANY (TOGETHER WITH THE CERTIFICATES FOR ANY SUCH SHARES AND SECURITIES DULY ENDORSED IN BLANK OR ACCOMPANIED BY UNDATED STOCK POWERS DULY EXECUTED IN BLANK) ALL OF WHICH THEREAFTER SHALL BE HELD BY THE AGENT, PURSUANT TO THE TERMS OF THIS AGREEMENT, AS PART OF THE COLLATERAL OR (Y) TAKE SUCH OTHER ACTION AS THE AGENT SHALL REASONABLY DEEM NECESSARY OR APPROPRIATE TO DULY RECORD THE LIEN CREATED HEREUNDER IN SUCH SHARES, SECURITIES, MONIES OR PROPERTY REFERRED TO IN SAID CLAUSES (A), (B) AND (C) OF SECTION 3; B.                                      DELIVER AND PLEDGE TO THE AGENT, AT THE AGENT’S REQUEST, ANY AND ALL INSTRUMENTS, ENDORSED AND/OR ACCOMPANIED BY SUCH INSTRUMENTS OF ASSIGNMENT AND TRANSFER IN SUCH FORM AND SUBSTANCE AS THE AGENT MAY REQUEST; PROVIDED, THAT SO LONG AS NO EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING, THE COMPANY MAY RETAIN FOR COLLECTION IN THE ORDINARY COURSE ANY INSTRUMENTS RECEIVED BY IT IN THE ORDINARY COURSE OF BUSINESS AND THE AGENT SHALL, PROMPTLY UPON REQUEST OF THE COMPANY, MAKE APPROPRIATE ARRANGEMENTS FOR MAKING ANY OTHER INSTRUMENT PLEDGED BY THE COMPANY AVAILABLE TO IT FOR PURPOSES OF PRESENTATION, COLLECTION OR RENEWAL (ANY SUCH ARRANGEMENT TO BE EFFECTED, TO THE EXTENT DEEMED APPROPRIATE BY THE AGENT, AGAINST TRUST RECEIPT OR LIKE DOCUMENT); C.                                       GIVE, EXECUTE, DELIVER, FILE AND/OR RECORD ANY FINANCING STATEMENT, NOTICE, INSTRUMENT, DOCUMENT, AGREEMENT OR OTHER PAPERS THAT MAY BE NECESSARY (IN THE REASONABLE JUDGMENT OF THE AGENT) TO CREATE, PRESERVE, PERFECT OR VALIDATE ANY SECURITY INTEREST GRANTED PURSUANT HERETO OR TO ENABLE THE AGENT TO EXERCISE AND ENFORCE ITS RIGHTS HEREUNDER WITH RESPECT TO SUCH SECURITY INTEREST, INCLUDING, WITHOUT LIMITATION, CAUSING ANY OR ALL OF THE STOCK COLLATERAL TO BE TRANSFERRED OF RECORD INTO THE NAME OF THE AGENT OR ITS NOMINEE (AND THE AGENT AGREES THAT IF ANY STOCK COLLATERAL IS TRANSFERRED INTO ITS NAME OR THE NAME OF ITS NOMINEE, THE AGENT WILL THEREAFTER PROMPTLY GIVE TO THE COMPANY COPIES OF ANY NOTICES AND --------------------------------------------------------------------------------   COMMUNICATIONS RECEIVED BY IT WITH RESPECT TO THE STOCK COLLATERAL), PROVIDED THAT NOTICES TO ACCOUNT DEBTORS IN RESPECT OF ANY ACCOUNTS OR INSTRUMENTS SHALL BE SUBJECT TO THE PROVISIONS OF SECTION 4.09 BELOW; D.                                      UPON THE ACQUISITION AFTER THE DATE HEREOF BY THE COMPANY OF ANY EQUIPMENT COVERED BY A CERTIFICATE OF TITLE OR OWNERSHIP CAUSE THE AGENT TO BE LISTED AS THE LIENHOLDER ON SUCH CERTIFICATE OF TITLE AND WITHIN 120 DAYS OF THE ACQUISITION THEREOF DELIVER EVIDENCE OF THE SAME TO THE AGENT; E.                                       KEEP ACCURATE BOOKS AND RECORDS RELATING TO THE COLLATERAL, AND STAMP OR OTHERWISE MARK SUCH BOOKS AND RECORDS IN SUCH MANNER AS THE AGENT MAY REASONABLY REQUIRE IN ORDER TO REFLECT THE SECURITY INTERESTS GRANTED BY THIS AGREEMENT; F.                                         FURNISH TO THE AGENT FROM TIME TO TIME (BUT, UNLESS AN EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING, NO MORE FREQUENTLY THAN QUARTERLY) STATEMENTS AND SCHEDULES FURTHER IDENTIFYING AND DESCRIBING THE COPYRIGHT COLLATERAL, THE PATENT COLLATERAL AND THE TRADEMARK COLLATERAL, RESPECTIVELY, AND SUCH OTHER REPORTS IN CONNECTION WITH THE COPYRIGHT COLLATERAL, THE PATENT COLLATERAL AND THE TRADEMARK COLLATERAL, AS THE AGENT MAY REASONABLY REQUEST, ALL IN REASONABLE DETAIL; G.                                      PERMIT REPRESENTATIVES OF THE AGENT, UPON REASONABLE NOTICE, AT ANY TIME DURING NORMAL BUSINESS HOURS TO INSPECT AND MAKE ABSTRACTS FROM ITS BOOKS AND RECORDS PERTAINING TO THE COLLATERAL, AND PERMIT REPRESENTATIVES OF THE AGENT TO BE PRESENT AT THE COMPANY’S PLACE OF BUSINESS TO RECEIVE COPIES OF ALL COMMUNICATIONS AND REMITTANCES RELATING TO THE COLLATERAL, AND FORWARD COPIES OF ANY NOTICES OR COMMUNICATIONS BY THE COMPANY WITH RESPECT TO THE COLLATERAL, ALL IN SUCH MANNER AS THE AGENT MAY REASONABLY REQUIRE; AND H.                                      UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT, UPON REQUEST OF THE AGENT, PROMPTLY NOTIFY EACH ACCOUNT DEBTOR IN RESPECT OF ANY ACCOUNTS OR INSTRUMENTS THAT SUCH COLLATERAL HAS BEEN ASSIGNED TO THE AGENT HEREUNDER, AND THAT ANY PAYMENTS DUE OR TO BECOME DUE IN RESPECT OF SUCH COLLATERAL ARE TO BE MADE DIRECTLY TO THE AGENT. 4.02         OTHER FINANCING STATEMENTS AND LIENS.  EXCEPT WITH RESPECT TO PERMITTED INDEBTEDNESS, PERMITTED LIENS OR AS OTHERWISE PERMITTED UNDER SCHEDULE 3.1(A) OF THE PURCHASE AGREEMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENT, THE COMPANY SHALL NOT FILE OR SUFFER TO BE ON FILE, OR AUTHORIZE OR PERMIT TO BE FILED OR TO BE ON FILE, IN ANY JURISDICTION, ANY FINANCING STATEMENT OR LIKE INSTRUMENT WITH RESPECT TO THE COLLATERAL IN WHICH THE AGENT IS NOT NAMED AS THE SOLE SECURED PARTY FOR THE BENEFIT OF EACH OF THE PURCHASERS. 4.03         PRESERVATION OF RIGHTS.  THE AGENT SHALL NOT BE REQUIRED TO TAKE STEPS NECESSARY TO PRESERVE ANY RIGHTS AGAINST PRIOR PARTIES TO ANY OF THE COLLATERAL. 4.04         SPECIAL PROVISIONS RELATING TO CERTAIN COLLATERAL. --------------------------------------------------------------------------------   A.                                       STOCK COLLATERAL. (1)                                  THE COMPANY WILL CAUSE THE STOCK COLLATERAL TO CONSTITUTE AT ALL TIMES 100% OF THE TOTAL NUMBER OF SHARES OF EACH CLASS OF CAPITAL STOCK OF EACH ISSUER THEN OUTSTANDING THAT IS OWNED DIRECTLY OR INDIRECTLY BY THE COMPANY. (2)                                  SO LONG AS NO EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING, THE COMPANY SHALL HAVE THE RIGHT TO EXERCISE ALL VOTING, CONSENSUAL AND OTHER POWERS OF OWNERSHIP PERTAINING TO THE STOCK COLLATERAL FOR ALL PURPOSES NOT INCONSISTENT WITH THE TERMS OF THIS AGREEMENT, THE PURCHASE AGREEMENT, THE NOTES OR ANY OTHER INSTRUMENT OR AGREEMENT REFERRED TO HEREIN OR THEREIN, PROVIDED THAT THE COMPANY AGREES THAT IT WILL NOT VOTE THE STOCK COLLATERAL IN ANY MANNER THAT IS INCONSISTENT WITH THE TERMS OF THIS AGREEMENT, THE PURCHASE AGREEMENT, THE NOTES OR ANY SUCH OTHER INSTRUMENT OR AGREEMENT; AND THE AGENT SHALL EXECUTE AND DELIVER TO THE COMPANY OR CAUSE TO BE EXECUTED AND DELIVERED TO THE COMPANY ALL SUCH PROXIES, POWERS OF ATTORNEY, DIVIDEND AND OTHER ORDERS, AND ALL SUCH INSTRUMENTS, WITHOUT RECOURSE, AS THE COMPANY MAY REASONABLY REQUEST FOR THE PURPOSE OF ENABLING THE COMPANY TO EXERCISE THE RIGHTS AND POWERS WHICH IT IS ENTITLED TO EXERCISE PURSUANT TO THIS SECTION 4.04(A)(2). (3)                                  UNLESS AND UNTIL AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, THE COMPANY SHALL BE ENTITLED TO RECEIVE AND RETAIN ANY DIVIDENDS ON THE STOCK COLLATERAL PAID IN CASH OUT OF EARNED SURPLUS. (4)                                  IF ANY EVENT OF DEFAULT SHALL HAVE OCCURRED, THEN SO LONG AS SUCH EVENT OF DEFAULT SHALL CONTINUE, AND WHETHER OR NOT THE AGENT EXERCISES ANY AVAILABLE RIGHT TO DECLARE ANY SECURED OBLIGATIONS DUE AND PAYABLE OR SEEKS OR PURSUES ANY OTHER RELIEF OR REMEDY AVAILABLE TO IT UNDER APPLICABLE LAW OR UNDER THIS AGREEMENT, THE PURCHASE AGREEMENT, THE NOTES OR ANY OTHER AGREEMENT RELATING TO SUCH SECURED OBLIGATIONS, ALL DIVIDENDS AND OTHER DISTRIBUTIONS ON THE STOCK COLLATERAL SHALL BE PAID DIRECTLY TO THE AGENT AND RETAINED BY IT AS PART OF THE STOCK COLLATERAL, SUBJECT TO THE TERMS OF THIS AGREEMENT, AND, IF THE AGENT SHALL SO REQUEST IN WRITING, THE COMPANY AGREES TO EXECUTE AND DELIVER TO THE AGENT APPROPRIATE ADDITIONAL DIVIDEND, DISTRIBUTION AND OTHER ORDERS AND DOCUMENTS TO THAT END, PROVIDED THAT IF SUCH EVENT OF DEFAULT IS CURED, ANY SUCH DIVIDEND OR DISTRIBUTION THERETOFORE PAID TO THE AGENT SHALL, UPON REQUEST OF THE COMPANY (EXCEPT TO THE EXTENT THERETOFORE APPLIED TO THE SECURED OBLIGATIONS) BE RETURNED BY THE AGENT TO THE COMPANY. --------------------------------------------------------------------------------   B.                                      INTELLECTUAL PROPERTY. (1)                                  FOR THE PURPOSE OF ENABLING THE AGENT TO EXERCISE RIGHTS AND REMEDIES UNDER SECTION 4.05 HEREOF AT SUCH TIME AS THE AGENT SHALL BE LAWFULLY ENTITLED TO EXERCISE SUCH RIGHTS AND REMEDIES, AND FOR NO OTHER PURPOSE, THE COMPANY HEREBY GRANTS TO THE AGENT, TO THE EXTENT ASSIGNABLE, AN IRREVOCABLE, NON-EXCLUSIVE LICENSE (EXERCISABLE WITHOUT PAYMENT OF ROYALTY OR OTHER COMPENSATION TO THE COMPANY) TO USE, ASSIGN, LICENSE OR SUBLICENSE ANY OF THE INTELLECTUAL PROPERTY (OTHER THAN THE TRADEMARK COLLATERAL OR GOODWILL ASSOCIATED THEREWITH) NOW OWNED OR HEREAFTER ACQUIRED BY THE COMPANY, WHEREVER THE SAME MAY BE LOCATED, INCLUDING IN SUCH LICENSE REASONABLE ACCESS TO ALL MEDIA IN WHICH ANY OF THE LICENSED ITEMS MAY BE RECORDED OR STORED AND TO ALL COMPUTER PROGRAMS USED FOR THE COMPILATION OR PRINTOUT THEREOF. (2)                                  NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, SO LONG AS NO EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING, THE COMPANY WILL BE PERMITTED TO EXPLOIT, USE, ENJOY, PROTECT, LICENSE, SUBLICENSE, ASSIGN, SELL, DISPOSE OF OR TAKE OTHER ACTIONS WITH RESPECT TO THE INTELLECTUAL PROPERTY IN THE ORDINARY COURSE OF THE BUSINESS OF THE COMPANY.  IN FURTHERANCE OF THE FOREGOING, UNLESS AN EVENT OF DEFAULT SHALL HAVE OCCURRED AND IS CONTINUING, THE AGENT SHALL FROM TIME TO TIME, UPON THE REQUEST OF THE COMPANY, EXECUTE AND DELIVER ANY INSTRUMENTS, CERTIFICATES OR OTHER DOCUMENTS, IN THE FORM SO REQUESTED, WHICH THE COMPANY SHALL HAVE CERTIFIED ARE APPROPRIATE (IN ITS JUDGMENT) TO ALLOW IT TO TAKE ANY ACTION PERMITTED ABOVE (INCLUDING RELINQUISHMENT OF THE LICENSE PROVIDED PURSUANT TO CLAUSE (1) IMMEDIATELY ABOVE AS TO ANY SPECIFIC INTELLECTUAL PROPERTY).  FURTHER, UPON THE PAYMENT IN FULL OF ALL OF THE SECURED OBLIGATIONS OR EARLIER EXPIRATION OF THIS AGREEMENT OR RELEASE OF THE COLLATERAL, THE AGENT SHALL GRANT BACK TO THE COMPANY THE LICENSE GRANTED PURSUANT TO CLAUSE (1) IMMEDIATELY ABOVE.  THE EXERCISE OF RIGHTS AND REMEDIES UNDER SECTION 4.05 HEREOF BY THE AGENT SHALL NOT TERMINATE THE RIGHTS OF THE HOLDERS OF ANY LICENSES OR SUBLICENSES THERETOFORE GRANTED BY THE COMPANY IN ACCORDANCE WITH THE FIRST SENTENCE OF THIS CLAUSE (2). 4.05         EVENTS OF DEFAULT, ETC.  DURING THE PERIOD DURING WHICH AN EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING: A.                                       THE COMPANY SHALL, AT THE REQUEST OF THE AGENT, ASSEMBLE THE COLLATERAL OWNED BY IT AT SUCH PLACE OR PLACES, REASONABLY CONVENIENT TO BOTH THE AGENT AND THE COMPANY, DESIGNATED IN ITS REQUEST; --------------------------------------------------------------------------------   B.                                      THE AGENT MAY MAKE ANY REASONABLE COMPROMISE OR SETTLEMENT DEEMED DESIRABLE WITH RESPECT TO ANY OF THE COLLATERAL AND MAY EXTEND THE TIME OF PAYMENT, ARRANGE FOR PAYMENT IN INSTALLMENTS, OR OTHERWISE MODIFY THE TERMS OF, ANY OF THE COLLATERAL; C.                                       THE AGENT SHALL HAVE ALL OF THE RIGHTS AND REMEDIES WITH RESPECT TO THE COLLATERAL OF A SECURED PARTY UNDER THE UNIFORM COMMERCIAL CODE (WHETHER OR NOT SAID CODE IS IN EFFECT IN THE JURISDICTION WHERE THE RIGHTS AND REMEDIES ARE ASSERTED) AND SUCH ADDITIONAL RIGHTS AND REMEDIES TO WHICH A SECURED PARTY IS ENTITLED UNDER THE LAWS IN EFFECT IN ANY JURISDICTION WHERE ANY RIGHTS AND REMEDIES HEREUNDER MAY BE ASSERTED, INCLUDING, WITHOUT LIMITATION, THE RIGHT, TO THE MAXIMUM EXTENT PERMITTED BY LAW, TO EXERCISE ALL VOTING, CONSENSUAL AND OTHER POWERS OF OWNERSHIP PERTAINING TO THE COLLATERAL AS IF THE AGENT WERE THE SOLE AND ABSOLUTE OWNER THEREOF (AND THE COMPANY AGREES TO TAKE ALL SUCH ACTION AS MAY BE APPROPRIATE TO GIVE EFFECT TO SUCH RIGHT); D.                                      THE AGENT IN ITS DISCRETION MAY, IN ITS NAME OR IN THE NAME OF THE COMPANY OR OTHERWISE, DEMAND, SUE FOR, COLLECT OR RECEIVE ANY MONEY OR PROPERTY AT ANY TIME PAYABLE OR RECEIVABLE ON ACCOUNT OF OR IN EXCHANGE FOR ANY OF THE COLLATERAL, BUT SHALL BE UNDER NO OBLIGATION TO DO SO; AND E.                                       THE AGENT MAY, UPON 10 BUSINESS DAYS, PRIOR WRITTEN NOTICE TO THE COMPANY OF THE TIME AND PLACE, WITH RESPECT TO THE COLLATERAL OR ANY PART THEREOF WHICH SHALL THEN BE OR SHALL THEREAFTER COME INTO THE POSSESSION, CUSTODY OR CONTROL OF THE AGENT, OR ANY OF ITS RESPECTIVE AGENTS, SELL, LEASE, ASSIGN OR OTHERWISE DISPOSE OF ALL OR ANY OF SUCH COLLATERAL, AT SUCH PLACE OR PLACES AS THE AGENT DEEMS BEST, AND FOR CASH OR ON CREDIT OR FOR FUTURE DELIVERY (WITHOUT THEREBY ASSUMING ANY CREDIT RISK), AT PUBLIC OR PRIVATE SALE, WITHOUT DEMAND OF PERFORMANCE OR NOTICE OF INTENTION TO EFFECT ANY SUCH DISPOSITION OR OF TIME OR PLACE THEREOF (EXCEPT SUCH NOTICE AS IS REQUIRED ABOVE OR BY APPLICABLE STATUTE AND CANNOT BE WAIVED) AND THE AGENT OR ANYONE ELSE MAY BE THE PURCHASER, LESSEE, ASSIGNEE OR RECIPIENT OF ANY OR ALL OF THE COLLATERAL SO DISPOSED OF AT ANY PUBLIC SALE (OR, TO THE EXTENT PERMITTED BY LAW, AT ANY PRIVATE SALE), AND THEREAFTER HOLD THE SAME ABSOLUTELY, FREE FROM ANY CLAIM OR RIGHT OF WHATSOEVER KIND, INCLUDING ANY RIGHT OR EQUITY OF REDEMPTION (STATUTORY OR OTHERWISE), OF THE COMPANY, ANY SUCH DEMAND, NOTICE OR RIGHT AND EQUITY BEING HEREBY EXPRESSLY WAIVED AND RELEASED.  IN THE EVENT OF ANY SALE, ASSIGNMENT, OR OTHER DISPOSITION OF ANY OF THE TRADEMARK COLLATERAL, THE GOODWILL OF THE BUSINESS CONNECTED WITH AND SYMBOLIZED BY THE TRADEMARK COLLATERAL SUBJECT TO SUCH DISPOSITION SHALL BE INCLUDED, AND THE COMPANY SHALL SUPPLY TO THE AGENT OR ITS DESIGNEE, FOR INCLUSION IN SUCH SALE, ASSIGNMENT OR OTHER DISPOSITION, ALL INTELLECTUAL PROPERTY RELATING TO SUCH TRADEMARK COLLATERAL.  THE AGENT MAY, WITHOUT NOTICE OR PUBLICATION, ADJOURN ANY PUBLIC OR PRIVATE SALE OR CAUSE THE SAME TO BE ADJOURNED FROM TIME TO TIME --------------------------------------------------------------------------------   BY ANNOUNCEMENT AT THE TIME AND PLACE FIXED FOR THE SALE, AND SUCH SALE MAY BE MADE AT ANY TIME OR PLACE TO WHICH THE SAME MAY BE SO ADJOURNED. The proceeds of each collection, sale or other disposition under this Section 4.05, including by virtue of the exercise of the license granted to the Agent in Section 4.04(b)(1) hereof, shall be applied in accordance with Section 4.09 hereof. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof.  The Company acknowledges that any such private sales to an unrelated third party in an arm’s length transaction may be at prices and on terms less favorable to the Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale. 4.06         DEFICIENCY.  IF THE PROCEEDS OF SALE, COLLECTION OR OTHER REALIZATION OF OR UPON THE COLLATERAL PURSUANT TO SECTION 4.05 HEREOF ARE INSUFFICIENT TO COVER THE COSTS AND EXPENSES OF SUCH REALIZATION AND THE PAYMENT IN FULL OF THE SECURED OBLIGATIONS, THE COMPANY SHALL REMAIN LIABLE FOR ANY DEFICIENCY. 4.07         REMOVALS, ETC.  WITHOUT AT LEAST 30 DAYS’ PRIOR WRITTEN NOTICE TO THE AGENT OR UNLESS OTHERWISE REQUIRED BY LAW, THE COMPANY SHALL NOT (I) MAINTAIN ANY OF ITS BOOKS OR RECORDS WITH RESPECT TO THE COLLATERAL AT ANY OFFICE OR MAINTAIN ITS CHIEF EXECUTIVE OFFICE OR ITS PRINCIPAL PLACE OF BUSINESS AT ANY PLACE, OR PERMIT ANY INVENTORY OR EQUIPMENT TO BE LOCATED ANYWHERE OTHER THAN AT THE ADDRESS INDICATED FOR THE COMPANY IN SECTION 7.4 OF THE PURCHASE AGREEMENT OR AT ONE OF THE LOCATIONS IDENTIFIED IN ANNEX 4 HERETO OR IN TRANSIT FROM ONE OF SUCH LOCATIONS TO ANOTHER OR (II) CHANGE ITS CORPORATE NAME, OR THE NAME UNDER WHICH IT DOES BUSINESS, FROM THE NAME SHOWN ON THE SIGNATURE PAGE HERETO. 4.08         PRIVATE SALE.  THE AGENT SHALL INCUR NO LIABILITY AS A RESULT OF THE SALE OF THE COLLATERAL, OR ANY PART THEREOF, AT ANY PRIVATE SALE TO AN UNRELATED THIRD PARTY IN AN ARM’S LENGTH TRANSACTION PURSUANT TO SECTION 4.05 HEREOF CONDUCTED IN A COMMERCIALLY REASONABLE MANNER.  THE COMPANY HEREBY WAIVES ANY CLAIMS AGAINST THE AGENT ARISING BY REASON OF THE FACT THAT THE PRICE AT WHICH THE COLLATERAL MAY HAVE BEEN SOLD AT SUCH A PRIVATE SALE WAS LESS THAN THE PRICE WHICH MIGHT HAVE BEEN OBTAINED AT A PUBLIC SALE OR WAS LESS THAN THE AGGREGATE AMOUNT OF THE SECURED OBLIGATIONS, EVEN IF THE AGENT ACCEPTS THE FIRST OFFER RECEIVED AND DOES NOT OFFER THE COLLATERAL TO MORE THAN ONE OFFEREE. 4.09         APPLICATION OF PROCEEDS.  EXCEPT AS OTHERWISE HEREIN EXPRESSLY PROVIDED, THE PROCEEDS OF ANY COLLECTION, SALE OR OTHER REALIZATION OF ALL OR ANY PART OF THE COLLATERAL PURSUANT HERETO, AND ANY OTHER CASH AT THE TIME HELD BY THE AGENT UNDER THIS SECTION 4, SHALL BE APPLIED BY THE AGENT: --------------------------------------------------------------------------------   First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Agent and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Agent in connection therewith; Next, to the payment in full of the Secured Obligations in each case equally and ratably in accordance with the respective amounts thereof then due and owing to each of the Purchasers; and Finally, to the payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Section 4, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 4.10         ATTORNEY-IN-FACT.  WITHOUT LIMITING ANY RIGHTS OR POWERS GRANTED BY THIS AGREEMENT TO THE AGENT WHILE NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT, THE AGENT IS HEREBY APPOINTED THE ATTORNEY-IN-FACT OF THE COMPANY FOR THE PURPOSE OF CARRYING OUT THE PROVISIONS OF THIS SECTION 4 AND TAKING ANY ACTION AND EXECUTING ANY INSTRUMENTS WHICH THE AGENT MAY DEEM NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES HEREOF, WHICH APPOINTMENT AS ATTORNEY-IN-FACT IS IRREVOCABLE AND COUPLED WITH AN INTEREST.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SO LONG AS THE PURCHASERS SHALL BE ENTITLED UNDER THIS SECTION 4 TO MAKE COLLECTIONS IN RESPECT OF THE COLLATERAL, THE AGENT SHALL HAVE THE RIGHT AND POWER TO RECEIVE, ENDORSE AND COLLECT ALL CHECKS MADE PAYABLE TO THE ORDER OF THE COMPANY REPRESENTING ANY DIVIDEND, PAYMENT, OR OTHER DISTRIBUTION IN RESPECT OF THE COLLATERAL OR ANY PART THEREOF AND TO GIVE FULL DISCHARGE FOR THE SAME. 4.11         PERFECTION.  (I) PRIOR TO OR CONCURRENTLY WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY SHALL FILE SUCH FINANCING STATEMENTS AND OTHER DOCUMENTS IN SUCH OFFICES AS THE AGENT MAY REQUEST TO PERFECT THE SECURITY INTERESTS GRANTED BY SECTION 3 OF THIS AGREEMENT, AND (II) AT ANY TIME REQUESTED BY THE AGENT, THE COMPANY SHALL DELIVER TO THE AGENT ALL SHARE CERTIFICATES OF CAPITAL STOCK DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY IN THE ENTITIES IDENTIFIED IN ANNEX 1 HERETO, ACCOMPANIED BY UNDATED STOCK POWERS DULY EXECUTED IN BLANK. 4.12         TERMINATION.  WHEN ALL SECURED OBLIGATIONS SHALL HAVE BEEN PAID IN FULL UNDER THE PURCHASE AGREEMENT, THIS AGREEMENT SHALL TERMINATE, AND THE AGENT SHALL FORTHWITH CAUSE TO BE ASSIGNED, TRANSFERRED AND DELIVERED, AGAINST RECEIPT BUT WITHOUT ANY RECOURSE, WARRANTY OR REPRESENTATION WHATSOEVER, ANY REMAINING COLLATERAL AND MONEY RECEIVED IN RESPECT THEREOF, TO OR ON THE ORDER OF THE COMPANY AND TO BE RELEASED AND CANCELLED ALL LICENSES AND RIGHTS REFERRED TO IN SECTION 4.04(B)(1) HEREOF.  THE AGENT SHALL ALSO EXECUTE AND DELIVER TO THE COMPANY UPON SUCH TERMINATION SUCH UNIFORM COMMERCIAL CODE TERMINATION STATEMENTS, CERTIFICATES FOR TERMINATING THE LIENS ON THE MOTOR VEHICLES AND SUCH OTHER DOCUMENTATION AS SHALL BE REASONABLY REQUESTED BY THE COMPANY TO EFFECT THE TERMINATION AND RELEASE OF THE LIENS ON THE COLLATERAL. --------------------------------------------------------------------------------   4.13         EXPENSES.  THE COMPANY AGREES TO PAY TO THE AGENT ALL OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE EXPENSES FOR LEGAL SERVICES OF EVERY KIND) OF, OR INCIDENT TO, THE ENFORCEMENT OF ANY OF THE PROVISIONS OF THIS SECTION 4, OR PERFORMANCE BY THE AGENT OF ANY OBLIGATIONS OF THE COMPANY IN RESPECT OF THE COLLATERAL WHICH THE COMPANY HAS FAILED OR REFUSED TO PERFORM UPON REASONABLE NOTICE, OR ANY ACTUAL OR ATTEMPTED SALE, OR ANY EXCHANGE, ENFORCEMENT, COLLECTION, COMPROMISE OR SETTLEMENT IN RESPECT OF ANY OF THE COLLATERAL, AND FOR THE CARE OF THE COLLATERAL AND DEFENDING OR ASSERTING RIGHTS AND CLAIMS OF THE AGENT IN RESPECT THEREOF, BY LITIGATION OR OTHERWISE, INCLUDING EXPENSES OF INSURANCE, AND ALL SUCH EXPENSES SHALL BE SECURED OBLIGATIONS TO THE AGENT SECURED UNDER SECTION 3 HEREOF. 4.14         FURTHER ASSURANCES.  THE COMPANY AGREES THAT, FROM TIME TO TIME UPON THE WRITTEN REQUEST OF THE AGENT, THE COMPANY WILL EXECUTE AND DELIVER SUCH FURTHER DOCUMENTS AND DO SUCH OTHER ACTS AND THINGS AS THE AGENT MAY REASONABLY REQUEST IN ORDER FULLY TO EFFECT THE PURPOSES OF THIS AGREEMENT. 4.15         INDEMNITY.  EACH OF THE PURCHASERS HEREBY JOINTLY AND SEVERALLY COVENANTS AND AGREES TO REIMBURSE, INDEMNIFY AND HOLD THE AGENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS, JUDGMENTS, DAMAGES, LOSSES, LIABILITIES, COSTS, TRANSFER OR OTHER TAXES, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES) INCURRED OR SUFFERED WITHOUT ANY BAD FAITH OR WILLFUL MISCONDUCT BY THE AGENT, ARISING OUT OF OR INCIDENT TO THIS AGREEMENT OR THE ADMINISTRATION OF THE AGENT’S DUTIES HEREUNDER, OR RESULTING FROM ITS ACTIONS OR INACTIONS AS AGENT. SECTION 5.               MISCELLANEOUS. 5.01         NO WAIVER.  NO FAILURE ON THE PART OF THE AGENT OR ANY OF ITS AGENTS TO EXERCISE, AND NO COURSE OF DEALING WITH RESPECT TO, AND NO DELAY IN EXERCISING, ANY RIGHT, POWER OR REMEDY HEREUNDER SHALL OPERATE AS A WAIVER THEREOF; NOR SHALL ANY SINGLE OR PARTIAL EXERCISE BY THE AGENT OR ANY OF ITS AGENTS OF ANY RIGHT, POWER OR REMEDY HEREUNDER PRECLUDE ANY OTHER OR FURTHER EXERCISE THEREOF OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR REMEDY.  THE REMEDIES HEREIN ARE CUMULATIVE AND ARE NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW. 5.02         GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW. 5.03         NOTICES.  ALL NOTICES, REQUESTS, CONSENTS AND DEMANDS HEREUNDER SHALL BE IN WRITING AND FACSIMILE (FACSIMILE CONFIRMATION REQUIRED) OR DELIVERED TO THE INTENDED RECIPIENT AT ITS ADDRESS OR TELEX NUMBER SPECIFIED PURSUANT TO SECTION 7.4 OF THE PURCHASE AGREEMENT AND SHALL BE DEEMED TO HAVE BEEN GIVEN AT THE TIMES SPECIFIED IN SAID SECTION 7.4. 5.04         WAIVERS, ETC.  THE TERMS OF THIS AGREEMENT MAY BE WAIVED, ALTERED OR AMENDED ONLY BY AN INSTRUMENT IN WRITING DULY EXECUTED BY THE COMPANY AND THE AGENT.  ANY SUCH AMENDMENT OR WAIVER SHALL BE BINDING UPON EACH OF THE PURCHASERS AND THE COMPANY. 5.05         SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE RESPECTIVE SUCCESSORS AND ASSIGNS OF THE COMPANY AND EACH OF THE --------------------------------------------------------------------------------   PURCHASERS (PROVIDED, HOWEVER, THAT THE COMPANY SHALL NOT ASSIGN OR TRANSFER ITS RIGHTS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENT). 5.06         COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT AND ANY OF THE PARTIES HERETO MAY EXECUTE THIS AGREEMENT BY SIGNING ANY SUCH COUNTERPART. 5.07         AGENT.  EACH PURCHASER AGREES TO APPOINT IROQUOIS MASTER FUND LTD. AS ITS AGENT FOR PURPOSES OF THIS AGREEMENT.  THE AGENT MAY EMPLOY AGENTS AND ATTORNEYS-IN-FACT IN CONNECTION HEREWITH AND SHALL NOT BE RESPONSIBLE FOR THE NEGLIGENCE OR MISCONDUCT OF ANY SUCH AGENTS OR ATTORNEYS-IN-FACT SELECTED BY IT IN GOOD FAITH. 5.08         SEVERABILITY.  IF ANY PROVISION HEREOF IS INVALID AND UNENFORCEABLE IN ANY JURISDICTION, THEN, TO THE FULLEST EXTENT PERMITTED BY LAW, (I) THE OTHER PROVISIONS HEREOF SHALL REMAIN IN FULL FORCE AND EFFECT IN SUCH JURISDICTION AND SHALL BE LIBERALLY CONSTRUED IN FAVOR OF THE PURCHASERS IN ORDER TO CARRY OUT THE INTENTIONS OF THE PARTIES HERETO AS NEARLY AS MAY BE POSSIBLE AND (II) THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION HEREOF IN ANY JURISDICTION SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF SUCH PROVISION IN ANY OTHER JURISDICTION. --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed as of the day and year first above written. COMPANY: SATCON TECHNOLOGY CORPORATION         By: /s/ David B. Eisenhaure   Name: David B. Eisenhaure   Title: Chief Executive Officer         By: /s/ David E. O’Neil   Name: David E. O’Neil   Title: Vice President of Finance and Treasurer       AGENT: IROQUOIS MASTER FUND LTD.         By: /s/ Joshua Silverman   Name: Joshua Silverman   Title: Authorized Signatory   --------------------------------------------------------------------------------   PURCHASERS: IROQUOIS MASTER FUND LTD.         By: /s/ Joshua Silverman   Name: Joshua Silverman   Title: Authorized Signatory     --------------------------------------------------------------------------------   OTHER PURCHASERS: ROCKMORE INVESTMENT MASTER FUND LTD         By: /s/ Bruce Bernstein   Name: Bruce Bernstein er   Title: Managing Memb         HIGHBRIDGE INTERNATIONAL LLC         By: Highbridge Capital Management, LLC         By:  /s/ Adam J. Chill   Name: Adam J. Chill   Title: Managing Director         NITE CAPITAL LP         By: /s/ Keith A. Goodman   Name: Keith A. Goodman   Title: Manager of the General Partner           RHP MASTER FUND, LTD         By: Rock Hill Investment Management, L.P.   By: RHP General Partner, LLC         By: /s/ Wayne Bloch   Name: Wayne Bloch   Title: Managing Partner         BRISTOL INVESTMENT FUND, LTD.         By: /s/ Paul Kessler   Name: Paul Kessler   Title: Director     --------------------------------------------------------------------------------     HUDSON BAY FUND, LP         By: /s/ Yoav Roth   Name: Yoav Roth   Title: Principal/ Portfolio Manager         HUDSON BAY OVERSEAS FUND, LTD         By: /s/ Yoav Roth   Name: Yoav Roth   Title: Principal/ Portfolio Manager         CAPITAL VENTURES INTERNATIONAL         By: Heights Capital Management, Inc., its authorized agent         By: /s/ Martin Kobinge   Name: Martin Kobinger   Title: Investment Manager         ENABLE GROWTH PARTNERS LP         By: /s/ Brendan O’Neil   Name: Brendan O’Neil   Title: Principal and Portfolio Manager         ENABLE OPPORTUNITY PARTNERS LP         By: /s/ Brendan O’Neil   Name: Brendan O’Neil   Title: Principal and Portfolio Manager     --------------------------------------------------------------------------------     PIERCE DIVERSIFIED STRATEGY MASTER FUND LLC, ENA         By: /s/ Brendan O’Neil   Name: Brendan O’Neil   Title: Principal and Portfolio Manager         ALPHA CAPITAL ANSTALT         By: /s/ Konrad Ackermann   Name: Konrad Ackermann r   Title: Directo     --------------------------------------------------------------------------------   ANNEX 1 ENTITIES IN WHICH THE COMPANY IS PLEDGING ITS CAPITAL STOCK   Approximate   Entity   Percentage Interest   SatCon Power Systems US   100 % SatCon Power Systems, LTD   100 % SatCon Electronics   100 % SatCon Applied Technology   100 %     -------------------------------------------------------------------------------- ANNEX 2 EXCLUDED COLLATERAL None --------------------------------------------------------------------------------   ANNEX 3 EXCEPTIONS FOR COPYRIGHTS, PATENTS AND TRADEMARKS None --------------------------------------------------------------------------------   ANNEX 4 LIST OF LOCATIONS SatCon Technology Corporation 27 DryDock Avenue Boston, MA  02110 SatCon Applied Technology Corporation 27 DryDock Avenue Boston, MA  02110 SatCon Applied Technology Corporation 1745A West Nursery Road Linthicum, MD 21090 SatCon Electronics Corporation 165 Cedar Hill Street Marlborough, MA 01753 SatCon Power Systems 7 Coppage Drive Worcester, MA 01603 SatCon Power Systems Ltd, Canada 835 Harrington Court Burlington, Ontario  L7N 3P3 Canada --------------------------------------------------------------------------------   ANNEX 5 EXISTING INDEBTEDNESS Indebtedness.  Set forth below are all of the Company’s liabilities as of April 1, 2006: Current liabilities:   April 1, 2006   Line of credit   $ 2,000,000   Accounts payable   3,251,198   Accrued payroll and payroll related expenses   1,622,344   Deferred revenue   2,431,142   Other accrued expenses   1,802,711   Intercompany transactions.   —   Accrued restructuring costs.   —   Short term portion of long term debt   158,269   Total current liabilities.   $ 11,265,664   Long term liabilities:       Long term debt   76,416   Other long-term liabilities   333,004   Subordinated convertible debentures   —   Total long term liabilities   $ 409,420     In addition the following indebtedness exists as of April 1, 2006: We lease equipment and office space under non-cancelable capital and operating leases. Future minimum rental payments, as of April 1, 2006, under the capital and operating leases with non-cancelable terms are as follows: Fiscal Years ended September 30,   Capital Leases   Operating Leases               2006   $ 83,794   $ 660,360   2007   143,590   1,337,019   2008   —   1,288,074   2009   —   1,250,992   2010   —   495,796   Thereafter   —   227,726   Total   $ 227,384   $ 5,259,967     In addition, from time to time, the Company has trade accounts payable balances that are aged over 60 days. Currently such trade account payable balances total approximately $211,000 at July 12, 2006. All amounts outstanding under the Silicon Valley Bank Credit Agreement will be paid down prior to closing and the agreement will be terminated. --------------------------------------------------------------------------------   ANNEX 6 EXISTING LIENS None (subsequent to pay down of amounts outstanding and termination of Silicon Valley Bank Agreement)   --------------------------------------------------------------------------------

EMPLOYMENT AGREEMENT THIS AGREEMENT, (“Agreement”) made and entered into as of this 15th day of May, 2006, by and between The Kansas City Southern Railway Company, a Missouri corporation (“Railway”), and Patrick J. Ottensmeyer, an individual (“Executive”). WHEREAS, Executive has been offered employment by Railway, and Railway and Executive desire for Railway to employ Executive on the terms and conditions set forth in this Agreement and to provide an incentive to Executive to remain in the employ of Railway hereafter, particularly in the event of any change in control (as herein defined) of Kansas City Southern, a Delaware corporation (“KCS”), or Railway, thereby establishing and preserving continuity of management of Railway. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is agreed by and between Railway and Executive as follows: 1. Employment. Railway hereby employs Executive as its Executive Vice President and Chief Financial Officer, to serve at the pleasure of the Board of Directors of Railway (the “Railway Board”) and to have such duties, powers and responsibilities as may be prescribed or delegated from time to time by the President or other officer to whom Executive reports, subject to the powers vested in the Railway Board and in the stockholders of Railway. Executive shall faithfully perform Executive’s duties under this Agreement to the best of Executive’s ability and Executive shall devote substantially all of Executive’s working time and efforts to the business and affairs of Railway and its affiliates. For purposes of this Agreement, an “affiliate” of Railway is KCS and any United States or foreign corporation or partnership or other similar entity with respect to which Railway or KCS owns, directly or indirectly, at least 15% of the voting power of such entity. 2. Compensation. Railway shall pay Executive as compensation for Executive’s services hereunder an annual base salary at the rate approved by the Compensation and Organization Committee of the Board of Directors of KCS (the “KCS Board”). Such rate shall not be reduced except as agreed by the parties hereto or except as part of a general salary reduction program imposed by Railway for non-union employees and applicable to all officers of Railway, not related to a Change of Control. 3. Benefits. During the period of Executive’s employment hereunder, Railway shall provide Executive with coverage under such benefit plans and programs as are made generally available to similarly situated employees of Railway, provided (a) Railway shall have no obligation with respect to any plan or program if Executive is not eligible for coverage thereunder, and (b) Executive acknowledges that any stock or equity participation awards (including by way of example, but not limited to, stock options or restricted stock) are granted in the discretion of the KCS Board or the Compensation and Organization Committee of the KCS Board and that Executive has no right to receive any such stock or equity participation awards or any particular number or level of such stock or equity participation awards, if any. In determining contributions, coverage and benefits under any disability insurance policy and under any cash compensation-based plan provided to Executive pursuant to this Agreement, it shall be assumed that the value of Executive’s annual compensation is 175% of Executive’s annual base salary. Executive acknowledges that all rights and benefits under benefit plans and programs shall be governed by the official text of each plan or program and not by any summary or description thereof or any provision of this Agreement (except to the extent that this Agreement expressly modifies such benefit plans or programs) and that neither Railway nor KCS is under any obligation to continue in effect or to fund any such plan or program, except as provided in Paragraph 7 hereof. 4. Term and Termination. The “Term” of this Agreement shall begin on the date first written above and continue until terminated as provided in (a) through (d) of this Section 4. (a) Termination by Executive. Executive may terminate this Agreement and Executive’s employment hereunder by providing at least thirty (30) days advance written notice to Railway, except that in the event of any material breach of this Agreement by Railway, Executive may terminate this Agreement and Executive’s employment hereunder immediately upon notice to Railway. (b) Death or Disability. This Agreement and Executive’s employment hereunder shall terminate automatically on the death or disability of Executive, except to the extent employment is continued under Railway’s disability plan. For purposes of this Agreement, Executive shall be deemed to be disabled if Executive qualifies for disability benefits under Railway’s long-term disability plan. (c) Termination by Railway For Cause. Railway may terminate this Agreement and Executive’s employment “for cause” immediately upon notice to Executive. For purposes of this Agreement (except for Paragraph 7), termination “for cause” shall mean termination based upon any one or more of the following: (i) Any material breach of this Agreement by Executive; (ii) Executive’s dishonesty involving Railway or any affiliate of Railway; (iii) Gross negligence or willful misconduct in the performance of Executive’s duties as determined in good faith by the Railway Board; (iv) Executive’s failure to substantially perform Exectuve’s duties and responsibilities hereunder, including without limitation Executive’s willful failure to follow reasonable instructions of the President or other officer to whom Executive reports; (v) Executive’s breach of an express employment policy of Railway or any affiliate of Railway; (vi) Executive’s fraud or criminal activity; (vii) Embezzlement or misappropriation by Executive; or (viii) Executive’s breach of Executive’s fiduciary duty to Railway or any affiliate of Railway. (d) Termination by Railway Other Than For Cause. (i) Railway may terminate this Agreement and Executive’s employment other than for cause immediately upon notice to Executive, and in such event, Railway shall provide severance benefits to Executive in accordance with Paragraph 4(d)(ii) below. Executive acknowledges and agrees that such severance benefits constitute the exclusive remedy of Executive upon termination of employment other than for cause. Notwithstanding any other provision of this Agreement, as a condition to receiving such severance benefits, Executive shall execute a full release of claims in favor of Railway and its affiliates in the form attached hereto as Appendix A. (ii) Unless the provisions of Paragraph 7 of this Agreement are applicable, if Executive’s employment is terminated under Paragraph 4(d)(i), Railway shall: (1) continue, for a period of twelve (12) months following such termination, to pay to Executive as severance pay a monthly amount equal to one-twelfth (1/12th) of the annual base salary referenced in Paragraph 2 above, at the rate in effect immediately prior to termination, and, (2) for a period of fifteen (15) months following such termination, reimburse Executive for the cost of continuing the health insurance coverage provided pursuant to this Agreement or obtaining health insurance coverage comparable to the health insurance provided pursuant to this Agreement, and obtaining coverage comparable to the life insurance provided pursuant to this Agreement, unless Executive is provided comparable health or life insurance coverage in connection with other employment. The foregoing obligations of Railway shall continue until the end of such fifteen (15) month period notwithstanding the death or disability of Executive (except, in the event of death, the obligation to reimburse Executive for the cost of life insurance shall not continue). In the calendar year in which termination of employment occurs, Executive shall be eligible to receive benefits under the Railway Incentive Compensation Plan and any executive incentive compensation plan in which Executive participates (the “Executive Plan”) (provided, however, that such plans then are in existence and Executive was entitled to participate immediately prior to termination) in accordance with the provisions of such plans then applicable, and severance pay received in such year shall be taken into account for the purpose of determining benefits, if any, under the Railway Incentive Compensation Plan but not under the Executive Plan. After the calendar year in which termination occurs, Executive shall not be entitled to accrue or receive benefits under the Railway Incentive Compensation Plan or the Executive Plan with respect to the severance pay provided herein, notwithstanding that benefits under either or both such plans are still generally available to executive employees of Railway. After termination of employment, Executive shall not be entitled to accrue or receive benefits under any other employee benefit plan or program, except that Executive shall be entitled to participate in the KCS 401(k) and Profit Sharing Plan, as amended from time to time, and the KCS Employee Stock Ownership Plan, as amended from time to time, (provided Railway active employees then still participate in such plans) in the year of termination of employment only if Executive meets all requirements of such plans for participation in such year. 5. Confidentiality and Non-Disclosure. (a) Executive understands and agrees that Executive will be given Confidential Information (as defined below) during Executive’s employment with Railway relating to the business of Railway and its affiliates subject to Executive’s agreement herein. Executive hereby expressly agrees to maintain in strictest confidence and not to use in any way (including without limitation in any future business relationship of Executive), publish, disclose or authorize anyone else to use in any way, publish or disclose, any Confidential Information relating in any manner to the business or affairs of Railway or any of its affiliates or customers. Executive further agrees not to remove or retain any figures, calculations, letters, documents, lists, papers, or copies thereof, which embody Confidential Information of Railway or any of its affiliates, and to return, prior to Executive’s termination of employment for any reason, any such information in Executive’s possession. If Executive discovers, or comes into possession of, any such information after Executive’s termination, Executive shall promptly return it to Railway. Executive acknowledges that the provisions of this paragraph are consistent with Railway’s policies and procedures to which Executive, as an employee of Railway, is bound. (b) For purposes of this Agreement, “Confidential Information” includes, but is not limited to, information in the possession of, prepared by, obtained by, compiled by, or that is used by Railway or any of its affiliates or customers and (i) is proprietary to, about, or created by Railway or any of its affiliates or customers; (ii) gives Railway or any of its affiliates or customers some competitive business advantage, the opportunity of obtaining such advantage, or disclosure of which might be detrimental to the interest of Railway or any of its affiliates or customers; and (iii) is not typically disclosed by Railway or any of its affiliates or customers, or known by persons who are not employed by Railway or any of its affiliates or customers. Without in any way limiting the foregoing and by way of example, Confidential Information shall include: information pertaining to business operations of Railway or any of its affiliates or customers such as financial and operational information and data, operational plans and strategies, business and marketing strategies, pricing information, plans for various products and services, and acquisition and divestiture planning. (c) In the event of any breach of this Paragraph 5 by Executive, Railway shall be entitled to terminate any and all remaining severance benefits under Paragraph 4(d)(ii) and shall be entitled to pursue such other legal and equitable remedies as may be available. Executive acknowledges, understands and agrees that Railway and its affiliates will suffer immediate and irreparable harm if Executive fails to comply with any of Executive’s obligations under this Paragraph 5, and that monetary damages alone will be inadequate to compensate Railway or any of its affiliates for such breach. Accordingly, Executive agrees that Railway and its affiliates shall, in addition to any other remedies available to it at law or in equity, be entitled to temporary, preliminary, and permanent injunctive relief and specific performance to enforce the terms of this Paragraph 5 without the necessity of proving inadequacy of legal remedies or irreparable harm or posting bond. 6. Duties Upon Termination; Survival. (a) Duties. Upon termination of this Agreement by Railway or Executive for any reason, Executive shall immediately sign such written resignations from all positions as an officer, director or member of any committee or board of Railway or of any of its affiliates as may be requested by Railway or such affiliate and shall sign such other documents and papers relating to Executive’s employment, benefits and benefit plans as Railway may reasonably request. (b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of this Agreement shall survive any termination of this Agreement by Railway or Executive, and the provisions of Paragraph 4(d)(ii) shall survive any termination of this Agreement by Railway under Paragraph 4(d)(i). 7. Continuation of Employment Upon Change in Control. (a) Continuation of Employment. Subject to the terms and conditions of this Paragraph 7, in the event of a Change in Control (as defined in Paragraph 7(d)) at any time during the term of this Agreement, Executive agrees to remain in the employ of Railway for a period of three years (the “Three Year Period”) from the date of such Change in Control (the “Control Change Date”), and Railway agrees to continue to employ Executive for the Three Year Period. During the Three Year Period, (i) the Executive’s position (including offices, titles, reporting requirements and responsibilities), authority and duties shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 12 month period immediately before the Control Change Date and (ii) the Executive’s services shall be performed at the location where Executive was employed immediately before the Control Change Date or at any other location less than 40 miles from such former location. During the Three Year Period, Railway shall continue to pay to Executive an annual base salary on the same basis and at the same intervals as in effect prior to the Control Change Date at a rate not less than 12 times the highest monthly base salary paid or payable to the Executive by Railway in respect of the 12-month period immediately before the Control Change Date. (b) Benefits. During the Three-Year Period, Executive shall be entitled to participate, on the basis of the executive position of Executive, in each of the following Railway plans or KCS plans in which active employees of Railway may then participate (together, the “Specified Benefits”) in existence, and in accordance with the terms thereof, at the Control Change Date: (i) any benefit plan, and trust fund associated therewith, related to: (A) life, health, dental, disability, accidental death and dismemberment insurance or accrued but unpaid vacation time; (B) profit sharing, thrift or deferred savings (including deferred compensation, such as under Section 401(k) plans); (C) retirement or pension benefits; (D) ERISA excess benefits and similar plans and (E) tax favored employee stock ownership (such as under ESOP, and Employee Stock Purchase programs); and (ii) any other benefit plans hereafter made generally available to executives of Executive’s level or to the employees of Railway generally. In addition, if not otherwise occurring under applicable award agreements, Railway and KCS shall use their best efforts to cause all outstanding options or other equity awards held by Executive under any stock option or other plan of KCS or Railway or its affiliates to become immediately vested and exercisable on the Control Change Date, and to the extent that such awards are not vested and are subsequently forfeited, the Executive shall receive a lump-sum cash payment within five (5) days after the awards are forfeited equal to, in the case of stock options, the difference between the fair market value of the shares of stock subject to the non-vested, forfeited options determined as of the date such options are forfeited and the exercise price for such options, and, in the case of other equity awards, equal to the amount that would have been includible in the Executive’s gross income on the date of forfeiture if such awards had instead on such date become vested and, if applicable, were then exercised (ignoring, for this purpose, the effect of any election made by the Executive under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”)). During the Three Year Period Executive shall be entitled to participate, on the basis of the executive position of Executive, in any incentive compensation plan of Railway in accordance with the terms thereof at the Control Change Date; provided that if under Railway programs or Executive’s Employment Agreement in existence immediately prior to the Control Change Date, there are written limitations on participation for a designated time period in any incentive compensation plan, such limitations shall continue after the Control Change Date to the extent so provided for prior to the Control Change Date. If the amount of contributions or benefits with respect to the Specified Benefits or any incentive compensation is determined on a discretionary basis under the terms of the Specified Benefits or any incentive compensation plan immediately prior to the Control Change Date, the amount of such contributions or benefits during the Three-Year Period for each of the Specified Benefits, to the extent permissible by law and the applicable plan document, if any, shall not be less than the average annual contributions or benefits for each Specified Benefit for the three plan years ending prior to the Control Change Date and, in the case of any incentive compensation plan, the amount of the incentive compensation during the Three Year Period shall not be less than 75% of the maximum that could have been paid to the Executive under the terms of the incentive compensation plan. (c) Payment. With respect to any plan or agreement under which Executive would be entitled at the Control Change Date to receive Specified Benefits or incentive compensation as a general obligation of Railway which has not been separately funded (including specifically, but not limited to, those referred to under Paragraph 7(b)(i)(D) above), Executive shall receive within five (5) days after such date full payment in cash of all amounts to which he is then entitled thereunder. (d) Change in Control. For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if: (i) for any reason at any time less than seventy-five percent (75%) of the members of the KCS Board shall be individuals who fall into any of the following categories: (A) individuals who were members of the KCS Board on the date of the Agreement; or (B) individuals whose election, or nomination for election by KCS’s stockholders, was approved by a vote of at least seventy-five percent (75%) of the members of the KCS Board then still in office who were members of the KCS Board on the date of the Agreement; or (C) individuals whose election, or nomination for election, by KCS’s stockholders, was approved by a vote of at least seventy-five percent (75%) of the members of the KCS Board then still in office who were elected in the manner described in (B) above, or (ii) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) other than KCS shall have become after the date of the Agreement, according to a public announcement or filing, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Railway or KCS representing thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%) or more (calculated in accordance with Rule 13d-3) of the combined voting power of Railway’s or KCS’s then outstanding voting securities; or (iii) the stockholders of Railway or KCS shall have approved a merger, consolidation or dissolution of Railway or KCS or a sale, lease, exchange or disposition of all or substantially all of Railway’s or KCS’s assets, if persons who were the beneficial owners of the combined voting power of Railway’s or KCS’s voting securities immediately before any such merger, consolidation, dissolution, sale, lease, exchange or disposition do not immediately thereafter, beneficially own, directly or indirectly, in substantially the same proportions, more than 60% of the combined voting power of any corporation or other entity resulting from any such transaction. (e) Termination After Control Change Date. Notwithstanding any other provision of this Paragraph 7, at any time after the Control Change Date, Railway may terminate the employment of Executive (the “Termination”), but unless such Termination is for Cause as defined in subparagraph (g) or for disability, within five (5) days of the Termination Railway shall pay to Executive his full base salary through the Termination, to the extent not theretofore paid, plus a lump sum amount (the “Special Severance Payment”) equal to the product of: (i) 175% of his annual base salary specified in Paragraph 7(a) multiplied by (ii) Three; and Specified Benefits (excluding any incentive compensation) to which Executive was entitled immediately prior to Termination shall continue until the end of the 3-year period (“Benefits Period”) beginning on the date of Termination. If any plan pursuant to which Specified Benefits are provided immediately prior to Termination would not permit continued participation by Executive after Termination, then Railway shall pay to Executive within five (5) days after Termination a lump sum payment equal to the amount of Specified Benefits Executive would have received under such plan if Executive had been fully vested in the average annual contributions or benefits in effect for the three plan years ending prior to the Control Change Date (regardless of any limitations based on the earnings or performance of Railway or any of its affiliates) and a continuing participant in such plan to the end of the Benefits Period. The Executive’s rights under this Paragraph 7(e) shall be in addition to, and not in lieu of, any post-termination continuation coverage or conversion rights the Executive may have pursuant to applicable law, including without limitation continuation coverage required by Section 4980 of the Code. Nothing in this Paragraph 7(e) shall be deemed to limit in any manner the reserved right of Railway, in its sole and absolute discretion, to at any time amend, modify or terminate health, prescription or dental benefits for active or retired employees generally. (f) Resignation After Control Change Date. In the event of a Change in Control as defined in Paragraph 7(d), thereafter, upon good reason (as defined below), Executive may, at any time during the three-year period following the Change in Control, in his sole discretion, on not less than thirty (30) days’ written notice (the “Notice of Resignation”) to the Secretary of Railway and effective at the end of such notice period, resign his employment with Railway (the “Resignation”). Within five (5) days of such a Resignation, Railway shall pay to Executive his full base salary through the effective date of such Resignation, to the extent not theretofore paid, plus a lump sum amount equal to the Special Severance Payment (computed as provided in the first sentence of Paragraph 7(e), except that for purposes of such computation all references to “Termination” shall be deemed to be references to “Resignation”). Upon Resignation of Executive, Specified Benefits to which Executive was entitled immediately prior to Resignation shall continue on the same terms and conditions as provided in Paragraph 7(e) in the case of Termination (including equivalent payments provided for therein). For purposes of this Agreement, “good reason” means any of the following: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including offices, titles, reporting requirements or responsibilities), authority or duties as contemplated by Section 7(a)(i), or any other action by Railway which results in a diminution or other material adverse change in such position, authority or duties; (ii) any failure by Railway to comply with any of the provisions of Paragraph 7; (iii) Railway’s requiring the Executive to be based at any office or location other than the location described in Section 7(a)(ii); (iv) any other material adverse change to the terms and conditions of the Executive’s employment; or (v) any purported termination by Railway of the Executive’s employment other than as expressly permitted by this Agreement (any such purported termination shall not be effective for any other purpose under this Agreement). A passage of time prior to delivery of the Notice of Resignation or a failure by the Executive to include in the Notice of Resignation any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive under this Agreement or preclude the Executive from asserting such fact or circumstance in enforcing rights under this Agreement. (g) Termination for Cause After Control Change Date. Notwithstanding any other provision of this Paragraph 7, at any time after the Control Change Date, Executive may be terminated by Railway “for cause.” Cause means commission by the Executive of any felony or willful breach of duty by the Executive in the course of the Executive’s employment; except that Cause shall not mean: (i) bad judgment or negligence; (ii) any act or omission believed by the Executive in good faith to have been in or not opposed to the interest of Railway or any of its affiliates (without intent of the Executive to gain, directly or indirectly, a profit to which the Executive was not legally entitled); (iii) any act or omission with respect to which a determination could properly have been made by the Railway Board that the Executive met the applicable standard of conduct for indemnification or reimbursement under Railway’s by-laws, any applicable indemnification agreement, or applicable law, in each case in effect at the time of such act or omission; or (iv) any act or omission with respect to which Notice of Termination of the Executive is given, more than 12 months after the earliest date on which any member of the Railway Board, not a party to the act or omission, knew or should have known of such act or omission. Any Termination of the Executive’s employment by Railway for Cause shall be communicated to the Executive by Notice of Termination. (h) Expenses. If any dispute should arise under this Agreement after the Control Change Date involving an effort by Executive to protect, enforce or secure rights or benefits claimed by Executive hereunder, Railway shall pay (promptly upon demand by Executive accompanied by reasonable evidence of incurrence) all reasonable expenses (including attorneys’ fees) incurred by Executive in connection with such dispute, without regard to whether Executive prevails in such dispute except that Executive shall repay Railway any amounts so received if a court having jurisdiction shall make a final, non-appealable determination that Executive acted frivolously or in bad faith by such dispute. To assure Executive that adequate funds will be made available to discharge Railway’s obligations set forth in the preceding sentence, Railway has established a trust and upon the occurrence of a Change in Control shall promptly deliver to the trustee of such trust to hold in accordance with the terms and conditions thereof that sum which the Railway Board shall have determined is reasonably sufficient for such purpose. (i) Prevailing Provisions. On and after the Control Change Date, the provisions of this Paragraph 7 shall control and take precedence over any other provisions of this Agreement which are in conflict with or address the same or a similar subject matter as the provisions of this Paragraph 7. 8. Mitigation and Other Employment. After a termination of Executive’s employment pursuant to Paragraph 4(d)(i) or a Change in Control as defined in Paragraph 7(d), Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and except as otherwise specifically provided in Paragraph 4(d)(ii) with respect to health and life insurance, no such other employment, if obtained, or compensation or benefits payable in connection therewith shall reduce any amounts or benefits to which Executive is entitled hereunder. Such amounts or benefits payable to Executive under this Agreement shall not be treated as damages but as severance compensation to which Executive is entitled because Executive’s employment has been terminated. 9. KCS Not an Obligor. KCS shall have no obligation for the payment of salary, benefits, or other compensation hereunder, and all such obligations shall be the sole responsibility of Railway. 10. Notice. Notices and all other communications to any party pursuant to this Agreement shall be in writing and shall be deemed to have been given when personally delivered, delivered by facsimile or deposited in the United States mail by certified or registered mail, postage prepaid, addressed, in the case of Railway, to Railway at P.O. Box 219335, Kansas City, Missouri 64121-9335,, Attention: Secretary, or, in the case of the Executive, to him at P.O. Box 219335, Kansas City, Missouri 64121-9335, or to such other address as a party shall designate by notice to the other party. 11. Amendment. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is agreed to in writing signed by Executive and by the President of Railway. No waiver by a party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. 12. Successors in Interest. The rights and obligations of Railway under this Agreement shall inure to the benefit of and be binding in each and every respect upon the direct and indirect successors and assigns of Railway, regardless of the manner in which such successors or assigns shall succeed to the interests of Railway hereunder, and this Agreement shall not be terminated by the voluntary or involuntary dissolution of Railway or by any merger or consolidation or acquisition involving Railway, or upon any transfer of all or substantially all of Railway’s assets, or terminated otherwise than in accordance with its terms. In the event of any such merger or consolidation or transfer of assets, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the surviving corporation or the corporation or other person to which such assets shall be transferred. Neither this Agreement nor any of the payments or benefits hereunder may be pledged, assigned or transferred by Executive either in whole or in part in any manner, without the prior written consent of Railway. 13. Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 14. Controlling Law and Jurisdiction. The validity, interpretation and performance of this Agreement shall be subject to and construed under the laws of the State of Missouri, without regard to principles of conflicts of law. 15. Amendment to Agreement for Code Section 409A Compliance. This Agreement may constitute a nonqualified deferred compensation plan within the meaning of Code Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), with respect to certain of its provisions. It is the intention of Executive and KCSR that in such event this Agreement satisfy the requirements of Code Section 409A so that benefits hereunder, if any, are not included in gross income under Code Section 409A (whether or not included in gross income under another Code provision). At the time of the execution of this Agreement final Treasury Regulations interpreting Code Section 409A are pending. The parties hereto agree that subsequent to the finalization of such pending Treasury Regulations, this Agreement will be amended or restated as necessary for the purpose of satisfying the requirements of Code Section 409A and until the time of such amendment or restatement, this Agreement will be interpreted and administered accordingly. 16. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and terminates and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the terms of Executive’s employment or severance arrangements. [SIGNATURES ON THE FOLLOWING PAGE] 1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 7th day of June, 2006. THE KANSAS CITY SOUTHERN RAILWAY COMPANY By:   /s/ Arthur L. Shoener Arthur L. Shoener, President and CEO EXECUTIVE /s/ Patrick J. Ottensmeyer     Patrick J. Ottensmeyer 2 Appendix A WAIVER AND RELEASE In consideration of the benefits described in the Employment Agreement, I do hereby fully waive all claims and release the Kansas City Southern Railway Company (KCSR), and its affiliates, parents, subsidiaries, successors, assigns, directors and officers, fiduciaries, employees and agents, as well as any employee benefit plans (collectively “affiliates”) from liability and damages related in any way to any claim I may have against KCSR or its affiliates. This Waiver and Release includes, but is not limited to all claims, causes of action and rights under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; the Civil Rights Act of 1866; the American with Disabilities Act of 1990; the Rehabilitation Act of 1973; the Older Workers Benefit Protection Act of 1990; the Employee Retirement Income Security Act of 1974, as amended; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the Federal Employers Liability Act; the KCSR Labor Act, including bumping rights, rights to file a grievance, rights to a hearing (whether before any company official, any system, group, regional or special adjustment board, the National Railroad Adjustment Board, or any other entity), and any rights to arbitration thereunder; the Missouri Human Rights Act, the Kansas Act Against Discrimination, the Kansas and Missouri Workers’ Compensation acts, and all local state and federal statutes and regulations; all claims arising from labor protective conditions imposed by the Interstate Commerce Commission or the Surface Transportation Board; any incentive or benefit plan or program of KCSR or any affiliate, and any rights under any collective bargaining agreement, including seniority rights, bumping rights and reinstatement rights, rights to file or assert a grievance or other complaint, rights to a hearing, or rights to arbitration under such agreement; and all rights under common law such as breach of contract, tort or personal injury of any sort. I understand that this Waiver and Release also precludes me from recovering any relief as a result of any lawsuit, grievance or claims brought on my behalf and arising out of my employment or resignation of, or separation from employment, provided that nothing in this Waiver and Release may affect my entitlement, if any, to workers’ compensation or unemployment compensation. Additionally, nothing in this Waiver and Release prohibits me from communications with, filing a complaint with, or full cooperation in the investigations of, any governmental agency on matters within their jurisdictions. However, as stated above, this Waiver and Release does prohibit me from recovering any relief, including monetary relief, as a result of such activities. If any term, provision, covenant, or restriction of this Waiver and Release is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of this Waiver and Release and the other terms, provisions, covenants and restrictions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated. I understand and agree that, in the event of breach by me of any of the terms and conditions of this Waiver and Release, KCSR will be entitled to recover all costs and expenses as a result of my breach, including but not limited to, reasonable attorneys’ fees and costs. I have read this Waiver and Release and I understand all of its terms. I enter into and sign this Waiver and Release knowingly and voluntarily, with full knowledge of what it means.       Date   Employee Signature Employee Name (Please Print)       3

Exhibit 10.20 SECURITIES PLEDGE AGREEMENT THIS SECURITIES PLEDGE AGREEMENT (this “Pledge Agreement”) is made and entered into as of February 17, 2006 by SONIC AUTOMOTIVE, INC., a Delaware corporation (a “Company” and a “Pledgor”), EACH OF THE UNDERSIGNED SUBSIDIARIES OF THE COMPANY AND EACH OTHER PERSON WHO SHALL BECOME A PARTY HERETO BY EXECUTION OF A JOINDER AGREEMENT (each a “Pledgor” and, collectively with the Company, the “Pledgors”) and BANK OF AMERICA, N.A., a national banking association, as administrative agent (in such capacity, the “Administrative Agent”) for each of the Lenders now or hereafter party to the Credit Agreement defined below, collectively with the Administrative Agent and certain other Persons parties to Related Swap Contracts as more particularly described in Section 17 hereof, the “Secured Parties”). All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned thereto in the Credit Agreement. W I T N E S S E T H: WHEREAS, the Secured Parties have agreed to provide to the Company and certain Subsidiaries of the Company (each a “New Vehicle Borrower”, and collectively with the Company, the “Borrowers”) certain credit facilities, including a revolving credit facility with letter of credit and swing line sublimits, a new vehicle floorplan facility with a swing line sublimit, and a used vehicle floorplan facility with a swing line sublimit, pursuant to that certain Credit Agreement dated as of the date hereof among the Borrowers, the Administrative Agent and the Lenders (as from time to amended, restated, supplemented or otherwise modified, the “Credit Agreement”); and WHEREAS, each Borrower will materially benefit from the Loans to be made, and the Letters of Credit to be issued, under the Credit Agreement and each Borrower is a party (as signatory or by joinder) to a Guaranty pursuant to which such Borrower guarantees the Obligations of the other Borrowers; and WHEREAS, each of the Persons set forth on Schedule III (collectively the “Silo Subsidiaries”, and each individually, a “Silo Subsidiary”) will materially benefit from the Loans (other than New Vehicle Floorplan Loans) to be made, and the Letters of Credit to be issued, under the Credit Agreement and each Silo Subsidiary is a party (as signatory or by joinder) to a Guaranty pursuant to which such Silo Subsidiary guarantees the Obligations (other than Obligations in respect of the New Vehicle Facility) of the Borrowers; and WHEREAS, each of (i) the Borrowers party hereto (including by way of a Joinder Agreement), as collateral security for the payment and performance of the Obligations and the obligations and liabilities of any Loan Party now existing or hereafter arising under Related Swap Contracts, and (ii) each other Pledgor (including each Silo Subsidiary party hereto or to a Joinder Agreement), as collateral security for the payment and performance of its Guarantor’s Obligations (as defined in the Guaranty to which it is a party), and the payment and performance of its obligations and liabilities (whether now existing or hereafter arising) hereunder or under any of the other Loan Documents to which it is now or hereafter becomes a party (such -------------------------------------------------------------------------------- obligations and liabilities of the Pledgors described in clauses (i) and (ii) being referred to as “Secured Obligations”), is willing to pledge and grant to the Administrative Agent for the benefit of the Secured Parties a security interest in all of the Equity Interests of certain of its Subsidiaries as more particularly described on Schedule I attached hereto (collectively, the “Pledged Interests”), and certain related property (such Subsidiaries, together with all other Subsidiaries whose Equity Interests may be required to be subject to this Pledge Agreement from time to time, are hereinafter referred to collectively as the “Pledged Subsidiaries”); and WHEREAS, the Secured Parties are unwilling to enter into the Loan Documents and make available or maintain the credit facilities under the Credit Agreement unless each Pledgor enters into this Pledge Agreement; NOW, THEREFORE, in order to induce the Secured Parties to enter into the Loan Documents and to make or maintain the credit facilities provided for therein available to or for the account of the Borrowers, and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Pledge of Pledged Interests; Other Collateral. (a) As collateral security for the payment and performance by each Pledgor of its now or hereafter existing Secured Obligations, each Pledgor hereby grants, pledges and collaterally assigns to the Administrative Agent for the benefit of the Secured Parties a first priority security interest in all of the following items of property in which it now has or may at any time hereafter acquire an interest or the power to transfer rights therein, and wheresoever located: (i) the Pledged Interests; and (ii) all money, securities, security entitlements and other investment property, dividends, rights, general intangibles and other property at any time and from time to time (x) declared or distributed in respect of or in exchange for or on conversion of any Pledged Interest, or (y) by its or their terms exchangeable or exercisable for or convertible into any Pledged Interest; and (iii) all other property of whatever character or description, including money, securities, security entitlements and other investment property, and general intangibles hereafter delivered to the Administrative Agent in substitution for or as an addition to any of the foregoing; and (iv) all securities accounts to which may at any time be credited any or all of the foregoing or any proceeds thereof and all certificates and instruments representing or evidencing any of the foregoing or any proceeds thereof; and (v) all proceeds of any of the foregoing. All such Pledged Interests, certificates, instruments, cash, securities, interests, dividends, rights and other property referred to in clauses (i) through (v) of this Section 1 are herein collectively referred to as the “Collateral.”   2 -------------------------------------------------------------------------------- (b) Subject to Section 10(a), each Pledgor agrees to deliver all certificates, instruments or other documents representing any Collateral to the Administrative Agent at such location as the Administrative Agent shall from time to time designate by written notice pursuant to Section 22 for its custody at all times until termination of this Pledge Agreement, together with such instruments of assignment and transfer as requested by the Administrative Agent. (c) Each Pledgor agrees to execute and deliver, or cause to be executed and delivered by other Persons, at Pledgor’s expense, all share certificates, documents, instruments, agreements, financing statements (and amendments thereto and continuations thereof), assignments, control agreements, or other writings as the Administrative Agent may reasonably request from time to time to carry out the terms of this Pledge Agreement or to protect or enforce the Administrative Agent’s Lien and security interest in the Collateral hereunder granted to the Administrative Agent for the benefit of the Secured Parties and further agrees to do and cause to be done upon the Administrative Agent’s request, at Pledgor’s expense, all things determined by the Administrative Agent to be necessary or advisable to perfect and keep in full force and effect the Lien in the Collateral hereunder granted to the Administrative Agent for the benefit of the Secured Parties, including the prompt payment of all out-of-pocket fees and expenses incurred in connection with any filings made to perfect or continue the Lien and security interest in the Collateral hereunder granted in favor of the Administrative Agent for the benefit of the Secured Parties. (d) All filing fees, advances, charges, costs and expenses (including fees, charges and disbursements of counsel (“Attorney Costs”)), incurred or paid by the Administrative Agent or any Lender in exercising any right, power or remedy conferred by this Pledge Agreement, or in the enforcement thereof, shall become a part of the Secured Obligations secured hereunder and shall be paid to the Administrative Agent for the benefit of the Secured Parties by the Pledgor in respect of which the same was incurred immediately upon demand therefor, and any amounts not so paid on demand (in addition to other rights and remedies resulting from such nonpayment) shall bear interest from the date of demand until paid in full at the Default Rate. (e) Each Pledgor agrees to register and cause to be registered the interest of the Administrative Agent, for the benefit of the Secured Parties, in the Collateral on its own books and records and the registration books of each of the Pledged Subsidiaries. 2. Status of Pledged Interests. Each Pledgor hereby represents, warrants and covenants to the Administrative Agent for the benefit of the Secured Parties, with respect to itself and the Collateral as to which it has or acquires any interest, that: (a) All of the Pledged Interests are, as of the date of execution of this Pledge Agreement or Joinder Agreement by each Pledgor pledging such Pledged Interests (such date as applicable with respect to each Pledgor, its “Applicable Date”), and shall at all times thereafter be validly issued and outstanding, fully paid and non-assessable, are accurately described on Schedule I, and (except as set forth on Schedule I) constitute all of the issued and outstanding Equity Interests of each Pledged Subsidiary.   3 -------------------------------------------------------------------------------- (b) The Pledgor is as at its Applicable Date and shall at all times thereafter (subject to Dispositions permitted under the Credit Agreement) be the sole registered and record and beneficial owner of the Pledged Interests, free and clear of all Liens, charges, equities, options, hypothecations, encumbrances and restrictions on pledge or transfer, including transfer of voting rights (other than the pledge hereunder and applicable restrictions pursuant to federal and state and applicable foreign securities laws). Without limiting the foregoing, the Pledged Interests are not and will not be subject to any voting trust, shareholders agreement, right of first refusal, voting proxy, power of attorney or other similar arrangement (other than the rights hereunder in favor of the Administrative Agent). (c) At no time shall any Pledged Interests (i) be held or maintained in the form of a security entitlement or credited to any securities account and (ii) which constitute a “security” (or as to which the related Pledged Subsidiary has elected to have treated as a “security”) under Article 8 of the Uniform Commercial Code of the State of North Carolina or of any other jurisdiction whose laws may govern (the “UCC”) be maintained in the form of uncertificated securities. With respect to Pledged Interests that are “securities” under the UCC, or as to which the issuer has elected at any time to have such interests treated as “securities” under the UCC, such Pledged Interests are, and shall at all times be, represented by the share certificates listed on Schedule I hereto, which share certificates, with stock powers duly executed in blank by the Pledgor, have been delivered to the Administrative Agent or are being delivered to the Administrative Agent simultaneously herewith or, in the case of Additional Interests as defined in Section 21, shall be delivered pursuant to Section 21. In addition, with respect to all Pledged Interests, including Pledged Interests that are not “securities” under the UCC and as to which the applicable Pledged Subsidiary has not elected to have such interests treated as “securities” under the UCC, the Pledgor has at its Applicable Date delivered to the Administrative Agent (or has previously delivered to the Administrative Agent or, in case of Additional Interests shall deliver pursuant to Section 21) Uniform Commercial Code financing statements (or appropriate amendments thereto) duly authorized by the Pledgor and naming the Administrative Agent for the benefit of the Secured Parties as “secured party,” in form, substance and number sufficient in the reasonable opinion of the Administrative Agent to be filed in all UCC filing offices and in all jurisdictions in which filing is necessary or advisable to perfect in favor of the Administrative Agent for the benefit of the Secured Parties the Lien on such Pledged Interests, together with all required filing fees. Without limiting the foregoing provisions of this Section 2(c), with respect to any Pledged Interests issued by any Subsidiary organized under the laws of a jurisdiction other than the United States (a “Foreign Subsidiary”), Pledgor shall deliver or cause to be delivered, (i) in addition to or in substitution for all or any of the foregoing items, as the Administrative Agent may elect, such other instruments, certificates, agreements, notices, filings, and other documents, and take or cause to be taken such other action, as the Administrative Agent may determine to be necessary or advisable under the laws of the jurisdiction of formation of such Foreign Subsidiary, to grant, perfect and protect as a first priority lien in such Collateral in favor of the Administrative Agent for the benefit of the Secured Parties, and (ii) an opinion of counsel acceptable in form and substance to the Administrative Agent issued by a law firm acceptable to the Administrative Agent licensed to practice law in such foreign jurisdiction, addressing   4 -------------------------------------------------------------------------------- with respect to such Pledged Interests the matters described in Section 6.14 of the Credit Agreement. (d) It has full corporate power, legal right and lawful authority to execute this Pledge Agreement (and any Joinder Agreement applicable to it) and to pledge, assign and transfer its Pledged Interests in the manner and form hereof. (e) The pledge, assignment and delivery of its Pledged Interests (along with undated stock powers executed in blank, financing statements and other agreements referred to in Section 2(c) hereof) to the Administrative Agent for the benefit of the Secured Parties pursuant to this Pledge Agreement (or any Joinder Agreement) creates or continues, as applicable, a valid and perfected first priority security interest in such Pledged Interests in favor of the Administrative Agent for the benefit of the Secured Parties, securing the payment of the Secured Obligations, assuming, in the case of the Pledged Interests which constitute certificated “securities” under the UCC, continuous and uninterrupted possession by or on behalf of the Administrative Agent. The Pledgor will at its own cost and expense defend the Secured Parties’ right, title and security interest in and to the Collateral against the claims and demands of all persons whomsoever. (f) Except as otherwise expressly provided herein pursuant to a Disposition permitted under the Credit Agreement, none of the Pledged Interests (nor any interest therein or thereto) shall be sold, transferred or assigned without the Administrative Agent’s prior written consent, which may be withheld for any reason. (g) It shall at all times cause the Pledged Interests of such Pledgor that constitute “securities” (or as to which the issuer elects to have treated as “securities”) under the UCC to be represented by the certificates now and hereafter delivered to the Administrative Agent in accordance with Sections 1, 2 and 21 hereof and that it shall cause each of the Pledged Subsidiaries as to which it is the Pledgor not to issue any Equity Interests, or securities convertible into, or exchangeable or exercisable for, Equity Interests, at any time during the term of this Pledge Agreement unless the Pledged Interests of such Pledge Subsidiary are issued solely to either (y) such Pledgor who shall immediately comply with Sections 2 and 21 hereof with respect to such property or (z) the Borrowers or another Guarantor who shall immediately pledge such additional Equity Interests to the Administrative Agent for the benefit of the Secured Parties pursuant to Section 21 or 23 hereof, as applicable, on substantially identical terms as are contained herein and deliver or cause to be delivered the appropriate documents described in Section 2(c) hereof to the Administrative Agent and take such further actions as the Administrative Agent may deem necessary in order to perfect a first priority security interest in such Equity Interests. (h) The exact legal name and address, type of Person, jurisdiction of formation, jurisdiction of formation identification number (if any), and location of the chief executive office of such Pledgor are (i) with respect to each Pledgor granting a Lien to the Administrative Agent under a Security Instrument at the Closing Date, as specified on Schedule 5.13 to the Credit Agreement, and (ii) with respect to each other Pledgor, as   5 -------------------------------------------------------------------------------- specified on Schedule II attached hereto. No Pledgor shall change its name, jurisdiction of formation (whether by reincorporation, merger or otherwise), or the location of its chief executive office, except upon giving not less than thirty (30) days’ prior written notice to the Administrative Agent and taking or causing to be taken all such action at such Pledgor’s expense as may be reasonably requested by the Administrative Agent to perfect or maintain the perfection of the Lien of the Administrative Agent in Collateral. 3. Preservation and Protection of Collateral. (a) The Administrative Agent shall be under no duty or liability with respect to the collection, protection or preservation of the Collateral, or otherwise, beyond the use of reasonable care in the custody and preservation thereof while in its possession. (b) Each Pledgor agrees to pay when due all taxes, charges, Liens and assessments against the Collateral in which it has an interest, unless being contested in good faith by appropriate proceedings diligently conducted and against which adequate reserves have been established in accordance with GAAP applied on a basis consistent with that used in preparing the Audited Financial Statements and evidenced to the satisfaction of the Administrative Agent and provided that all enforcement proceedings in the nature of levy or foreclosure are effectively stayed. Upon the failure of any Pledgor to so pay or contest such taxes, charges, Liens or assessments, or upon the failure of any Pledgor to pay any amount pursuant to Section 1(c), the Administrative Agent at its option may pay or contest any of them (the Administrative Agent having the sole right to determine the legality or validity and the amount necessary to discharge such taxes, charges, Liens or assessments) but shall not have any obligation to make any such payment or contest. All sums so disbursed by the Administrative Agent, including Attorney Costs, court costs, expenses and other charges related thereto, shall be payable on demand by the applicable Pledgor to the Administrative Agent and shall be additional Secured Obligations secured by the Collateral, and any amounts not so paid on demand (in addition to other rights and remedies resulting from such nonpayment) shall bear interest from the date of demand until paid in full at the Default Rate. (c) Each Pledgor hereby (i) irrevocably authorizes the Administrative Agent to file (with, or to the extent permitted by applicable law, without the signature of the Pledgor appearing thereon) financing statements (including amendments thereto and continuations and copies thereof) showing such Pledgor as “debtor” at such time or times and in all filing offices as the Administrative Agent may from time to time reasonably determine to be necessary or advisable to perfect or protect the rights of the Administrative Agent and the Secured Parties hereunder, or otherwise to give effect to the transactions herein contemplated, and (ii) irrevocably ratifies and acknowledges all such actions taken by or on behalf of the Administrative Agent prior to the Applicable Date. 4. Default. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent is given full power and authority, then or at any time thereafter, to sell, assign, deliver or collect the whole or any part of the Collateral, or any substitute therefor or any addition thereto, in one or more sales, with or without any previous   6 -------------------------------------------------------------------------------- demands or demand of performance or, to the extent permitted by law, notice or advertisement, in such order as the Administrative Agent may elect; and any such sale may be made either at public or private sale at the Administrative Agent’s place of business or elsewhere, either for cash or upon credit or for future delivery, at such price or prices as the Administrative Agent may reasonably deem fair; and the Administrative Agent or any other Secured Party may be the purchaser of any or all Collateral so sold and hold the same thereafter in its own right free from any claim of any Pledgor or right of redemption. Demands of performance, advertisements and presence of property and sale and notice of sale are hereby waived to the extent permissible by law. Any sale hereunder may be conducted by an auctioneer or any officer or agent of the Administrative Agent. Each Pledgor recognizes that the Administrative Agent may be unable to effect a public sale of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the “Securities Act”), and applicable state law, and may be otherwise delayed or adversely affected in effecting any sale by reason of present or future restrictions thereon imposed by governmental authorities, and that as a consequence of such prohibitions and restrictions the Administrative Agent may be compelled (i) to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof, or (ii) to seek regulatory approval of any proposed sale or sales, or (iii) to limit the amount of Collateral sold to any Person or group. Each Pledgor agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to such Pledgor than if such Collateral was sold either at public sales or at private sales not subject to other regulatory restrictions, and that the Administrative Agent has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the Pledged Subsidiary to register or otherwise qualify the Collateral, even if such Pledged Subsidiary would agree to register or otherwise qualify such Collateral for public sale under the Securities Act or applicable state law. Each Pledgor further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner. Each Pledgor hereby acknowledges that a ready market may not exist for the Pledged Interests if they are not traded on a national securities exchange or quoted on an automated quotation system and agrees and acknowledges that in such event the Pledged Interests may be sold for an amount less than a pro rata share of the fair market value of the Pledged Subsidiary’s assets minus its liabilities. In addition to the foregoing, the Secured Parties may exercise such other rights and remedies as may be available under the Loan Documents, at law (including without limitation the UCC) or in equity. 5. Proceeds of Sale. The net cash proceeds resulting from the collection, liquidation, sale, or other disposition of the Collateral shall be applied first to the expenses (including all Attorney Costs) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all Secured Obligations in accordance with the terms of Section 8.06 of the Credit Agreement. Each Grantor shall be liable to the Administrative Agent, for the benefit of the Secured Parties, and shall pay to the Administrative Agent, for the benefit of the Secured Parties, on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. 6. Presentments, Demands and Notices. The Administrative Agent shall not be under any duty or obligation whatsoever to make or give any presentments, demands for performances, notices of nonperformance, protests, notice of protest or notice of dishonor in   7 -------------------------------------------------------------------------------- connection with any obligations or evidences of indebtedness held thereby as collateral, or in connection with any obligations or evidences of indebtedness which constitute in whole or in part the Secured Obligations secured hereunder. 7. Attorney-in-Fact. Each Pledgor hereby appoints the Administrative Agent as the Pledgor’s attorney-in-fact for the purposes of carrying out the provisions of this Pledge Agreement and taking any action and executing any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest; provided, that the Administrative Agent shall have and may exercise rights under this power of attorney only upon the occurrence and during the continuance of an Event of Default. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to any Pledgor representing any dividend, interest payment, principal payment or other distribution payable or distributable in respect to the Collateral or any part thereof and to give full discharge for the same. 8. Reinstatement. The granting of a security interest in the Collateral and the other provisions hereof shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or must otherwise be returned by any Secured Party or is repaid by any Secured Party in whole or in part in good faith settlement of a pending or threatened avoidance claim, whether upon the insolvency, bankruptcy or reorganization of any Pledgor or any other Loan Party or otherwise, all as though such payment had not been made. The provisions of this Section 8 shall survive repayment of all of the Secured Obligations and the termination or expiration of this Pledge Agreement in any manner, including but not limited to termination upon occurrence of the Facility Termination Date. 9. Waiver by the Pledgors. Each Pledgor waives to the extent permitted by applicable law (a) any right to require any Secured Party or any other obligee of the Secured Obligations to (i) proceed against any Person or entity, including without limitation any Loan Party, (ii) proceed against or exhaust any Collateral or other collateral for the Secured Obligations, or (iii) pursue any other remedy in its power, (b) any defense arising by reason of any disability or other defense of any other Person, or by reason of the cessation from any cause whatsoever of the liability of any other Person or entity, (c) any right of subrogation, (d) any right to enforce any remedy which any Secured Party or any other obligee of the Secured Obligations now has or may hereafter have against any other Person and any benefit of and any right to participate in any collateral or security whatsoever now or hereafter held by the Administrative Agent for the benefit of the Secured Parties. Each Pledgor authorizes each Secured Party and each other obligee of the Secured Obligations without notice (except notice required by applicable law) or demand and without affecting its liability hereunder or under the Loan Documents from time to time to: (x) take and hold security, other than the Collateral herein described, for the payment of such Secured Obligations or any part thereof, and exchange, enforce, waive and release the Collateral herein described or any part thereof or any such other security; and (y) apply such Collateral or other security and direct the order or manner of sale thereof as such Secured Party or obligee in its discretion may determine.   8 -------------------------------------------------------------------------------- The Administrative Agent may at any time deliver (without representation, recourse or warranty) the Collateral or any part thereof to a Pledgor and the receipt thereof by such Pledgor shall be a complete and full acquittance for the Collateral so delivered, and the Administrative Agent shall thereafter be discharged from any liability or responsibility therefor. 10. Dividends and Voting Rights. (a) All dividends and other distributions with respect to any of the Pledged Interests shall be subject to the pledge hereunder, provided, however, that cash dividends paid to a Pledgor as record owner of the Pledged Interests, to the extent permitted by the Credit Agreement to be declared and paid, may be retained by such Pledgor so long as no Event of Default shall have occurred and be continuing, free from any Liens hereunder. (b) So long as no Event of Default shall have occurred and be continuing, the registration of the Collateral in the name of a Pledgor as record and beneficial owner shall not be changed and such Pledgor shall be entitled to exercise all voting and other rights and powers pertaining to the Collateral for all purposes not inconsistent with the terms of the Loan Documents. (c) Upon the occurrence and during the continuance of any Event of Default, all rights of the Pledgors to receive and retain cash dividends and other distributions upon the Collateral pursuant to subsection (a) above shall cease and shall thereupon be vested in the Administrative Agent for the benefit of the Secured Parties, and each Pledgor shall promptly deliver, or shall cause to be promptly delivered, all such cash dividends and other distributions with respect to the Pledged Interests to the Administrative Agent (together, if the Administrative Agent shall request, with the documents described in Sections 1(c) and 2(c) hereof or other negotiable documents or instruments so distributed) to be held by it hereunder or, at the option of the Administrative Agent, to be applied to the Secured Obligations. Pending delivery to the Administrative Agent of such property, each Pledgor shall keep such property segregated from its other property and shall be deemed to hold the same in trust for the benefit of the Secured Parties. (d) Upon the occurrence and during the continuance of any Event of Default, at the option of the Administrative Agent, all rights of each of the Pledgors to exercise the voting or consensual rights and powers which it is authorized to exercise pursuant to subsection (b) above shall cease and the Administrative Agent may thereupon (but shall not be obligated to), at its request, cause such Collateral to be registered in the name of the Administrative Agent or its nominee or agent for the benefit of the Secured Parties and/or exercise such voting or consensual rights and powers as appertain to ownership of such Collateral, and to that end each Pledgor hereby appoints the Administrative Agent as its proxy, with full power of substitution, to vote and exercise all other rights as a shareholder with respect to such Pledged Interests hereunder upon the occurrence and during the continuance of any Event of Default, which proxy is coupled with an interest and is irrevocable until the Facility Termination Date, and each Pledgor hereby agrees to provide such further proxies as the Administrative Agent may request; provided, however, that the Administrative Agent in its discretion may from time to time refrain   9 -------------------------------------------------------------------------------- from exercising, and shall not be obligated to exercise, any such voting or consensual rights or such proxy. 11. Continued Powers. Until the Facility Termination Date shall have occurred, the power of sale and other rights, powers and remedies granted to the Administrative Agent for the benefit of the Secured Parties hereunder shall continue to exist and may, at any time after the occurrence and during the continuance of an Event of Default, be exercised by the Administrative Agent at any time and from time to time irrespective of the fact that any of the Secured Obligations or any part thereof may have become barred by any statute of limitations or that any part of the liability of any Pledgor may have ceased. 12. Other Rights. The rights, powers and remedies given to the Administrative Agent for the benefit of the Secured Parties by this Pledge Agreement shall be in addition to all rights, powers and remedies given to the Administrative Agent or any Secured Party under any other Loan Document or by virtue of any statute or rule of law. Any forbearance or failure or delay by the Administrative Agent in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of the Secured Parties shall continue in full force and effect until such right, power or remedy is specifically waived in accordance with the terms of the Credit Agreement. 13. Anti-Marshaling Provisions. The right is hereby given by each Pledgor to the Administrative Agent, for the benefit of the Secured Parties, to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to the Administrative Agent without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the Liens and security interests in the remaining Collateral conferred hereunder, nor release any Pledgor from personal liability for the Secured Obligations. Notwithstanding the existence of any other security interest in the Collateral held by the Administrative Agent, for the benefit of the Secured Parties, the Administrative Agent shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this Pledge Agreement. Each Pledgor hereby waives any and all right to require the marshaling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein or in any Loan Document. 14. Entire Agreement. This Pledge Agreement and each Joinder Agreement, together with the Credit Agreement and other Loan Documents, constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof and of the Joinder Agreements control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof and thereof. Neither this Pledge Agreement nor any Joinder Agreement nor any portion or provision hereof or thereof may be changed, altered, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than as provided in the Credit Agreement.   10 -------------------------------------------------------------------------------- 15. Further Assurances. Each Pledgor agrees at its own expense to do such further acts and things, and to execute and deliver, and cause to be executed and delivered as may be necessary or advisable to give effect thereto, such additional conveyances, assignments, financing statements, control agreements, documents, certificates, stock powers, agreements and instruments, as the Administrative Agent may at any time reasonably request in connection with the administration or enforcement of this Pledge Agreement or any Joinder Agreement or related to the Collateral or any part thereof or in order better to assure and confirm unto the Administrative Agent its rights, powers and remedies for the benefit of the Secured Parties hereunder or thereunder. Each Pledgor hereby consents and agrees that the Pledged Subsidiaries and all other Persons, shall be entitled to accept the provisions hereof and of the Joinder Agreements as conclusive evidence of the right of the Administrative Agent, on behalf of the Secured Parties, to exercise its rights, privileges, and remedies hereunder and thereunder with respect to the Collateral, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by any Pledgor or any other Person to any of such Pledged Subsidiaries or other Persons. 16. Binding Agreement; Assignment. This Pledge Agreement and each Joinder Agreement, and the terms, covenants and conditions hereof and thereof, shall be binding upon and inure to the benefit of the parties hereto, and to their respective successors and assigns, except that no Pledgor shall be permitted to assign this Pledge Agreement, any Joinder Agreement or any interest herein or therein or in the Collateral, or any part thereof or interest therein, or otherwise pledge, encumber or grant any option with respect to the Collateral, or any part thereof, or any cash or property held by the Administrative Agent as Collateral under this Pledge Agreement. Without limiting the generality of the foregoing sentence of this Section 16, any Lender may assign to one or more Persons, or grant to one or more Persons participations in or to, all or any part of its rights and obligations under the Credit Agreement (to the extent permitted by the Credit Agreement); and to the extent of any such permitted assignment or participation such other Person shall, to the fullest extent permitted by law, thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject however, to the provisions of the Credit Agreement, including Article IX thereof (concerning the Administrative Agent) and Section 10.06 thereof (concerning assignments and participations). All references herein to the Administrative Agent and to the Secured Parties shall include any successor thereof or permitted assignee, and any other obligees from time to time of the Secured Obligations. 17. Related Swap Contracts. All obligations of any Pledgor under or in respect of Related Swap Contracts (which are not prohibited under the terms of the Credit Agreement) to which any Lender or any Affiliate of any Lender is a party, shall be deemed to be Secured Obligations secured hereby, and each Lender or Affiliate of a Lender party to any such Related Swap Contract shall be deemed to be a Secured Party hereunder with respect to such Secured Obligations; provided, however, that such obligations shall cease to be Secured Obligations at such time, prior to the Facility Termination Date, as such Person (or Affiliate of such Person) shall cease to be a “Lender” under the Credit Agreement. No Person who obtains the benefit of any Lien by virtue of the provisions of this Section shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including   11 -------------------------------------------------------------------------------- the release or impairment of any Collateral) other than in its capacity as a Lender and only to the extent expressly provided in the Loan Documents. Each Secured Party not a party to the Credit Agreement who obtains the benefit of this Pledge Agreement by virtue of the provisions of this Section shall be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of the Credit Agreement, and that with respect to the actions and omissions of the Administrative Agent hereunder or otherwise relating hereto that do or may affect such Secured Party, the Administrative Agent and each of its Related Parties shall be entitled to all the rights, benefits and immunities conferred under Article IX of the Credit Agreement. 18. Severability. The provisions of this Pledge Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Pledge Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 19. Counterparts. This Pledge Agreement may be executed in any number of counterparts each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Pledge Agreement to produce or account for more than one such counterpart executed by the Pledgor against whom enforcement is sought. Without limiting the foregoing provisions of this Section 19, the provisions of Section 10.10 of the Credit Agreement shall be applicable to this Pledge Agreement. 20. Termination. Subject to the provisions of Section 8, this Pledge Agreement and each Joinder Agreement, and all obligations of the Pledgors hereunder (excluding those obligations and liabilities that expressly survive such termination) shall terminate without delivery of any instrument or performance of any act by any party on the Facility Termination Date. Upon such termination of this Pledge Agreement, the Administrative Agent shall, at the sole expense of the Pledgors, promptly deliver to the Pledgors the certificates evidencing its shares of Pledged Interests (and any other property received as a dividend or distribution or otherwise in respect of such Pledged Interests to the extent then held by the Administrative Agent as additional Collateral hereunder), together with any cash then constituting the Collateral not then sold or otherwise disposed of in accordance with the provisions hereof, and take such further actions at the request of the Pledgors as may be necessary to effect the same. 21. Additional Interests. If any Pledgor shall at any time acquire or hold any additional Pledged Interests, including any Pledged Interests issued by any Subsidiary not listed on Schedule I hereto which are required to be subject to a Lien pursuant to a Pledge Agreement by the terms hereof or of any provision of the Credit Agreement (any such shares being referred to herein as the “Additional Interests”), such Pledgor shall deliver to the Administrative Agent for the benefit of the Secured Parties (i) a Pledge Agreement Supplement in the form of Exhibit A hereto with respect to such Additional Interests duly completed and executed by such Pledgor and (iii) any other document required in connection with such Additional Interests as described in Section 2(c). Each Pledgor shall comply with the requirements of this Section 21 concurrently with the acquisition of any such Additional Interests or, in the case of Additional Interests to which Section 6.14 of the Credit Agreement applies, within the time period specified in such Section or elsewhere in the Credit Agreement with respect to such Additional Interests; provided,   12 -------------------------------------------------------------------------------- however, that the failure to comply with the provisions of this Section 21 shall not impair the Lien on Additional Interests conferred hereunder. 22. Notices. Any notice required or permitted hereunder shall be given (a) with respect to the Borrowers and each Subsidiary which is a Pledgor hereunder, at the address of the Company indicated in Schedule 10.02 of the Credit Agreement, (b) with respect to the Administrative Agent or a Lender, at the Administrative Agent’s address indicated in Schedule 10.02 of the Credit Agreement. All such addresses may be modified, and all such notices shall be given and shall be effective, as provided in Section 10.02 of the Credit Agreement for the giving and effectiveness of notices and modifications of addresses thereunder. 23. Joinder. Each Person who shall at any time execute and deliver to the Administrative Agent a Joinder Agreement shall thereupon irrevocably, absolutely and unconditionally become a party hereto and obligated hereunder as a Pledgor and shall have thereupon pursuant to Section 1 hereof granted a security interest in and collaterally assigned and pledged to the Administrative Agent for the benefit of the Secured Parties all Pledged Interests which it has at its Applicable Date or thereafter acquires any interest or the power to transfer, and all references herein and in the other Loan Documents to the Pledgors or to the parties to this Pledge Agreement shall be deemed to include such Person as a Pledgor hereunder. Each Joinder Agreement shall be accompanied by the Supplemental Schedules referred to therein, appropriately completed with information relating to the Pledgor executing such Joinder Agreement and its property. Each of the applicable Schedules attached hereto shall be deemed amended and supplemented without further action by such information reflected on the Supplemental Schedules to each Joinder Agreement. 24. Rules of Interpretation. The rules of interpretation contained in Sections 1.02 and 1.05 of the Credit Agreement shall be applicable to this Pledge Agreement and each Joinder Agreement and are hereby incorporated by reference. All representations and warranties contained herein shall survive the delivery of documents and any Credit Extensions referred to herein or secured hereby. 25. Governing Law; Waivers. (a) THIS PLEDGE AGREEMENT AND EACH JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR ANY JOINDER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN MECKLENBURG COUNTY, STATE OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT OR A JOINDER   13 -------------------------------------------------------------------------------- AGREEMENT, EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (c) EACH PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF SUCH PLEDGOR PROVIDED IN SECTION 22 OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH CAROLINA. (d) NOTHING CONTAINED IN SUBSECTIONS (b) OR (c) HEREOF SHALL PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR ANY JOINDER AGREEMENT OR THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY PLACE WHERE ANY PLEDGOR OR ANY OF SUCH PLEDGOR’S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER, BY REASON OF ITS PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE UNDER APPLICABLE LAW. (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS PLEDGE AGREEMENT OR ANY JOINDER AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION, SUIT OR PROCEEDING. (f) EACH PLEDGOR HEREBY EXPRESSLY WAIVES ANY OBJECTION IT MAY HAVE THAT ANY COURT TO WHOSE JURISDICTION IT HAS SUBMITTED PURSUANT TO THE TERMS HEREOF IS AN INCONVENIENT FORUM.   14 -------------------------------------------------------------------------------- [Signature Pages Follow]   15 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have duly executed this Pledge Agreement on the day and year first written above.   PLEDGORS:   SONIC AUTOMOTIVE, INC. By:   /s/ Greg Young Name:   Greg Young Title:   Vice President/Chief Accounting Officer CORNERSTONE ACCEPTANCE CORPORATION FAA HOLDING CORP. FIRSTAMERICA AUTOMOTIVE, INC. L DEALERSHIP GROUP, INC. SONIC AUTOMOTIVE WEST, LLC SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC. SONIC AUTOMOTIVE OF GEORGIA, INC. SONIC PEACHTREE INDUSTRIAL BLVD., L.P. SONIC AUTOMOTIVE OF NEVADA, INC. SONIC AUTOMOTIVE OF TENNESSEE, INC. SONIC OF TEXAS, INC. SONIC – LS, LLC SONIC – VOLVO LV, LLC SRE HOLDING, LLC Z MANAGEMENT, INC. By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer   16 -------------------------------------------------------------------------------- ADMINISTRATIVE AGENT:   BANK OF AMERICA, N.A., as Administrative Agent By:   /s/ Anne M. Zeschke Name:   Anne M. Zeschke Title:   Assistant Vice President   17

Exhibit 10.3 LINENS HOLDING CO. 6 Brighton Road Clifton, NJ  07015 August 16, 2006 George G. Golleher 145 Golden Eagle Hailey, ID  83333 Re:  Grant of Stock Options Dear George: We are pleased to inform you that you have been granted an option to purchase 10,000 shares of common stock of Linens Holding Co. (the “Company”).  As further described below, the option is denominated as an “Investment Option”.  The Investment Option has not been granted under the Company’s Stock Option Plan (the “Plan”), a copy of which is attached, and shall have no effect on the number of options that may be awarded under the Plan.  However, in all other respects, the Investment Option shall be treated as if it were awarded under the Plan, and shall be subject to the terms and conditions of the Plan, except as specifically modified hereby.  Capitalized terms not otherwise defined in the text are defined in the Plan. 1.                                       Investment Option:  The key terms of the Investment Option are as follows: (a)                                  Number of Shares.               10,000 (b)                                 Exercise Price per Share.  $50.00 (c)                                  Vesting.  The Investment Option is fully vested and immediately exercisable. 2.                                       Termination of the Options:  Whether or not exercisable or scheduled to become exercisable, the Investment Option will terminate as provided in Section 5 of the Plan; provided that Section 5(a) of the Plan shall not apply. 3.                                       No Repurchase Right.  Section 8(c) of the Plan shall not apply to any Shares you acquire upon exercise of the Investment Option. 4.                                       Federal Taxes:  The Investment Option granted to you is treated as a “nonqualified option” for federal tax purposes, which means that when you exercise, the excess of the value of the Shares issued on exercise over the exercise price paid for the Shares is income to you, subject to wage-based withholding and reporting.  When you sell the Shares acquired upon exercise, the excess (or shortfall) between the amount you receive upon the sale and the value of the shares at the time of exercise is treated as capital gain (or loss).  State and local --------------------------------------------------------------------------------                                                   taxes may also apply.  You should consult your personal tax advisor for more information concerning the tax treatment of your Investment Option. We are excited to give you this opportunity to share in our future success.  Please indicate your acceptance of this option grant and the terms of the Plan by signing and returning a copy of this letter. Sincerely, LINENS HOLDING CO.   By: /s/ ROBERT J. DINICOLA     Robert J. DiNicola   Chairman of the Board and Chief Executive Officer     Agreed to and Accepted by:   /s/ GEORGE G. GOLLEHER   Name: George G. Golleher     2 --------------------------------------------------------------------------------

  Exhibit 10.1 Dated          January 31, 2006   TRADE MARK ASSIGNMENT between TAYLOR NELSON SOFRES PLC and HARRIS INTERACTIVE INC. 1 --------------------------------------------------------------------------------   THIS ASSIGNMENT is dated January 31, 2006 Parties (1)   TAYLOR NELSON SOFRES PLC incorporated and registered in England & Wales with company number 912624 whose registered office is at TNS House, Westgate, London W5 1UA (Assignor).   (2)   HARRIS INTERACTIVE INC., incorporated and registered in the state of Delaware and whose principal place of business is 60 Corporate Woods, Rochester, New York 14623-1457 (Assignee). Background (A)   By an agreement dated 13 July, 1994 (the “Gannett Agreement”) between Louis Harris International, Inc and Louis Harris & Associates, Inc (1) Sofres S.A. (now called TNS Sofres S.A.) (“Sofres”) (2) and Gannett Co., Inc. (“Gannett”), Sofres acquired the registered trade marks listed in the attached Schedule 1 (the “Original Marks) and all the rights in the Territory listed on Schedule 2 to the Louis Harris Name (as defined in the Gannett Agreement)(together, the “Name Rights”) .   (B)   By an assignment dated [to be added], 2004 Sofres assigned to the Assignor all its right and title to the Original Marks, the Name Rights, the service mark “HPOL” (together with the Original Marks, the “Marks”) any and all rights of Assignor to any and all domain names or other URLs relating to the Marks or the Name Rights(together with the Marks and Name Rights, the “Assigned Property”).   (C)   By a licence agreement dated December 31, 2004 (the “Licence”) the Assignor and the Assignee entered into an agreement to licence to the Assignee the right to use the Assigned Property throughout the Territory (as defined in the Licence). The Licence contained a right for the Assignee or the Assignor, upon that satisfaction of certain conditions described in the Licence, call for an assignment of the Assigned Property to the Assignee.   (D)   The Assignee or the Assignor has exercised its right to call for an assignment of the Assigned Property and the Assignor and Assignee have agreed that the Assignor shall assign all its rights, in and to the Assigned Property to the Assignee on the terms set out below. Agreed Terms 1.   Assignment   1.1   In consideration of the sum of £1 now paid by the Assignee to the Assignor (the receipt of which the Assignor hereby acknowledges), the Assignor hereby assigns with full title guarantee to the Assignee absolutely the Assigned Property (including specifically the Marks) and 2 --------------------------------------------------------------------------------       all and any rights in and to the Assigned Property and any common law rights and all the goodwill attaching to the Assigned Property. 1.2   The assignment of the Original Marks that comprise a portion of the Assigned Property is with the benefit of the rights granted by and subject to the obligations and restrictions set out in clause 5 of the Gannett Agreement, a copy of which is annexed to this Assignment, and the Assignee hereby agrees to be bound by the provisions of clause 5 of the Gannett Agreement with respect to the Original Marks.   2.   INDEMNITY AND LIMIT OF LIABILITY   2.1   The Assignee will indemnify and keep indemnified the Assignor against all and any costs, claims, demands, liabilities, expenses, damages or losses (including without limitation consequential losses, and all interest, penalties and legal and other professional costs and expenses) arising out of or in connection with the Assignee’s failure to comply with the provisions of clause 5 of the Gannett Agreement. The liability of the Assignee under the provisions of this clause 2.1 shall not exceed the sum of US$500,000 (Five hundred thousand US Dollars).   2.2   The liability of the Assignor in respect of the covenants and warranties implied by Part 1 of the Law of Property (Miscellaneous Provisions) Act 1994 shall not exceed the sum of US$2,000,000 (Two Million US Dollars) provided that the Assignee shall not be able to recover under this assignment for any costs, claims, demands, liabilities, expenses, damages or losses (including without limitation consequential losses, and all interest, penalties and legal and other professional costs and expenses) for which the Assignee has already been compensated or received an indemnity under the Licence.   3.   Proceedings       This assignment shall include the right for the Assignee to bring proceedings against any third party in respect of the Assigned Property (including proceedings against any third party for infringement of the Assigned Property or for passing off or for otherwise infringing the rights of the Assignor in the Assigned Property). The Assignor agrees and undertakes to provide to the Assignee (at its request) all such assistance with any proceedings which may be brought by or against the Assignee against or by any third party in relation to the Assigned Property and the Assignee shall indemnify the Assignor in respect of all costs and expenses (including reasonable legal costs) actually incurred by it in providing the Assignee with such assistance. 3 --------------------------------------------------------------------------------   4.   Further assurance       The Assignor covenants that at the cost and request of the Assignee at any time and from time to time it shall execute such deeds or documents and do such acts or things as may be necessary or desirable to give effect to this assignment.   5.   Governing law and jurisdiction       This assignment shall be governed by and construed in accordance with the laws of England and the parties hereto submit to the exclusive jurisdiction of the English courts. This assignment has been entered into on the date stated at the beginning of it. 4 --------------------------------------------------------------------------------   Schedule 1 1.          Registered trade marks               Country   Classes   Mark   No. Germany   16,35,42   LOUIS HARRIS   #2033416 Spain   35   LOUIS HARRIS   #1696383MO Italy   35   LOUIS HARRIS   #641570 Germany   16,35,42   HARRIS POLL   #2033418 Spain   35   HARRIS POLL   #1696387M3 Italy             Germany   16,35,42   HARRIS SURVEY   #2033417 Spain   35   HARRIS SURVEY   #1696385M7 UK   35   HARRIS   #1526088 UK   35   HARRIS PROMARK   #1526092 UK       THE HARRIS RESEARCH CENTRE   #1526086 UK   35, 42   HPOL   #2214210 CTM   35,42   HPOL   #1380435 WIPO   35,42   HPOL   #729904 Norway   35,42   HPOL   #729904 Romania   35,42   HPOL   #729904 Switzerland   35,42   HPOL   #729904 Turkey   35,42   HPOL   #729904 Czech Republic   35,42   HPOL   #729904 Hungary   35,42   HPOL   #729904 UNREGISTERED MARKS HARRIS, HARRIS ONLINE HARRIS INTERACTIVE HARRIS POLL INTERACTIVE DOMAIN NAMES None known 5 --------------------------------------------------------------------------------        Schedule 2 Territory Albania Austria Belgium Bulgaria Cyprus Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Luxembourg Monaco Netherlands Norway Poland Portugal Romania Spain Sweden Switzerland Turkey United Kingdom Vatican City Bosnia & Herzegovina Macedonia Yugoslavia Belarus Estonia Latvia Lithuania Georgia Ukraine Russia 6 --------------------------------------------------------------------------------             Signed:         for and on behalf of TAYLOR         NELSON SOFRES PLC   /s/ Raj Afghan                   Group IP Counsel               Signed:         for and on behalf of         HARRIS INTERACTIVE INC.,   /s/ Gregory T. Novak                   President and Chief Executive Officer     7

  Exhibit 10.5 [Broadcom Corporation Letterhead] December 16, 2005 Mr. Scott A. McGregor President and Chief Executive Officer Broadcom Corporation 16215 Alton Parkway Irvine, California 92618      Re:   Amendment of Offer Letter Dear Scott:      Reference is made to that certain offer letter between you and Broadcom Corporation, a California corporation (the “Company”), dated October 25, 2004 (the “Agreement”).      The Agreement provides that on the first anniversary of the date that your employment with the Company commenced, you will receive a stock option grant to purchase 500,000 shares of the Company’s Class A common stock (the “2006 Equity Grant Provision”). The purpose of this letter agreement is to amend the 2006 Equity Grant Provision to provide that in lieu of the stock option covering 500,000 shares, you will instead be granted a stock option to purchase 166,667 shares and restricted stock units to acquire 83,333 shares.      By executing this letter agreement, and for good and valuable consideration, the receipt and adequacy of which you and the Company hereby acknowledge, you and the Company hereby agree that the second paragraph under the heading “Stock Options and Restricted Stock Units” in the Agreement shall be amended and restated in its entirety to read as follows: “On or about the first anniversary of the Start Date, and provided that you are still employed as Chief Executive Officer of Broadcom or its highest parent entity, if any, on the grant date, you will receive an additional stock option grant to purchase one hundred sixty-six thousand six hundred sixty-seven (166,667) shares of Broadcom Class A Common Stock (the “2006 Option”), The 2006 Option will have an exercise price equal to the closing price of our Class A Common Stock on the Nasdaq National Market on the grant date. The shares subject to the 2006 Option will vest in equal monthly installments, on each monthly anniversary of the Start Date that occurs during the period of forty-eight months following the first anniversary of the Start Date. The 2006 Option shall have a ten year term. On or about the first anniversary of the Start Date, and provided that you are still employed as Chief Executive Officer of Broadcom or its highest parent entity, if any, on the grant date, you will also receive an award of eighty-three thousand three hundred thirty-three (83,333) restricted stock units to acquire, with no cash payment on your part (other than applicable income and employment taxes), an equal number of shares of Broadcom Class A Common Stock (the “2006 Units”). The 2006 Units will generally vest in equal quarterly installments, on each quarterly date that is generally utilized by Broadcom for the vesting of restricted   --------------------------------------------------------------------------------   Mr. Scott McGregor December 16, 2005 Page 2 stock units issued to other Broadcom employees, or if no such quarterly date is generally utilized by Broadcom then on each quarterly anniversary of the Start Date, over the period of forty-eight months following the first anniversary of the Start Date. Vesting of the 2006 Units shall not be subject to performance criteria other than continued service as an employee. The shares of Class A Common Stock to be issued to you upon each vesting date of the 2006 Units will be vested and unrestricted, except for any applicable restrictions under the securities laws.”      Please acknowledge that the foregoing accurately sets forth our agreement by signing the enclosed copy of this letter agreement where indicated below and returning the executed copy to the Company.             Sincerely, BROADCOM CORPORATION, a California corporation     By:   /s/ Henry Samueli       Henry Samueli        Chairman and Chief Technical Officer      Acknowledged and Agreed:                 /s/ Scott A. McGregor     Scott A. McGregor               

Exhibit 10.1 AMENDMENT NO. 1 TO EQUIPMENT SCHEDULE NO. 1 This Amendment No. 1 (the “Amendment”) is entered into this 18th day of December, 2006, and amends Equipment Schedule No. 1 (Equipment Schedule No. 1 and all Annexes, Exhibits and Riders thereto being hereinafter referred to collectively as the “Equipment Schedule”) to that certain Master Lease, dated as of September 1, 1994 (the “Lease”) between General Electric Capital Corporation (“Lessor”) and Blue Ridge Paper Products, Inc. successor-in-interest to Champion International Corporation (“Lessee”).  Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Lease or Schedule. RECITALS WHEREAS, at the expiration of the Initial Lease Term, Lessee exercised its option, pursuant to Section (b)(ii) of Rider 3 of the Equipment Schedule, to renew the Equipment Schedule, with respect to all of the Leased Items subject to the Equipment Schedule, for the Initial Renewal Term. WHEREAS, the Lessee and Lessor wish to amend the end of Initial Renewal Term options available to Lessee, and make various other changes to the Schedule, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency is hereby acknowledged, the parties hereto agree as follows: 1.             Tax Treatment.  This Amendment shall be treated for income tax purposes as effectuating a sale of each Leased Item of Equipment subject to Equipment Schedule No. 1 by the Lessor to the Lessee on the Effective Date of the Amendment, such that the Lease is treated for such purposes as a financing agreement pursuant to which the Lessee is paying to the Lessor the purchase price for the Equipment of $2,527,377.56 by issuing a note, payments for which will be comprised of the remaining rent payments plus the end of Initial Lease Term purchase price. Such payments shall be treated as payments of principal and interest in the amounts indicated on Exhibit A hereto.  Lessor and Lessee each agree to treat the Amendment for all income tax purposes (including the filing of all income tax returns) in a manner consistent with the intended income tax treatment as set forth herein. 2.             Amendments to Equipment Schedule. (a)  Subsection (b)(iii) of Rider No. 3 to the Equipment Schedule is hereby deleted and replaced with the following: -------------------------------------------------------------------------------- If Lessee has elected to renew this Equipment Schedule as provided in subsection (a)(ii) above, then Lessee shall, upon expiration of the Initial Renewal Term, purchase all of Lessor’s rights and interest in all, but not less than all, of the Leased Items subject to this Scheduled for a purchase price equal to 20% of Capitalized Lessor’s Cost plus all applicable sale taxes.  Upon payment by Lessee of the specified purchase price, and any and all other amounts then due and owing, if any, by Lessee to Lessor pursuant to the Equipment Schedule, Lessor shall (i) deliver to Lessee a bill of sale conveying to Lessee, on an AS-IS basis, without any representations or warranties of any kind, express or implied, including but not limited to any warranty of merchantability or fitness for a particular purpose, all of Lessor’s right, title and interest in such Leased Items, including such title as Lessor acquired as the inception of this Equipment Schedule, (the “Conveyed Interest”), except that Lessor shall warrant that the Conveyed Interest is free of all liens and encumbrances created or claimed by Lessor; and (ii) provide to Lessee all appropriate UCC-3 statements and other documentation necessary to release Lessor’s interest in the Leased Items. (b)           Subsections (c) through (e) of Rider 3 are hereby deleted. (c)           The Stipulated Loss and Termination Value Table attached to the Equipment Schedule as Annex D is deleted and replaced with the attached Annex D. (d)                                 The following is added as Section 10 to the Equipment Schedule: 10.  Grant of Security Interest:  To secure all obligations of Lessee to Lessor pursuant to this Equipment Schedule, as the same may be amended from time to time, Lessee grants to Lessor a first priority security interest in all Leased Items of Equipment together with all additions, attachments, accessions and accessories thereto and any and all substitutions, replacements or exchanges therefore, and any and all insurance and/or other proceeds of the property in and against which a security interest is granted hereunder (the “Collateral”).  Lessee authorizes Lessor to file against Lessee with respect to such Collateral such UCC financing statements, as Lessor deems necessary in order to evidence and perfect such security interest.  Lessee represents and warrants that (i) as of the Effective Date of Amendment No. 1 to this Equipment Schedule, the Collateral is free and clear of all liens, claims and encumbrances (except for the security interest granted to Lessor hereunder) , and (ii)  Lessee shall maintain such Collateral free and clear of all such liens, claims and encumbrances, other than any lien, claim or encumbrance granted or created by Lessor. (e)           The following is added as Section 11 to the Equipment Schedule: 11.  Master Lease Amendment:  For purposes of this Equipment Schedule 2 -------------------------------------------------------------------------------- only, the Master Lease is amended by adding the following as subsection (h) to Section 9: (h) With respect to Equipment Schedule No. 1, subsections (c) through (g) above shall continue to apply solely with respect to the period prior to the Effective Date of Amendment No. 1 to Equipment Schedule 1 (the “Effective Date”) and, for the avoidance of doubt, any Lessee obligations hereunder (including, without limitation, Lessee’s obligation to indemnify Lessor for any loss of Assumed Tax Benefits occurring or relating to the period prior to the Effective Date) shall survive the expiration or other termination of Equipment Schedule No. 1 and this Master  Lease. (f)                                    The following is added as Section 12 to the Equipment Schedule: 12.  Early Purchase Option:  On 10/1/07 (the “Early Purchase Date”), Lessee may, upon not less than 90 days prior written notice to Lessor, purchase all of Lessor’s rights and interest in all, but not less than all, of the Leased Items subject to this Scheduled upon payment of all rent and other sums due and payable as of the Early Purchase Date (including the Rent Payment payable on such date), plus a purchase price equal to $2,005,430.01, plus all applicable sale taxes and the Make Whole Amount (as defined below).  Upon payment by Lessee of the specified purchase price, the Make Whole Amount and any and all other amounts then due and owing, if any, by Lessee to Lessor pursuant to the Equipment Schedule, Lessor shall (i) deliver to Lessee a bill of sale conveying to Lessee, on an AS-IS basis, without any representations or warranties of any kind, express or implied, including but not limited to any warranty of merchantability or fitness for a particular purpose, all of Lessor’s right, title and interest in such Leased Items, including such title as Lessor acquired as the inception of this Equipment Schedule, (the “Conveyed Interest”), except that Lessor shall warrant that the Conveyed Interest is free of all liens and encumbrances created or claimed by Lessor; and (ii) provide to Lessee all appropriate UCC-3 statements and other documentation necessary to release Lessor’s interest in the Leased Items.  Make-Whole Amount” shall mean the amount which the Lessor determines as of the third Business Day prior to such Early Purchase Date to equal the excess, if any, of (i) the aggregate present value of all the remaining scheduled payments of principal and interest (including the amount payable pursuant to Section (b) of Rider C to the Equipment Schedule) from the Early Purchase Date to expiration 3 -------------------------------------------------------------------------------- of the Initial Renewal Term of the Equipment Schedule, discounted monthly at a rate equal to the 1-Year Treasury Rate (as per the Federal Reserve Statistical Release H.15), based on a 360-day year of twelve 30-day months, over (ii) the Investment Balance on such Early Purchase Date as indicated on Annex A.  The payment of the specified purchase price shall constitute, for federal income tax purposes, a repayment of the loan contemplated by this instrument and each party agrees to treat the payment for all income tax purposes (including the filing of all tax returns) in a manner consistent with the intended income tax treatment as set forth herein.. 3.             Sales Tax.  Lessee shall be liable (and agrees to hold harmless and indemnify the Lessor) for any sales, use, transfer or similar taxes arising or resulting from the execution of this Amendment or the transactions contemplated by this Amendment.  For the avoidance of doubt, the obligations of Lessee set out in this Section shall survive the expiration or other termination of the Equipment Schedule and Master Lease. 4.             Personal Property Tax. (a)           Notwithstanding anything to the contrary contained in the Master Lease or Equipment Schedule, with respect to the payment of personal property taxes or any equivalent tax (“Property Tax”) on any Leased Items subject to Equipment Schedule No. 1, Lessee hereby agrees that, contrary to the practice of the parties prior to this Amendment, Lessee shall (i) report such Leased Items for Property Tax purposes to the appropriate taxing authorities in those jurisdictions where any such Leased Items are located, and (ii) pay on a timely basis to the appropriate taxing jurisdiction any such Property Tax.  All personal property tax returns and reports shall show Lessee as the owner of the Leased Items. (b)           If any Property Tax is charged to or assessed against Lessor, Lessee agrees to immediately reimburse Lessor upon receipt of a written request for reimbursement for any Property Tax charged to or assessed against Lessor with respect to any Leased Items subject to Equipment Schedule No. 1.  Without limiting the generality of the foregoing and/or any indemnity provision contained in the Lease, Lessee hereby agrees to indemnify and hold harmless Lessor from (i) any Property Tax imposed, charged or assessed in connection with such  Leased Items, (ii) all penalties and/or interest imposed as a result of any incorrect or late reporting of such Leased Items, failure to report the Leased Items, or any late payment of, or failure to pay, any Property Tax, penalties, or interest, and (iii) all losses, claims, damages, or suits (including legal expenses) which arise out of Lessee’s failure to abide by any term or provision contained herein. (c)           Lessee agrees to submit to Lessor, upon Lessor’s request, copies of Property Tax returns and reports (together with any and all applicable work sheets, if 4 -------------------------------------------------------------------------------- requested by Lessor) which relate to the Equipment, and canceled checks indicating proof of payment of any Property Taxes, penalties and/or interest. 5.             Conditions to Effective Date.             Lessee and Lessor are entering into this Amendment as of the date set forth above.  This Amendment shall become effective on the date (the “Effective Date”) upon which all of the following conditions are satisfied, in form and substance satisfactory to Lessor: (a)           the execution and delivery of this Amendment; (b)           all such filings in each jurisdiction necessary and appropriate in order to evidence and perfect the first priority lien and security interest granted by the Lessee to the Lessor (including the filing of UCC termination statements by any lien holders asserting an interest in the Collateral) shall have been made to the satisfaction of the Lessor; (c)           all taxes, fees, recording charges, Transaction Costs and other charges payable in connection with the execution, delivery, recordation and filing of all documents shall have been paid in full or provided for, and Lessor shall have received evidence reasonably satisfactory to Lessor demonstrating the same (or exemption there from, if applicable);  (d)          all such other documents, instruments and other actions as Lessor may reasonably request in connection with the consummation of the transactions contemplated herein and consistent with the terms hereof shall be complete and reasonably satisfactory to the Lessor. 6.             Expenses.  Lessee agrees to pay all of Lessor’s reasonable costs and expenses, including any filing fees for perfection of Lessor’s security interest in the Equipment and all fees and expenses of Lessor’s legal counsel, in connection with the preparation, execution, implementation and enforcement of this Amendment (collectively, “Transaction Costs”) promptly upon demand. 7.             Successors.  This Amendment shall be binding upon, and inure to the benefits of, the parties hereto and the beneficiaries hereof and their respective successors and assigns. 8.             Ratification.  This Amendment is limited as written and shall not constitute a modification, amendment, acceptance or waiver of any other provision of the Master Lease or Equipment Schedule No. 1.  The Lease Agreement as modified and amended by this Amendment is hereby ratified and confirmed in all respects. 9.             Counterparts.  This Amendment may be executed in multiple counterparts and by different parties thereto on separate counterparts, each of which counterpart when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 5 -------------------------------------------------------------------------------- 10.           Governing Law.  This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New York. 11.           Lease Agreement.  From and after the date hereof, all references in the Master Lease to Equipment Schedule No. 1 shall be deemed to be refer to such Equipment Schedule after giving effect to this Amendment. [signature page follows] 6 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Lease Agreement to be duly executed as of the day and year first above set forth. Blue Ridge Paper Products, Inc.       By: /s/ Richard A. Lozyniak     Its: President and Chief Executive Officer             General Electric Capital Corporation       By: /s/ Meenoo Sameer     Its: Duly Authorized Signatory           --------------------------------------------------------------------------------

  Exhibit 10.1 STOCK PURCHASE AGREEMENT BY AND AMONG WABASH NATIONAL CORPORATION, TRANSCRAFT CORPORATION, AND TRANSCRAFT INVESTMENT PARTNERS, L.P. Dated as of March 3, 2006   --------------------------------------------------------------------------------   TABLE OF CONTENTS                               Page     ARTICLE I DEFINITIONS     2                         1.1   Certain Definitions     2                     ARTICLE II SALE AND PURCHASE OF SHARES     11                         2.1   Sale and Purchase of Shares     11                     ARTICLE III CONSIDERATION     11                         3.1   Consideration     11                         3.2   Payment of Closing Purchase Price     11                         3.3   Purchase Price Adjustment     13                         3.4   Indemnification Escrow Agreement     16                         3.5   Earnout     16                     ARTICLE IV CLOSING AND TERMINATION     19                         4.1   Closing Date     19                         4.2   Termination of Agreement     19                         4.3   Procedure Upon Termination     20                         4.4   Effect of Termination     20                     ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY     20                         5.1   Organization and Good Standing     20                         5.2   Authorization of Agreement     20                         5.3   Conflicts; Consents of Third Parties     21                         5.4   Capitalization     22                         5.5   Subsidiaries     22                         5.6   Financial Statements     23                         5.7   No Undisclosed Liabilities     23                         5.8   Absence of Certain Developments     23                         5.9   Taxes     24                         5.10   Real Property     25                         5.11   Tangible Personal Property; Title to Assets     26                         5.12   Intellectual Property     27                         5.13   Material Contracts     27   i --------------------------------------------------------------------------------                             TABLE OF CONTENTS                 (continued)                       Page         5.14   Employee Benefits Plans     30                         5.15   Labor     31                         5.16   Litigation     31                         5.17   Compliance with Laws; Permits     32                         5.18   Environmental Matters     32                         5.19   Financial Advisors     34                         5.20   Accounts Receivable; Bank Accounts     34                         5.21   Inventory     34                         5.22   Insurance     35                         5.23   Books and Records     35                         5.24   Transactions With Related Parties     35                         5.25   Off Balance Sheet Transactions     35                         5.26   Suppliers; Customers; Dealers     36                         5.27   Warranties; Recalls; Product Liability     36                         5.28   Certain Payments; International Trade Laws     37                     ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER     37                         6.1   Organization and Good Standing     37                         6.2   Authorization of Agreement     37                         6.3   Conflicts; Consents of Third Parties     38                         6.4   Ownership and Transfer of Shares     39                         6.5   Litigation     39                         6.6   Amounts Owed to Selling Stockholder     39                         6.7   Financial Advisors     39                     ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER     39                         7.1   Organization and Good Standing     39                         7.2   Authorization of Agreement     39                         7.3   Conflicts; Consents of Third Parties     40                         7.4   Litigation     41   ii --------------------------------------------------------------------------------                             TABLE OF CONTENTS                 (continued)                       Page         7.5   Investment Intention     41                         7.6   Financing     41                         7.7   No Financial Advisers     41                     ARTICLE VIII COVENANTS     41                         8.1   Access to Information     41                         8.2   Conduct of the Business Pending the Closing     42                         8.3   Consents     44                         8.4   Regulatory Approvals     45                         8.5   Further Assurances     45                         8.6   Confidentiality     45                         8.7   Preservation of Records     46                         8.8   Publicity     46                         8.9   Exclusivity     46                         8.10   Tax Matters     47                         8.11   Noncompetition; Nonsolicitation     49                         8.12   Notice; Supplementation and Amendment of Schedules     49                         8.13   Indemnity Obligations     50                         8.14   Montgomery County Facility     50                     ARTICLE IX CONDITIONS TO CLOSING     51                         9.1   Conditions Precedent to Obligations of Purchaser     51                         9.2   Conditions Precedent to Obligations of the Selling Stockholder     53                     ARTICLE X INDEMNIFICATION     54                         10.1   Survival     54                         10.2   Indemnification by Selling Stockholder     54                         10.3   Indemnification by Purchaser     55                         10.4   Indemnification Procedures     55                         10.5   Limitations on Indemnification for Breaches of Representations and Warranties     57                         10.6   Tax Treatment of Indemnity Payments     59   iii --------------------------------------------------------------------------------                             TABLE OF CONTENTS                 (continued)                       Page         10.7   No Consequential Damages     59                         10.8   Exclusive Remedy     59                     ARTICLE XI MISCELLANEOUS     59                         11.1   Payment of Sales, Use or Similar Taxes     59                         11.2   Expenses     59                         11.3   Submission to Jurisdiction; Consent to Service of Process     59                         11.4   Entire Agreement; Amendments and Waivers     60                         11.5   Governing Law     60                         11.6   Notices     60                         11.7   Severability     62                         11.8   Binding Effect; No Third-Party Beneficiaries; Assignment     62                         11.9   Counterparts     62   iv --------------------------------------------------------------------------------   STOCK PURCHASE AGREEMENT           THIS STOCK PURCHASE AGREEMENT, dated as of March 3, 2006 (the “Agreement”), is made by and among Wabash National Corporation, a Delaware corporation (“Purchaser”), Transcraft Corporation., a Delaware corporation (the “Company”), and Transcraft Investment Partners, L.P., a Delaware limited partnership (the “Selling Stockholder”), W I T N E S S E T H:           WHEREAS, (i) Selling Stockholder owns an aggregate of 915 shares (the “Shares”) of the Company’s common stock, par value $.01 per share (the “Common Stock”), and (ii) Lincolnshire Equity Fund II, L.P., a Delaware limited partnership (“Lincolnshire”), owns an aggregate of 10,430 shares (the “Preferred Shares”) of the Company’s preferred stock, par value $.01 per share (the “Preferred Stock”);           WHEREAS, Monumental Life Insurance Company, a Maryland corporation (“Monumental”), is the holder of a warrant (the “Warrant”) as evidenced by that certain Warrant to Purchase Shares of Common Stock of the Company dated January 1, 2004, to purchase six percent (6%) of the fully diluted Common Stock at a price of $1.00 per share, which constitutes the only outstanding right of any kind to acquire capital stock of the Company;           WHEREAS, the Shares, Preferred Shares and the Warrant constitute all of the issued and outstanding equity interests of the Company;           WHEREAS, concurrently with, and as a condition to the closing of the transactions contemplated under this Agreement, the Warrant shall be cancelled and of no further force and effect and the Preferred Shares shall be redeemed in full and cancelled;           WHEREAS, the Selling Stockholder desires to sell to Purchaser, and Purchaser desires to purchase from the Selling Stockholder, all of the Shares for the Purchase Price (as hereinafter defined) and upon the terms and subject to the conditions hereinafter set forth;           WHEREAS, certain terms used in this Agreement are defined in Section 1.1;           NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements hereinafter contained, the parties hereto hereby agree as follows: 1 --------------------------------------------------------------------------------   ARTICLE I DEFINITIONS           1.1 Certain Definitions.           (a) For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:           “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.           “Indemnity Side Letter” means that certain letter agreement, dated the date hereof, between the Purchaser and Lincolnshire.           “Business Day” means any day of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized to close.           “Closing Date Payments” means, as of the Closing Date, the sum of the aggregate amount required to (i) pay and satisfy in full the Company’s Indebtedness for money borrowed as more specifically set forth on Schedule 3.2(b), (ii) cancel the Warrant, and (iii) redeem and cancel in full the Preferred Shares.           “Code” shall mean the Internal Revenue Code of 1986, as amended.           “Contract” means any written or oral agreement, contract, indenture, note, mortgage, guarantee, bond, lease, commitment, easement, right of way, arrangement or understanding.           “Defect” means a defect of any kind, whether in design, manufacture, processing, or otherwise, including, any dangerous propensity associated with any reasonable foreseeable use of a Product, or the failure to warn of the existence of any defect, impurity or dangerous propensity.           “EBITDA” means the Company’s Net Income plus, to the extent charged or otherwise allocated against, or otherwise included in the determination of, such Net Income (a) (i) income Tax expense and (ii) gross receipts and franchise Tax expense to the extent that such Tax expense has been reflected in “income taxes” in the audited statement of income included in the Financial Statements, (b) interest, prepayment penalties deferred financing charges, and other expenses incurred in connection with Indebtedness for money borrowed including, without limitation, interest expense in connection with floor plan costs paid by the Company on behalf of its dealers, (c) amortization and depreciation (d) fees and any other amounts paid or allocated pursuant 2 --------------------------------------------------------------------------------   to the management agreement between the Company and Lincolnshire Management, Inc. and corporate overhead charges allocated by the Purchaser, (e) expenses incurred in connection with the negotiation and execution of this Agreement and closing of the transactions contemplated hereby, (f) compensation and employee benefits in respect of positions not typically employed by the Company prior to the Closing, (g) audit related expenses incurred above $60,000 (including, without limitation, any incremental expenses associated with complying with Sarbanes Oxley and other United States public company reporting requirements), (i) expenses incurred in the integration of the Company’s business with the Purchaser, all as determined in accordance with GAAP applied on a basis consistent with that employed by the Company in the preparation of the Financial Statements and with such calculation to be consistent with the exemplar set forth on Exhibit C. “Net Income” means for any period the net income (or loss) of the Company for such period determined in accordance with GAAP applied on a basis consistent with that employed by the Company in the preparation of the Financial Statements; provided that in determining Net Income, the following items shall be excluded: (i) gains and losses from the sale or disposition of assets outside the Ordinary Course of Business; (ii) income and losses attributable to any business acquired by the Company after the Closing Date, and all expenses and other items included in the calculation thereof in accordance with GAAP, and all transaction expenses, including legal, accounting, due diligence and brokers’ fees, incurred in connection with any such acquisition; (ii) any gain or loss from currency or other hedging or other financial risk mitigation transactions; (iii) any reserves or adjustments to reserves which are not consistent with past practices of the Company; and (iv) any accounting policies or accounting procedures adopted by the Purchaser that are inconsistent with the policies and procedures utilized by the Company prior to the Closing.           “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.           “Environmental Law” means any foreign, federal, state or local statute, regulation, ordinance, rule of common law or other legal requirement in effect on or prior to the Closing Date relating to the protection of human health and safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §§ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. §§ 5101 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. §§ 1251 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et seq.) the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.), as each has been or may be amended and the regulations promulgated pursuant thereto.           “Environmental Permits” means all Permits required under applicable Environmental Laws.           “Expenses” means any and all notices, actions, suits, proceedings, claims, demands, assessments, judgments, costs, penalties and expenses, including reasonable attorneys’ and other professionals’ fees and disbursements. 3 --------------------------------------------------------------------------------             “GAAP” means generally accepted accounting principles in the United States of America in effect from time to time.           “Governmental Body” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private).           “Hazardous Material” means any substance, radiation, material or waste that is regulated, classified, or otherwise characterized under or pursuant to any Environmental Law and includes, without limitation, hazardous substances, solid wastes, petroleum and its by-products, asbestos, polychlorinated biphenyls, radon, mold, MTBE, and urea formaldehyde insulation.           “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.           “Indebtedness” of any Person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person or its Subsidiaries for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person or its Subsidiaries is responsible or liable; (ii) all obligations of such Person or its Subsidiaries issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business); (iii) all obligations of such Person or its Subsidiaries under leases required to be capitalized in accordance with GAAP as then in effect; (iv) all obligations of such Person or its Subsidiaries for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons for the payment of which such Person or its Subsidiaries is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person or its Subsidiaries (whether or not such obligation is assumed by such Person or its Subsidiaries).           “Indemnification Claim” means any claim in respect of which payment may be sought under Article X of this Agreement.           “Intellectual Property” means all intellectual property rights arising from or in respect of the following: (i) all patents and applications therefor, including continuations, divisionals, continuations-in-part, or reissues of patent applications and patents issuing thereon (collectively, “Patents”), (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, Internet domain names and corporate names, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof, (collectively, “Marks”), (iii) copyrights 4 --------------------------------------------------------------------------------   and registrations and applications therefor, works of authorship and mask work rights (collectively, “Copyrights”) and (iv) all know-how, Software and Technology.           “IRS” means the Internal Revenue Service.           “Knowledge” of the Company or Selling Stockholder means (i) the actual knowledge of any of those Persons identified on Schedule 1.1(a) and (ii) the knowledge that any such Person referenced in (i) above, acting as a prudent business person, would have obtained in the conduct of his or her business.           “Law” means all foreign, federal, state and local laws, statutes, codes, ordinances, rules, regulations, resolutions and Orders.           “Legal Proceeding” means any judicial, administrative or arbitral actions, suits or proceedings (public or private) by or before a Governmental Body or arbiter.           “Liability” means any debt, liability or obligation (whether direct or indirect, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due) and including all costs and expenses relating thereto.           “Lien” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction, encroachment, reservation, municipal bond, or other restriction of any kind.           “Material Adverse Effect” means a material adverse effect on (i) the business, assets, properties, results of operations, condition (financial or otherwise) or performance of the Company and its Subsidiaries (taken as a whole) or (ii) the ability of the Company to consummate the transactions contemplated by this Agreement, other than (with respect to clause (i) or (ii)) an effect resulting from an Excluded Matter. “Excluded Matter” means any one or more of the following: (i) any change in the United States or foreign economies or securities or financial markets in general; (ii) any change that generally affects any industry in which the Company or its Subsidiaries operates, but only if such change does not have a disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries (taken as a whole); (iii) any change arising in connection with hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war or terrorism or military actions existing or underway as of the date hereof; or (iv) any action taken by Purchaser or its Affiliates with respect to the transactions contemplated hereby or with respect to the Company or its Subsidiaries.           “Net Working Capital” means (i) the sum of accounts receivable, inventory, and prepaid expenses, reduced by (ii) the sum of accounts payable, accrued expenses and customer deposits, excluding accrued interest and warranty, in each case as determined in accordance with GAAP applied on a basis consistent with that employed by the Company in the preparation of the Financial Statements. 5 --------------------------------------------------------------------------------             “Order” means any order, injunction, judgment, decree, determination, ruling, writ, assessment or arbitration or other award of a Governmental Body.           “Ordinary Course of Business” means the ordinary and usual course of business of the Company and its Subsidiaries consistent with past practices and applicable law.           “Permits” means any approvals, authorizations, consents, licenses, permits or certificates of a Governmental Body.           “Permitted Exceptions” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in the policies of title insurance listed on Schedule 5.10, copies of which have been provided to Purchaser, (ii) statutory Liens for current Taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, provided an appropriate reserve is established therefor; (iii) mechanics’, carriers’, workers’, repairers’ and similar Liens arising or incurred in the Ordinary Course of Business with respect to amounts not yet due and payable or being contested in good faith by appropriate proceedings, provided an appropriate reserve is established therefor; (iv) zoning, entitlement and other land use and environmental regulations by any Governmental Body that do not interfere with, in any material respect, the use of the Company Property by the Company and its Subsidiaries or the Ordinary Course of Business thereon; (v) Liens securing debt as disclosed in the Financial Statements to be released by Closing; (vi) Liens securing rental payments under capital or operating lease arrangements; and (vii) such other imperfections in title, charges, easements, restrictions and encumbrances that do not, individually or in the aggregate, interfere with, in any material respect, the use of the Company Property by the Company and its Subsidiaries or the Ordinary Course of Business thereon.           “Person” means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.           “Product” means any product designed, manufactured, shipped, sold, marketed, distributed and/ or otherwise introduced into the stream of commerce by or on behalf of the Company or any Subsidiary.           “Release” means the presence of or exposure to any Hazardous Materials and any release, spill, emission, leaking, pumping, pouring, emptying, seepage, dumping, injection, deposit, disposal, discharge, dispersal, migration, or leaching of any Hazardous Material into or upon the indoor or outdoor environment, or into or out of any property.           “Remediation” means any removal action, Remedial Action, restoration, repair, response action, corrective action, monitoring, sampling and analysis, installation, reclamation, closure, or post-closure in connection with the suspected, threatened or actual Release of Hazardous Materials. 6 --------------------------------------------------------------------------------             “Remedial Action” means all actions to (i) clean up, remove, treat, investigate, monitor, sample, analyze, abate or in any other way address any Hazardous Material, (ii) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (iii) perform studies and investigations, closure, post-closure, or post-remedial monitoring and care and (iv) correct a condition of noncompliance with Environmental Laws.           “Schedules” means the disclosure schedules of the Company, the Selling Stockholder and Purchaser, as applicable, accompanying this Agreement.           “Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, and (iv) all documentation including user manuals and other training documentation related to any of the foregoing.           “Subsidiary” means any Person of which a majority of the outstanding voting securities or other voting equity interests are owned, directly or indirectly, by the Company.           “Taxes” means (i) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connection with any item described in clause (i) and (iii) any transferee liability in respect of any items described in clauses (i) and/or (ii).           “Tax Return” means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect of any Taxes.           “Technology” means, collectively, all designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by or relate to, or are used by the Company or any Subsidiary. 7 --------------------------------------------------------------------------------             (b) Terms Defined Elsewhere in this Agreement. For purposes of this Agreement, the following terms have meanings set forth in the sections indicated:       Term   Section   Accounting Referee   3.3(d) Agreement   Recitals Balance Sheet   5.6 Balance Sheet Date   5.6 Closing   4.1 Closing Date   4.1 Closing Date Balance Sheet   3.3(b)(ii) Closing Net Working Capital   3.3(b)(ii) Closing Purchase Price   3.1 Closing Purchase Price Payment   3.2(a) Closing Statement   3.3(b)(ii) Common Stock   Recitals Company   Recitals Company Benefit Plan   5.14(a) Company Documents   5.2 Company IP   5.12 Company Pension Plan   5.14(b) Company Properties   5.10 Company Property   5.10 Confidentiality Agreement   8.6 Copyrights   1.1 (in definition of Intellectual Property) County   8.14 Cunningham Parties   10.2 Dispute Period   10.4(a) Earnout Escrow Amount   3.5(f) Earnout Payment   3.5(a) Earnout Period   3.5(a) Earnout Review Period   3.5(c) Earnout Statement   3.5(b) EBITDA Components   3.5(b) ERISA   5.14(a) Escrow Agent   3.4 Estimated Closing Date Net Working Capital   3.3(a) Estimated Closing Date Net Working Capital Statement   3.3(a) Excluded Matter   1.1 (in definition of Material Adverse Effect) Financial Statements   5.6 Indemnification Escrow Agreement   3.4 Indemnification Escrow Amount   3.4 Indemnification Claim   10.4(a) Indemnified Party   10.4(a) 8 --------------------------------------------------------------------------------         Term   Section   Indemnifying Party   10.4(a) Lincolnshire   Recitals Losses   10.2(a) Marks   1.1 (in definition of Intellectual Property) Material Contracts   5.13(a) Montgomery Facility Deed   8.14 Montgomery Facility Lease   8.14 Montgomery Facility Release   8.14 Montgomery Property   8.14 Monumental   Recitals Monumental Warrant   5.4(a) Off-Balance Sheet Transaction   5.25 Owned Property   5.10 Patents   1.1 (in definition of Intellectual Property) Personal Property Leases   5.11 Preferred Shares   Recitals Preferred Stock   Recitals Purchase Price   3.1 Purchaser   Recitals Purchaser Documents   7.2 Purchaser Indemnified Parties   10.2(a) Real Property Lease   5.10 Recalls   5.27(c) Scheduled Agreement   10.2(a) Scheduled Obligations   10.2(a) Securities Act   7.5 Selling Stockholder   Recitals Selling Stockholder Documents   6.2 Selling Stockholder Indemnified   10.3(a) Parties     Settlement   10.4(a) Shares   Recitals Supply and Purchase Agreement   3.5(g)(ii) Tail Policy   8.13 Target EBITDA   3.5(a) Target Net Working Capital   3.3(a) Target Tax Amount   8.10(a) Selling Stockholder   Recitals VEBA   5.14(d) Warrant   Recitals           (c) Other Definitional and Interpretive Matters. Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply: 9 --------------------------------------------------------------------------------             (i) Calculation of Time Period. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.           (ii) Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.           (iii) Exhibits/Schedules. The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement. The specific disclosures set forth in the Schedules shall be organized to correspond to a specific section reference in this Agreement to which the qualifying and correspondingly numbered disclosure relates, together with appropriate cross references when disclosure is applicable to other sections of this Agreement, and any disclosure set forth in one section of the Schedules shall apply both (i) to the representations and warranties contained in the Section of this Agreement to which it corresponds in number or to which it is referred by cross reference and (ii) any other representation and warranty of the Selling Stockholder, the Company or the Purchaser in this Agreement to the extent that it is readily apparent from a reading of such disclosure item that it would also qualify or apply to such other representation and warranty.           (iv) Gender and Number. Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.           (v) Headings. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement. All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.           (vi) Herein. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.           (vii) Including. The word “including” or any variation thereof means “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. 10 --------------------------------------------------------------------------------             (viii) Made Available. An item shall be considered “made available” to Purchaser, to the extent such phrase appears in this Agreement, only if such item has been provided in writing to Purchaser.           (ix) Reflected On or Set Forth In. An item arising with respect to a specific representation or warranty shall be deemed to be “reflected on” or “set forth in” a balance sheet or financial statements, to the extent any such phrase appears in such representation or warranty, if (a) there is a reserve, accrual or other similar item underlying a number on such balance sheet or financial statements that relate to the subject matter of such representation, (b) such item is otherwise specifically set forth on the balance sheet or financial statements or (c) such item is reflected on the balance sheet or financial statements and is specifically set forth in the notes thereto.           (d) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. ARTICLE II SALE AND PURCHASE OF SHARES      2.1 Sale and Purchase of Shares. Upon the terms and subject to the conditions contained herein, on the Closing Date, the Selling Stockholder shall sell, transfer, assign and convey to Purchaser, and Purchaser shall purchase and accept from the Selling Stockholder, the Shares (which shall constitute all of the outstanding equity interests in the Company on a fully diluted basis as of the Closing Date), free and clear of all Liens. ARTICLE III CONSIDERATION           3.1 Consideration. The aggregate consideration for all of the Shares shall be an amount in cash equal to Seventy One Million Dollars ($71,000,000) (the “Closing Purchase Price”) as adjusted pursuant to Sections 3.2, 3.3 and 3.5 hereof (the “Purchase Price”).           3.2 Payment of Closing Purchase Price.           (a) Closing Purchase Price Payment. On the Closing Date, and upon the terms and subject to the conditions contained herein, Purchaser shall (i) deposit Seven Million One Hundred Thousand Dollars ($7,100,000) (the “Indemnification Escrow Amount”) with the Escrow Agent subject to the terms and conditions of the Indemnification Escrow Agreement, and (ii) pay Sixty-Three Million Nine Hundred Thousand Dollars ($63,900,000) less the Closing Date Payments (as set forth in 11 --------------------------------------------------------------------------------   Section 3.2(b) below) and plus or minus the amount by which the Closing Purchase Price is adjusted pursuant to Section 3.3 hereof (collectively, the “Closing Purchase Price Payment”), by wire transfer of immediately available United States funds into such account or accounts designated by the Selling Stockholder in writing at least three (3) Business Days prior to the date of the required payment. Subject to any adjustments pursuant to Section 3.3, release of the Indemnification Escrow Amount in accordance with the terms and conditions of the Indemnification Escrow Agreement, and the right to receive the Earnout Payment, if any, pursuant to Section 3.5, the Company and the Selling Stockholder acknowledge and agree that the payments to be made pursuant to this Section 3.2 constitute payment in full of the Purchase Price and that the Selling Stockholder is entitled to no further payments in respect of the Shares.           (b) Payments Made on or Before the Closing Date.           (i) At or prior to the close of business on the date immediately preceding the Closing Date, the Selling Stockholder shall provide Purchaser with written notice setting forth the amount required to pay and satisfy in full the Closing Date Payments together with the identity of, and payment instructions for, each Person entitled to receive such Closing Date Payments. Concurrently with, and as a condition precedent to the Closing, (i) Purchaser shall pay or cause the Company to pay the Closing Date Payments from the Closing Purchase Price Payment in accordance with the written notice provided to Purchaser by the Selling Stockholder setting forth the amount required to pay and satisfy in full the Closing Date Payments, and (ii) the Selling Stockholder shall cause the Company to obtain from its lenders with respect to all Liabilities set forth on Schedule 3.2(b), pay-off letters and termination and release documents, acceptable to Purchaser, in each case reflecting the total amount of such Indebtedness, including interest and finance charges, as well as any other monetary obligations owing by the Company or its Subsidiaries to such lenders to be repaid as of the Closing Date to satisfy in full such Liabilities for Indebtedness of the Company or its Subsidiaries to such lenders and confirming that as of the Closing Date the Company and its Subsidiaries and their assets shall be released from any and all Liens in favor of such lenders.           (ii) The Selling Stockholder shall also be responsible for and pay, from the Closing Purchase Price, all fees, commissions and charges of any broker, finder or investment banker (including, but not limited to, fees and expenses payable to BB&T Capital Markets) in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Company or the Selling Stockholder. The Company or the Selling Stockholder, as the case may be, shall pay on or before the Closing Date, either directly or from the Closing Purchase Price Payment, all amounts payable for legal, accounting and other fees and expenses related to the transactions contemplated by this Agreement due by or on behalf of the Company or the Selling Stockholder. The Company shall pay, on or before the Closing, any severance or bonus payments required to be paid to employees who cease their employment as of or prior to Closing (other than as a result of the Purchaser 12 --------------------------------------------------------------------------------   affirmatively taking actions to specifically terminate the employment of such employees).           3.3 Purchase Price Adjustment.           (a) Estimated Closing Date Net Working Capital. Not later than five (5) business days prior to the Closing Date (unless Purchaser shall otherwise agree), the Selling Stockholder shall deliver to Purchaser a statement (the “Estimated Closing Date Net Working Capital Statement”) setting forth the Selling Stockholder’s good faith estimate of the Closing Net Working Capital (the “Estimated Closing Date Net Working Capital”) prepared in accordance with GAAP applied on a basis consistent with that employed by the Company in the preparation of the Financial Statements. The parties hereto agree that the components and calculations of Closing Net Working Capital shall be based on the calculations of Estimated Closing Date Net Working Capital set forth on Exhibit C, attached hereto (which has been provided for exemplary purposes only).           (b) Closing Net Working Capital Adjustment.           (i) Calculation of Adjustment. The Closing Purchase Price Payment, as adjusted pursuant to Section 3.3(a) shall be (A) increased dollar-for-dollar by the amount that the actual Closing Net Working Capital is greater than the Estimated Closing Date Net Working Capital; or (B) decreased dollar-for-dollar by the amount that the actual Closing Net Working Capital is less than the Estimated Closing Date Net Working Capital, in each case as determined in accordance with the procedures set forth in this Section 3.3(b). The amount of any decrease to the Closing Purchase Price Payment pursuant to this Section 3.3(b)(i) shall be paid by the Selling Stockholder. The amount of any increase to the Closing Purchase Price Payment pursuant to this Section 3.3(b)(i) shall be paid by Purchaser. The Selling Stockholder agrees to set aside an amount of the Closing Purchase Price Payment received by it necessary to satisfy any adjustments pursuant to this Section 3.3(b), including without limitation by refraining from distributing such necessary amounts to any investors or equity holders in such Selling Stockholder until any final adjustment to the Closing Purchase Price Payment pursuant to this Section 3.3(b) shall have been completed.           (ii) Preparation of Closing Date Balance Sheet. No earlier than sixty (60) days after the Closing Date and no later than seventy (70) days after the Closing Date, Purchaser shall cause to be prepared and delivered to the Selling Stockholder (A) a balance sheet of the Company as of the Closing Date prepared in accordance with GAAP as in effect as of the date of this Agreement applied on a basis consistent with that employed by the Company in preparation of the Financial Statements (the “Closing Date Balance Sheet”), (B) the Closing Statement and (C) a certificate of an executive officer of Purchaser to the effect that the Closing Net Working Capital has been in all respects prepared in accordance with this Section 3.3(b). The closing statement (the “Closing Statement”) shall present the actual Net Working Capital of the Company as of 13 --------------------------------------------------------------------------------   the close of business on the Closing Date (“Closing Net Working Capital”) and shall be prepared based on the Closing Date Balance Sheet.           (iii) Exclusion of Certain Receivables. The Closing Statement shall not include in Closing Net Working Capital any portion of any receivable (“Excluded Receivables”) that (A) was included in the Estimated Closing Date Net Working Capital and (B) was not paid in full by the date of delivery of the Closing Statement pursuant to Section 3.3(b)(ii); provided, however, that if any Excluded Receivable is collected by the Company after the date of delivery of the Closing Statement then the Company shall promptly remit such amounts, less any reasonable costs directly attributable to collection, including reasonable attorney’s fees, to the Selling Stockholder. Purchaser shall cause the Company to use its commercially reasonable efforts after Closing to collect all Excluded Receivables in accordance with past practice of the Company. Concurrently with delivery of the Closing Statement, the Purchaser shall cause the Company to provide the Selling Stockholder with information relating to any Excluded Receivable and the Company’s collection efforts with respect to such receivable. After Closing until the earlier of (x) collection of all Excluded Receivables or other disposition of such receivables in a manner reasonably acceptable to Selling Stockholder and (y) six months following the date of this Agreement, the Purchaser shall cause the Company to provide to the Selling Stockholder, on a monthly basis, a report showing the status of the outstanding aging of the Excluded Receivables and the Company’s collection efforts with respect to such receivables.           (iv) Walker Trailer Sales Receivable. The parties hereto acknowledge and agree that (A) the account receivable of the Company with Walker Trailer Sales described in the notes to the Estimated Closing Date Net Working Capital Statement (the “Walker Trailer Receivable”) shall not be included in the Estimated Closing Date Net Working Capital or the Closing Net Working Capital, (B) the Selling Stockholder shall cause the Company to transfer, assign and delegate all rights to, interests in and obligations with respect to the Walker Trailer Receivable to S&S Repurchase Solutions, LLC effective as of immediately prior to the Closing, and (C) to the extent that the risk of loss has not transferred to the customer, the risk of loss of any trailers underlying the Walker Trailer Receivable shall be the sole responsibility of the Selling Stockholder (except to the extent that any such loss occurs as a direct result of the gross negligence or willful misconduct of the Purchaser) and the right of ownership with respect to such trailers shall belong to S&S Repurchase Solutions, LLC.           (c) The Selling Stockholder shall have twenty (20) days to review the Closing Statement and Closing Date Balance Sheet (collectively, the “Closing Net Working Capital Documents”). If the Selling Stockholder disagrees with Purchaser’s calculation of Closing Net Working Capital delivered pursuant to Section 3.3(b)(ii), the Selling Stockholder may, within twenty (20) days after receipt of the Closing Net Working Capital Documents, deliver a notice to Purchaser disagreeing with such calculation and setting forth the Selling Stockholder’s calculation of such amount. Any such notice of disagreement shall specify those items or amounts as to which the Selling 14 --------------------------------------------------------------------------------   Stockholder disagrees, and the Selling Stockholder shall be deemed to have agreed with all other items and amounts contained in the Closing Statement and the calculation of Closing Net Working Capital delivered pursuant to Section 3.3(b)(ii). If the Selling Stockholder fails to deliver such notice in such twenty (20) day period, the Selling Stockholder shall have waived its right to contest the Closing Statement and the calculation of Closing Net Working Capital set forth therein shall be deemed to be final and binding upon Purchaser and the Selling Stockholder and such amount shall be used for purposes of calculating the adjustment pursuant to Section 3.3(b)(i) above.           (d) If a notice of disagreement shall be duly delivered pursuant to Section 3.3(c), the Selling Stockholder and Purchaser shall, during the twenty (20) days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Net Working Capital, which amount shall not be less than the amount thereof shown in Purchaser’s calculation delivered pursuant to Section 3.3(b)(ii) nor more than the amount thereof shown in Selling Stockholder’s calculation delivered pursuant to Section 3.3(c). If during such period, the Selling Stockholder and Purchaser are unable to reach such agreement, then all amounts and issues remaining in dispute shall be submitted by the Selling Stockholder and Purchaser to a mutually acceptable nationally recognized independent accounting firm (the “Accounting Referee”) for a determination resolving such disputed items or amounts for the purpose of calculating Closing Net Working Capital (it being understood that in making such calculation, the Accounting Referee shall be functioning as an expert and not as an arbitrator). If the parties are unable to agree on an appointment of an Accounting Referee, within ten (10) days after not being able to reach agreement thereon, an Accounting Referee shall be determined by mutual agreement of the regular auditor of the Company prior to the Closing Date and the regular auditor of the Purchaser and, if such auditors are unable to reach agreement within ten (10) days of being requested to do so, an Accounting Referee shall be determined by lot with each of the Selling Stockholder and Purchaser submitting one candidate meeting the requirements of an Accounting Referee set forth in the definition thereof. In making such calculation, the Accounting Referee shall consider only those items or amounts in the Closing Statement and Purchaser’s calculation of Net Working Capital as to which the Selling Stockholder has disagreed. The Accounting Referee shall deliver to the Selling Stockholder and Purchaser, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Accounting Referee), a report setting forth its calculation of Closing Net Working Capital. Such report shall be final and binding upon the Selling Stockholder and Purchaser and shall be used for purposes of calculating the adjustment pursuant to Section 3.3(b)(i) above. The cost of such review and report shall be borne equally by the Selling Stockholder, on the one hand, and Purchaser, on the other hand.           (e) The Selling Stockholder, Purchaser and the Company shall, and shall cause their respective representatives to, cooperate and assist in the preparation of the Closing Statement and the calculation of Closing Net Working Capital and in the conduct of the review referred to in this Section 3.3, including, without limitation, the making available to the extent necessary of books, records, work papers and personnel. 15 --------------------------------------------------------------------------------             (f) Form of Payments. Any payment pursuant to Section 3.3(b)(i) shall be made at a mutually convenient time and place within five (5) Business Days after Closing Net Working Capital is agreed to by Purchaser and the Selling Stockholder or is determined to be final and binding either pursuant to Section 3.3(c) or Section 3.3(d) by wire transfer of immediately available United States funds either by Purchaser into such account or accounts designated by the Selling Stockholder, or by the Selling Stockholder into such account or accounts designated by Purchaser, as the case may be.           3.4 Indemnification Escrow Agreement. To secure the indemnification obligations of the Selling Stockholder set forth in Section 10.2 hereof, Purchaser, Selling Stockholder and Lasalle Bank National Association, as escrow agent (the “Escrow Agent”), shall at the Closing execute an Indemnification Escrow Agreement, a form of which is attached hereto as Exhibit D (the “Indemnification Escrow Agreement”), which provides for Seven Million One Hundred Thousand Dollars ($7,100,000) (the “Indemnification Escrow Amount”) of the Closing Purchase Price Payment to be held in escrow following the Closing Date. The Indemnification Escrow Amount and any interest thereon shall be dealt with in accordance with the terms and conditions set forth in the Indemnification Escrow Agreement.           3.5 Earnout.           (a) Upon the terms and subject to the conditions contained herein, in the event that the EBITDA of the Company and its Subsidiaries on a consolidated basis is at least Seventeen Million Eight Hundred Thousand Dollars ($17,800,000) or greater (“Target EBITDA”) for the period from January 1, 2006 through and including December 31, 2006 (the “Earnout Period”), an additional amount of consideration in the amount of Four Million Five Hundred Thousand Dollars ($4,500,000) (the “Earnout Payment”) shall become payable to the Selling Stockholder and shall be treated by the parties as an adjustment to the Purchase Price.           (b) As promptly as practicable following, but no later than sixty (60) days following, completion of the Purchaser’s consolidated financial statements for the Earnout Period, Purchaser shall prepare and deliver to the Selling Stockholder (i) a statement setting forth in reasonable detail the calculation of EBITDA of the Company and its Subsidiaries on a consolidated basis for the Earnout Period (the “Earnout Statement”) and (ii) a certificate of an executive officer of Purchaser to the effect that the Earnout Statement has been in all respects prepared in accordance with this Section 3.5(b). The Earnout Statement and the components of EBITDA (“EBITDA Components”) shall be derived from the consolidated audited financial statements of the Purchaser for the year ending December 31, 2006, adjusted as necessary to comply with Section 3.5(g).           (c) The Selling Stockholder shall have twenty (20) days to review the Earnout Statement (“Earnout Review Period”). If the Selling Stockholder disagrees with Purchaser’s calculation of EBITDA or the Earnout Statement delivered pursuant to Section 3.5(b), the Selling Stockholder may, within twenty (20) days after receipt of the Earnout Statement, deliver a notice to Purchaser disagreeing with the Earnout Statement 16 --------------------------------------------------------------------------------   and setting forth the Selling Stockholder’ calculation of EBITDA and EBITDA Components. Any such notice of disagreement shall specify those items or amounts as to which the Selling Stockholder disagrees, and the Selling Stockholder shall be deemed to have agreed with all other items and amounts contained in the Earnout Statement delivered pursuant to Section 3.5(b). If the Stockholder Representative fails to deliver such notice in such twenty (20) day period, the Selling Stockholder shall have waived its right to contest the Earnout Statement and the calculation of EBITDA set forth therein shall be deemed to be final and binding upon Purchaser and the Selling Stockholder and shall be used for purposes of the adjustment pursuant to Section 3.5(a) above.           (d) If a notice of disagreement shall be duly delivered pursuant to Section 3.5(c), the Selling Stockholder and Purchaser shall, during the twenty (20) days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts contained within the Earnout Statement in order to determine, as may be required, EBITDA. If during such period, the Selling Stockholder and Purchaser are unable to reach such agreement, then all amounts and issues remaining in dispute shall be submitted by the Selling Stockholder and Purchaser to an Accounting Referee for a determination resolving such disputed items or amounts for the purpose of calculating EBITDA (it being understood that in making such calculation, the Accounting Referee shall be functioning as an expert and not as an arbitrator). If the parties are unable to agree on an appointment of an Accounting Referee, within ten (10) days after not being able to reach agreement thereon, an Accounting Referee shall be determined by mutual agreement of the regular auditor of the Company prior to the Closing Date and the regular auditor of the Purchaser and, if such auditors are unable to reach agreement within ten (10) days of being requested to do so, an Accounting Referee shall be determined by lot with each of the Selling Stockholder and Purchaser submitting one candidate meeting the requirements of an Accounting Referee set forth in the definition thereof. In making such calculation, the Accounting Referee shall consider only those items or amounts in the Earnout Statement, the EBITDA Components and Purchaser’s calculation of EBITDA as to which the Selling Stockholder has disagreed. The Accounting Referee shall deliver to the Selling Stockholder and Purchaser, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Accounting Referee), a report setting forth its calculation of EBITDA. Such report shall be final and binding upon the Selling Stockholder and Purchaser and shall be used for purposes of determining the adjustment pursuant to Section 3.5(a) above. The cost of such review and report shall be borne equally by the Selling Stockholder, on the one hand, and Purchaser, on the other hand.           (e) The Selling Stockholder, Purchaser and the Company shall, and shall cause their respective representatives to, cooperate and assist in the preparation of the Earnout Statement and the calculation of EBITDA and in the conduct of the review referred to in this Section 3.5, including, without limitation, the making available to the extent necessary of books, records, work papers and personnel.           (f) Any payment made pursuant to this Section 3.5, shall be made within five (5) Business Days after EBITDA for the Earnout Period is agreed to by Purchaser and the Selling Stockholder or is determined to be final and binding either 17 --------------------------------------------------------------------------------   pursuant to Section 3.5(c) or Section 3.5(d) by wire transfer of immediately available United States funds into such account or accounts designated by the Selling Stockholder. Notwithstanding anything to the contrary contained herein, to the extent that, at the time any Earnout Payment is to be made, there exists any amounts owing from, or claims asserted against, the Selling Stockholder to Purchaser pursuant to Section 3.3(f), Section 8.10, Article X, or the Indemnity Side Letter, Purchaser shall be entitled to set-off any such amounts against the Earnout Payment, and when and whether such amounts are to be finally remitted to Seller or retained by Purchaser, as the case may be, shall be determined in a manner consistent with the procedures for the determination of payment of an Indemnification Claim under the Escrow Agreement; provided that (i) if the set-off relates to an Indemnification Claim and the amount set off, when added to the amount then held under the Indemnification Escrow Agreement, would exceed the sum of (A) the Indemnification Escrow Amount and (B) $450,000 (such sum, the “Earnout Escrow Amount”), the Purchaser and Selling Stockholder shall promptly execute a Joint Statement (as defined in the Indemnification Escrow Agreement) directing the Escrow Agent to pay to the Selling Stockholder an amount equal to such excess and (ii) if the set-off relates to a claim under the Indemnity Side Letter, the amount set-off shall reduce dollar for dollar any cap on liability under the Indemnity Side Letter.           (g) Operating Rules and Guidelines. Except as set forth on Schedule 3.5(g), the following guidelines and rules shall be used in calculating EBITDA and the EBITDA Components and shall be followed with respect to the Company and its Subsidiaries during the Earnout Period:           (i) EBITDA and the EBITDA Components and all other accounting terms used herein shall be determined in accordance with GAAP as in effect at the date of this Agreement applied on a basis consistent with that employed by the Company in the preparation of the Financial Statements.           (ii) During the Earnout Period, for purposes of the calculation of EBITDA, Purchaser shall adhere to the pricing formula set forth in the Supply and Purchase Agreement dated as of February 13, 2003, by and between Purchaser and the Company (“Supply and Purchase Agreement”) with respect to sales to Purchaser of “Wabash” and “Transcraft” branded trailers; provided, however, that with respect to Purchaser’s direct house accounts (a current list of which is set forth on Exhibit A hereto), purchase price shall be determined by reference to the lowest purchase price billed on comparable volume purchases of the same products, as adjusted to give effect to seasonality, plant usage and other matters that can affect the purchase price of the Company’s products; and further, provided, however, in the event the Company is required to move the production of “Transcraft” branded trailers to regular Company customers that are already in the Company’s backlog at such time in order to satisfy orders placed by customers who are in Purchaser’s customer base, the contribution to margin of the sales to the Purchaser’s customers shall be determined based on the higher of the contribution to margin of the moved sales and the contribution to margin of the sales to the Purchaser’s customers. 18 --------------------------------------------------------------------------------             (iii) During the Earnout Period, the Purchaser shall not take or fail to take any action with the intent and for the purpose of unfairly or prejudicially affecting the Company’s ability to achieve the Target EBITDA. ARTICLE IV CLOSING AND TERMINATION           4.1 Closing Date. Subject to the satisfaction of the conditions set forth in Sections 9.1 and 9.2 hereof (or the waiver thereof by the party entitled to waive that condition), the closing of the sale and purchase of the Shares provided for in Section 2.1 hereof (the “Closing”) shall take place at the offices of Pitney Hardin, LLP located at 7 Times Square, New York, New York (or at such other place as the parties may designate in writing) at 9:00 a.m. (New York City time) on the second Business Day after the satisfaction or waiver of each condition to the Closing set forth in Article IX (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), unless another time or date, or both are agreed to in writing by the parties hereto. The date on which the Closing shall be held is referred to in this Agreement as the “Closing Date”.           4.2 Termination of Agreement. This Agreement may be terminated prior to the Closing as follows:           (a) at the election of the Selling Stockholder or Purchaser on or after March 3, 2006, if the Closing shall not have occurred by the close of business on such date, provided that the terminating party (or, in the case of the Selling Stockholder, the Selling Stockholder or the Company) is not in material default of any of its obligations hereunder;           (b) by mutual written consent of the Selling Stockholder and Purchaser;           (c) by the Selling Stockholder or Purchaser if there shall be in effect a final nonappealable Order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; it being agreed that the parties hereto shall promptly appeal any adverse determination that is not nonappealable (and pursue such appeal with reasonable diligence);           (d) by the Selling Stockholder, if Purchaser shall have breached any representation, warranty, covenant or other agreement contained in this Agreement that would give rise to the failure of a condition set forth in Section 9.2 hereof, which breach cannot be or has not been cured within 10 days after the giving of written notice by the Selling Stockholder to Purchaser; or           (e) by Purchaser, if the Company or the Selling Stockholder shall have breached any representation, warranty, covenant or other agreement contained in this Agreement that would give rise to the failure of a condition set forth in Section 9.1 19 --------------------------------------------------------------------------------   hereof, which breach cannot be or has not been cured within 10 days after the giving of written notice by Purchaser to the Selling Stockholder.           4.3 Procedure Upon Termination. In the event of termination and abandonment by Purchaser or the Selling Stockholder or both pursuant to Section 4.2 hereof, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the purchase of the Shares hereunder shall be abandoned, without further action by Purchaser or the Selling Stockholder.           4.4 Effect of Termination. If this Agreement is validly terminated pursuant to Section 4.2 hereof, all further obligations of the parties under this Agreement shall terminate, except that (a) the obligations under the Confidentiality Agreement and Article XI hereof of this Agreement shall survive such termination and not be affected thereby, and (b) each Party’s right to pursue all legal remedies for any breach of any provision of this Agreement shall survive such termination. Each party’s rights of termination under Section 4.2 hereof are in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination shall not constitute an election of remedies. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY           The Company hereby represents and warrants to Purchaser that:           5.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently being conducted. The Company is duly qualified or authorized to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which it owns, leases or operates its properties and assets and each other jurisdiction in which the conduct of its business or the ownership of its properties and assets requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. The Company has made available to Purchaser a true and complete copy of the certificate or articles of incorporation (or other organizational documents) of the Company and of each Subsidiary, as currently in effect, certified as of a recent date by the Secretary of State (or comparable governmental authority) of the respective jurisdictions of incorporation, and a true and complete copy of the bylaws of the Company and of each Subsidiary, as currently in effect, certified by their respective corporate secretaries and the corporate record books with respect to actions taken by the shareholders and board of directors of the Company and each of the Subsidiaries.           5.2 Authorization of Agreement. The Company has all requisite power and authority to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed 20 --------------------------------------------------------------------------------   by the Company in connection with the consummation of the transactions contemplated by this Agreement (the “Company Documents”), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Company Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company. This Agreement has been, and each of the Company Documents has been or will be at or prior to the Closing, duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Company Documents, when so executed and delivered will constitute, the legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).           5.3 Conflicts; Consents of Third Parties.           (a) Except as set forth on Schedule 5.3(a), none of the execution and delivery by the Company of this Agreement or the Company Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Company with any of the provisions hereof or thereof does or will conflict with, or result in any violation of or constitute a breach of or a default (with or without notice or lapse of time, or both) under, or result in the loss of any benefit under, or permit the acceleration of any obligation under, or give rise to a right of termination, modification or cancellation under or result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary under, any provision of (i) the certificate of incorporation and bylaws or comparable organizational documents of the Company or any Subsidiary; (ii) any Contract, or Permit to which the Company or any Subsidiary is a party or by which any of the properties or assets of the Company or any Subsidiary are bound; (iii) any Order of any Governmental Body applicable to the Company or any Subsidiary or by which any of the properties or assets of the Company or any Subsidiary are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, breaches, loss of benefits, accelerations, modifications, defaults, terminations, Liens, or cancellations, that would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           (b) Except as set forth on Schedule 5.3(b), no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Company or any Subsidiary in connection with the execution, delivery or performance of this Agreement or the Company Documents or the compliance by the Company with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for (i) compliance with the applicable requirements of the HSR Act and (ii) such consents, waivers, approvals, Orders, Permits or authorizations the 21 --------------------------------------------------------------------------------   failure of which to obtain would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           5.4 Capitalization.           (a) The authorized capital stock of the Company consists solely of 3000 shares of Common Stock and 17,000 shares of Preferred Stock. As of the date hereof, there are 915 shares of Common Stock issued and outstanding, 10,430 shares of Preferred Stock issued and outstanding, and shares of Common Stock issuable pursuant to the Warrant representing six percent (6%) of the fully diluted Common Stock. All of the issued and outstanding shares of Common Stock are duly authorized for issuance and are validly issued, fully paid and non-assessable. No shares of capital stock of the Company or any Subsidiary have been reserved for any purpose or are held as treasury stock.           (b) Except as set forth on Schedule 5.4(b), there is no existing option, warrant, call, right (preemptive or otherwise), or Contract of any character to which the Company is a party requiring, and there are no securities of the Company outstanding that upon conversion or exchange would require, the issuance, of any shares of capital stock of the Company or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock of the Company. Except as set forth on Schedule 5.4(b), the Company is not a party to any voting trust or other Contract with respect to the voting, redemption, sale, transfer, issuance, purchase, repurchase or other disposition of the Common Stock of the Company, any other securities of the Company, or any securities of any Subsidiary, except as contemplated hereunder.           5.5 Subsidiaries.           (a) Schedule 5.5(a) sets forth the name of each Subsidiary, and, with respect to each Subsidiary, the jurisdiction in which it is incorporated or organized, the jurisdictions, if any, in which it is qualified to do business, the number of shares of its authorized capital stock, the number and class of shares thereof duly authorized, issued and outstanding, the names of all stockholders or other equity owners and the number of shares of stock owned by each stockholder or the amount of equity owned by each equity owner. Each Subsidiary is a duly organized and validly existing corporation or other entity in good standing under the laws of the jurisdiction of its incorporation or organization and is duly qualified or authorized to do business as a foreign corporation or entity and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership of its properties and assets requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing as a foreign corporation would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. Each Subsidiary has all requisite corporate or entity power and authority to own, lease and operate its properties and assets and carry on its business as currently being conducted. Except as set forth on Schedule 5.5(a), neither the Company nor any of its Subsidiaries owns, directly or indirectly, an equity interest in any other Person. 22 --------------------------------------------------------------------------------             (b) The outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully paid and non-assessable, and all such shares or other equity interests represented as being owned by the Company are owned by it free and clear of any and all Liens except as set forth on Schedule 5.5(b). No shares of capital stock have been reserved for any purpose or are held by any Subsidiary as treasury stock. There is no existing option, warrant, call, right (preemptive or otherwise), or Contract of any character to which any Subsidiary is a party requiring, and there are no convertible securities of any Subsidiary outstanding which upon conversion or exchange would require, the issuance of any shares of capital stock or other equity interests of any Subsidiary or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock or other equity interests of any Subsidiary.           5.6 Financial Statements. The Company has made available to Purchaser copies of the audited consolidated balance sheets of the Company and its Subsidiaries as at December 31, 2005, December 31, 2004, December 31, 2003, and December 31, 2002 and the related audited statements of income and of cash flows of the Company for the years then ended, each accompanied by the related report of BDO Seidman, LLP, independent public accountants. The audited financial statements referred to in Sections 5.6, including the related notes and schedules thereto, are referred to herein as the “Financial Statements.” Except as set forth in the notes thereto, each of the Financial Statements (i) has been prepared from, and are in accordance with, books and records of the Company, (ii) has been prepared in accordance with GAAP consistently applied and (iii) presents fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company as at the dates and for the periods indicated therein.           For the purposes hereof, the audited consolidated balance sheet of the Company and its Subsidiaries as at December 31, 2005 is referred to as the “Balance Sheet” and December 31, 2005 is referred to as the “Balance Sheet Date”.           5.7 No Undisclosed Liabilities. To the Knowledge of the Company, neither the Company nor any Subsidiary has any Liabilities of any kind or nature, other than Liabilities (i) set forth in the Schedules to this Article V, (ii) set forth in the Financial Statements for the fiscal year ended December 31, 2005 and (iii) incurred in the Ordinary Course of Business after December 31, 2005 that do not, individually or in the aggregate, involve amounts in excess of $100,000.           5.8 Absence of Certain Developments. Except as contemplated by this Agreement or as set forth on Schedule 5.8, since the Balance Sheet Date (i) the Company and its Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business, (ii) there has not been any event, change, occurrence or circumstance that, individually or in the aggregate has had, or would reasonably be expected to have a Material Adverse Effect, (iii) there has not been any uninsured damage, destruction, loss or casualty to property or assets of the Company or any Subsidiary and (iv) there has not been any action taken of the type described in Section 8.2(b) that had such action 23 --------------------------------------------------------------------------------   occurred following the date hereof, without Purchaser’s prior approval, would be in violation of Section 8.2(b).           5.9 Taxes.           (a) Each of the Company and its Subsidiaries has timely filed all federal, state, local and foreign Tax Returns and reports required to be filed by it. All Taxes of the Company and its Subsidiaries that have or may become due for all periods which end prior to or which end on the date of the most recent Financial Statements (whether or not shown on any Tax Return) either have been paid or are reflected in accordance with GAAP as a reserve for Taxes on the most recent Financial Statement. All such returns and reports are correct and complete in all material respects and were prepared in compliance with all applicable laws and regulations. Neither the Company nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. All Taxes required to be withheld by the Company or any of its Subsidiaries have been withheld and have been (or will be) duly and timely paid to the proper Governmental Body. No deficiencies for any Taxes have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries that are still pending. No requests for waivers of the time to assess any such Taxes have been made that are still pending. The statute of limitations for Federal income tax purposes with respect to the Company and its Subsidiaries is closed for all years before 2002 and neither the Company nor its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. No income Tax Return of the Company or its Subsidiaries is under current examination by the IRS or by any state or foreign tax authority. Neither the Company nor any of its Subsidiaries has received from any foreign, federal, state or local taxing authority (including jurisdictions where the Company or its Subsidiaries have not filed Tax Returns) any (i) written notice or, to the Knowledge of the Company, any notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) written notice or, to the Knowledge of the Company, any notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company or any of its Subsidiaries. No claim has ever been made by an authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Permitted Exceptions) upon any of the assets of the Company or any of its Subsidiaries. Except with respect to the consolidated group including the Company and its Subsidiaries, neither the Company nor any of its Subsidiaries is otherwise liable for the Taxes of any other person as a result of any indemnification provision or other contractual obligation. Schedule 5.9 lists all federal, state, local, and foreign income Tax Returns filed with respect to any of the Company or its Subsidiaries for taxable periods ended on or after December 31, 2000. The Selling Stockholder has made available to Purchaser correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company or any of its Subsidiaries filed or received since January 1, 2001. 24 --------------------------------------------------------------------------------             (b) Neither the Company nor any Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (iii) intercompany transaction or excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding or similar provision of state, local or foreign income Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.           (c) Neither the Company nor any Subsidiary nor any Person on their behalf has granted to any Person any power of attorney that is currently in force with respect to any Tax matter.           (d) Neither the Company nor any Subsidiary has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or Code Section 361.           (e) Neither the Company nor any Subsidiary has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). All “reportable transactions” as described in Code Section 6011 and the Treasury Regulations thereunder that involve the Company or any Subsidiary have been timely and accurately reported as required by applicable Law. Neither the Company nor any Company Subsidiary has made nor is obligated to make any payment, nor is a party to any agreement that could obligate it to make any payment to reimburse any person or entity for excise taxes under Section 4999 of the Code.           5.10 Real Property.           (a) Schedule 5.10 sets forth a true, correct and complete list of (i) all real property and interests in real property owned in fee by the Company and its Subsidiaries (individually, an “Owned Property” and collectively, the “Owned Properties”), including the street address, city and state thereof and identity of the owner of each such parcel of Owned Real Property, and (ii) all leases of real property to which the Company or any Subsidiary is the lessee (individually, a “Real Property Lease” and collectively, the “Real Property Leases” and, together with the Owned Properties, being referred to herein individually as a “Company Property” and collectively as the “Company Properties”).           (b) The Company and its Subsidiaries are the sole owners of good and valid, fee simple title to the Owned Real Property respectively owned by them, including, without limitation, all buildings, structures, fixtures and improvements thereon, free and 25 --------------------------------------------------------------------------------   clear of all Liens of any nature whatsoever except (i) Liens set forth on Schedule 5.10 and (ii) Permitted Exceptions.           (c) All buildings, structures, fixtures and other improvements on the Owned Real Property are free of any material interior or exterior structural defects. The Company has not received notice that any such buildings, structures, fixtures and improvements on the Owned Real Property are in violation in any material respect of any Laws.           (d) Other than the Permitted Exceptions, none of the Owned Real Property is subject to any Contract or other restriction of any nature whatsoever (recorded or unrecorded) preventing or limiting the Company’s or any Subsidiary’s right to convey or to use it.           (e) The Company has not received written notice or, to the Knowledge of the Company, any notice that any portion of the Owned Real Property or any building, structure, fixture or improvement thereon is the subject of, or affected by, any condemnation, eminent domain or inverse condemnation proceeding currently instituted or pending, and to the Knowledge of the Company none of the foregoing are or have been threatened to be, the subject of, or affected by, any such proceeding.           (f) The Owned Real Property has access to electric, gas, water, sewer and telephone lines, which access is adequate in all material respects for the uses to which the Owned Real Property is currently devoted and intended to be devoted.           (g) The Company or any Subsidiary, as the case may be, is the owner and holder of the leasehold estate purported to be granted by the Real Property Leases. Each such Real Property Lease is in full force and effect and constitutes a legal, valid and binding obligation of, and is legally enforceable against, the Company and its Subsidiaries, as applicable, and, to the Knowledge of the Company, the other parties thereto and grants the leasehold estate it purports to grant free and clear of all Liens, except (i) Liens set forth on Schedule 5.11, (ii) Permitted Exceptions, and (iii) as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’ rights generally and general principles of equity (regardless of whether considered in a proceeding at law or in equity). Neither the Company nor any Subsidiary has received any written notice or, to the Knowledge of the Company, any notice of any threatened cancellations of any governmental approvals with respect thereto or any outstanding disputes thereunder or failed to make any necessary material filings or registration with respect thereto. The Company or a Subsidiary, as the case may be, has in all material respects performed all obligations required to be performed by it to date pursuant to such Real Property Lease. Neither the Company nor any Subsidiary has received any written notice of any default or event that with notice or lapse of time, or both, would constitute a material default by the Company or any Subsidiary under any of the Real Property Leases.           5.11 Tangible Personal Property; Title to Assets. Schedule 5.11 sets forth all leases of personal property by the Company or a Subsidiary (“Personal Property 26 --------------------------------------------------------------------------------   Leases”) involving annual payments in excess of $50,000. Neither the Company nor any Subsidiary has received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default, by the Company or any Subsidiary under any of the Personal Property Leases. The Company and its Subsidiaries have good and valid title to all material assets respectively owned by them, including, without limitation, all material assets reflected in the Balance Sheet and all material assets purchased by the Company or by any Subsidiary since the Balance Sheet Date (except for assets reflected in the Balance Sheet or acquired since the Balance Sheet Date that have been sold or otherwise disposed of in the Ordinary Course of Business), free and clear of all Liens, except (a) Liens set forth on Schedule 5.11 and (b) Permitted Exceptions. All material tangible personal property owned by the Company and its Subsidiaries or subject to Personal Property Leases is in reasonable operating condition and repair, ordinary wear and tear excepted, and is suitable and adequate for the uses for which it is intended or is being used.           5.12 Intellectual Property. Except as set forth on Schedule 5.12, the Company and its Subsidiaries own or have valid licenses to use all Intellectual Property used by them in, or necessary for use in, the Ordinary Course of Business, and the consummation of transactions contemplated herein does not and will not conflict with, alter or impair any rights in such Intellectual Property. Schedule 5.12 lists each patent application, issued patent, registered Copyright or Copyright application, material unregistered Copyright or Software, internet domain names, registered Mark, applications for a Mark, and material unregistered Marks owned by the Company or any Subsidiary (“Company IP”). Except as set forth on Schedule 5.12, the Company or its Subsidiaries are the exclusive owner of the Company IP free and clear of all Liens, except Liens set forth on Schedule 5.12. Except as set forth on Schedule 5.12, (i) the Intellectual Property used by the Company and its Subsidiaries are not the subject of any challenge received by the Company or any of its Subsidiaries in writing (ii) neither the Company nor any Subsidiary has received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default under any Intellectual Property license to which the Company or any Subsidiary is a party or by which it is bound, (iii) to the Knowledge of the Company, the conduct of the Ordinary Course of Business does not and will not infringe, misappropriate or violate the Intellectual Property of any third party or constitute unfair competition or trade practices; (iv) to the Knowledge of the Company, no third party is infringing, misappropriating or violating any Intellectual Property owned by the Company or its Subsidiaries in any material respect nor are there any pending claims for such infringement, misappropriation or violation; and (iv) to the Knowledge of the Company, all such Intellectual Property is valid. The Company and each Subsidiary have taken commercially reasonable efforts to protect their Technology, Software, and other confidential information.           5.13 Material Contracts.           (a) Schedule 5.13 sets forth a true correct and complete list of all of the following Contracts to which the Company or any of its Subsidiaries is a party or by which it or any of its assets or properties is bound (collectively, the “Material Contracts”): 27 --------------------------------------------------------------------------------             (i) Contracts with any Selling Stockholder or any current or former officer, director, or employee of the Company or any of its Subsidiaries;           (ii) Contracts with any labor union or association representing any employee of the Company or any of its Subsidiaries;           (iii) Contracts for the sale or lease of any of the assets of the Company or any of its Subsidiaries other than in the Ordinary Course of Business, for consideration in excess of $100,000;           (iv) Contracts relating to the acquisition by the Company or any of its Subsidiaries of any operating business or the capital stock of any other Person, in each case for consideration in excess of $50,000;           (v) Contracts for or relating to the incurrence or existence of Indebtedness, or the making of any loans (and Schedule 5.13 also sets forth a true and correct list and description of all outstanding Indebtedness);           (vi) any other Contracts which involve the expenditure of more than $100,000 in the aggregate or require performance by any party more than one year from the date hereof that, in either case, are not terminable by the Company or a Subsidiary without penalty on notice of one hundred and eighty (180) days’ or less;           (vii) Contracts the performance of which is expected to involve payment or receipt by the Company or a Subsidiary of consideration in excess of $100,000 in the twelve-month period immediately following the Closing Date;           (viii) Real Property Leases or other Contracts involving any properties or assets (whether real, personal or mixed, tangible or intangible) involving an annual base rent of more than $100,000;           (ix) Contracts that limit or restrict the Company or any Subsidiary or any of their respective officers or key employees from engaging in any business in any jurisdiction;           (x) Contracts with any distributor, dealer, manufacturer’s representative, sales agent, advertiser, property manager or broker that is not terminable without penalty on thirty (30) days’ or less notice involving an annual commitment or payment of more than $100,000;           (xi) consulting agreements, residual agreements and Contracts relating to know-how, engineering or work-for-hire, or pursuant to which royalties are paid or received;           (xii) Contracts with any of the (A) ten (10) largest suppliers, (B) ten (10) largest customers, and (C) ten (10) largest dealers of the Company 28 --------------------------------------------------------------------------------   and its Subsidiaries, taken as a whole, for the twelve-month period ended December 31, 2005;           (xiii) Contracts for the management, cleanup, remediation or abatement of any Hazardous Materials or for the performance of any environmental audit or study;           (xiv) Contracts regarding profit-sharing, bonus, incentive compensation, deferred compensation, stock option, severance pay, stock purchase, employee benefit, insurance, hospitalization, pension, retirement or other similar plan or agreement;           (xv) Contracts that contain any provisions requiring the Company or any Subsidiary to indemnify any other party thereto;           (xvi) joint venture agreements;           (xvii) all outstanding powers of attorney empowering any Person to act on behalf of the Company or any Subsidiary other than powers of attorney granted in the Ordinary Course of Business to employees employed outside the United States or to non-U.S. attorneys, in each case solely for ministerial or other de minimis purposes;           (xviii) all settlement agreements as to which the Company or a Subsidiary has continuing obligations and which involve a payment in excess of $50,000 annually;           (xix) Contracts, licenses and agreements to which the Company or any Subsidiary is a party (i) with respect to Intellectual Property licensed to any third party or any Affiliate of the Company (other than end-user licenses under which license and service fees in the aggregate do not exceed $50,000) or (ii) pursuant to which a third party has licensed or transferred any Intellectual Property to the Company or any Subsidiary (other than Software that is generally available on nondiscriminatory pricing terms and has an acquisition cost of $50,000 or less); and           (xx) any other material Contract that by its terms does not terminate or is not terminable by Company or by a Subsidiary within sixty (60) days or upon thirty (30) days’ (or less) notice.           (b) (i) Each Material Contract is a valid, binding and enforceable obligation of the Company or a Subsidiary, as the case may be, and, to the Knowledge of the Company, of the other party or parties thereto, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’ rights generally and general principles of equity (regardless of whether considered in a proceeding at law or in equity), and (ii) to the Knowledge of the Company, each Material Contract is in full force and effect. 29 --------------------------------------------------------------------------------             (c) Except as set forth on Schedule 5.13, (i) neither the Company nor any Subsidiary, nor to the Knowledge of the Company any other party thereto, is in breach of or default under any term of any Material Contract or has repudiated any term of any Material Contract and (i) to the Knowledge of the Company no event has occurred that with notice or lapse of time, or both, would constitute a breach of or a default by the Company or its Subsidiaries under any Material Contract, in each case under subsections (i) and (ii) herein, except for such breaches, defaults or repudiations that would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           (d) Except as set forth on Schedule 5.13, neither the Company nor any Subsidiary has received written notice of termination, cancellation or non-renewal that is currently in effect with respect to any Material Contract and, to the Knowledge of the Company, no other party to a Material Contract plans to terminate, cancel or not renew any such Material Contract.           5.14 Employee Benefits Plans.           (a) Schedule 5.14(a) lists each “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) and any other material employee plan or agreement maintained, contributed to or required to be contributed to by the Company or any of its Subsidiaries (each, a “Company Benefit Plan”). The Company has made available to Purchaser correct and complete copies of (i) each Company Benefit Plan (or, in the case of any such Company Benefit Plan that is unwritten, descriptions thereof), (ii) the most recent annual reports on Form 5500 required to be filed with the IRS with respect to each Company Benefit Plan (if any such report was required), (iii) the most recent summary plan description for each Company Benefit Plan for which such summary plan description is required and, (iv) each trust agreement and insurance or group annuity contract relating to any Company Benefit Plan. Each Company Benefit Plan has been administered in all material respects in accordance with its terms. The Company, its Subsidiaries and all the Company Benefit Plans are all in compliance with the applicable provisions of ERISA, the Code and all other applicable Laws except for any noncompliance that would not have a Material Adverse Effect.           (b) All Company Benefit Plans that are “employee pension plans” (as defined in Section 3(3) of ERISA) that are intended to be tax qualified under Section 401(a) of the Code (each, a “Company Pension Plan”) is so qualified. The Company has made available to Purchaser a correct and complete copy of the most recent determination letter received with respect to each Company Pension Plan, as well as a correct and complete copy of each pending application for a determination letter, if any. No event has occurred since the date of the most recent determination letter or application therefor relating to any such Company Pension Plan that would adversely affect the qualification of such Company Pension Plan.           (c) All contributions, premiums and benefit payments under or in connection with the Company Benefit Plans that are required to have been made as of the 30 --------------------------------------------------------------------------------   date hereof in accordance with the terms of the Company Benefit Plans have been timely made or have been reflected on the most recent Balance Sheet. No Company Pension Plan has an “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA or Section 412 of the Code), whether or not waived. As of the Closing Date, the net fair market value of the assets of any Company Benefit Plan that is subject to Title IV of ERISA equals or exceeds the actuarial accrued liabilities of such Company Benefit Plan and no Company Benefit Plan that is a multi-employer plan within the meaning of Section 3(37) of ERISA has any withdrawal liability.           (d) No Company Benefit Plan is (i) an Employee Stock Ownership Plan within the meaning of Section 4975(e)(7) of the Code, (ii) a Voluntary Employees’ Beneficiary Association (“VEBA”) within the meaning of Section 501(c)(9) of the Code, or (iii) provides post-retirement medical, life insurance or other benefits promised, provided or otherwise due now or in the future to current, former or retired employees other than as required by Section 4980B(f) of the Code.           No amount required to be paid or payable to or with respect to any employee or other service provider of the Company or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the Code.           5.15 Labor.           (a) Except as set forth on Schedule 5.15(a), neither the Company nor its Subsidiaries is a party to any labor or collective bargaining agreement.           (b) Except as set forth on Schedule 5.15(b), there are no (i) strikes, work stoppages, work slowdowns, lockouts, picketing, concerted refusals to work overtime, or other similar labor activities pending or, to the Knowledge of the Company, threatened against or involving the Company or its Subsidiaries currently or within the last three (3) years, or (ii) unfair labor practice charges, grievances or complaints pending or, to the Knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company or any of its Subsidiaries, except in each case as would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           (c) (c) The Company has complied with all applicable Laws respecting employment practices, terms and conditions of employment and wages and hours and has not engaged in any unfair labor practice, except such non-compliance or practices that would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           5.16 Litigation. Except as set forth on Schedule 5.16, there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against the Company or its Subsidiaries, which, if adversely determined, would, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. 31 --------------------------------------------------------------------------------             5.17 Compliance with Laws; Permits.           (a) The Company and its Subsidiaries are in material compliance with all Laws (other than Laws for which more specific representations are made in Sections 5.9, 5.10, 5.12, 5.14, 5.15, and 5.18) applicable to their respective businesses or operations. No action, Legal Proceeding, investigation, complaint, demand or notice has been filed or commenced, or to the Knowledge of the Company, threatened, against the Company or a Subsidiary alleging any failure to so comply. Neither the Company nor any Subsidiary has received any written notice of or been charged with the violation, in any material respect, of any Laws.           (b) Schedule 5.17 sets forth a true, correct and complete list of all material Permits held by the Company and its Subsidiaries. Except as set forth on Schedule 5.17, the Company and its Subsidiaries currently have all Permits that are required for the operation of their respective businesses as presently conducted, except where the absence of which would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. All Permits are valid, binding and in full force and effect except where failure to be valid, binding or in full force and effect would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of any Permit to which it is a party, except where such default or violation would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.           5.18 Environmental Matters.           (a) Except as set forth on Schedule 5.18(a) hereto, the operations of the Company and each of its Subsidiaries are in compliance with and have complied with all applicable Environmental Laws and all Environmental Permits issued pursuant to Environmental Laws or otherwise.           (b) Except as set forth on Schedule 5.18(b) hereto, neither the Company nor any of its Subsidiary has any Liability under any Environmental Law, nor is Company or any Subsidiary responsible for any such Liability of any other person under any Environmental Law, whether by contract, by operation of law or otherwise.           (c) (i) Except as set forth on Schedule 5.18(c)(i) hereto, the Company and each of its Subsidiaries has obtained and filed timely applications for all material Environmental Permits necessary to operate its business; (ii) all such Environmental Permits are listed on Schedule 5.18(c)(ii) and are in full force and effect; (iii) none of the Environmental Permits listed on Schedule 5.18(c)(ii) require consent, notification, or other action to remain in full force and effect following consummation of the transactions contemplated hereby; (iv) the Company and its Subsidiaries have not received written notice that any Environmental Permit listed on Schedule 5.18(c)(ii) will not be renewed upon expiration, or that any material additional conditions will be imposed in order to receive any such renewal. 32 --------------------------------------------------------------------------------             (d) Except as set forth on Schedule 5.18(d) hereto, neither the Company nor any of its Subsidiaries is the subject of any outstanding Order or Contract with any Governmental Body respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a Hazardous Material.           (e) Except as set forth on Schedule 5.18(e) hereto, neither the Company nor any of its Subsidiaries has received any written information request from a Governmental Body or any written communication alleging that the Company or any of its Subsidiaries may be in violation of any Environmental Law or any Environmental Permit issued pursuant to Environmental Law, or may have any liability under any Environmental Law.           (f) Except as set forth on Schedule 5.18(f) hereto, to the Knowledge of the Company, there are no investigations of the businesses of the Company or any of its Subsidiaries, or currently or previously owned, operated or leased property of the Company or any of its Subsidiaries pending or threatened that would reasonably be expected to result in the imposition of any liability pursuant to any Environmental Law.           (g) Except as set forth on Schedule 5.18(g) hereto, to the Knowledge of the Company, there is not located at any of the properties owned, operated or leased by the Company or any of its Subsidiaries any (i) underground storage tanks, (ii) asbestos-containing material, (iii) equipment containing polychlorinated biphenyls, (iv) mold, or (v) wetlands delineated by a Governmental Body.           (h) Except as set forth on Schedule 5.18(h)(i), to the Knowledge of the Company there are no facts, circumstances, or conditions existing, initiated or occurring prior to the Closing Date, that have or will result in material liability to the Company or any of its Subsidiaries under Environmental Law. Except as set forth on Schedule 5.18(h)(ii), there has been no Release of Hazardous Materials at, on, under, or from any real property currently owned, operated or leased by the Company or any of its Subsidiaries during the period of such ownership, operation, or tenancy, in each case, nor was there such a Release at any real property formerly owned, operated or leased by the Company or its Subsidiaries during the period of such ownership, operation, or tenancy, in each case, such that the Company is or could be liable for Remedial Action with respect to such Hazardous Materials.           (i) Except as set forth on Schedule 5.18(i)(i), to the Knowledge of the Company no property currently or formerly owned, operated or leased by the Company or its Subsidiaries, and no property to which Hazardous Materials originating on or from such properties or the businesses or assets of the Company or any Subsidiary has been sent for treatment or disposal, is listed or proposed to be listed on the National Priorities List or CERCLIS or on any other governmental database or list of properties that may or do require Remedial Action under Environmental Laws. Except as set forth on Schedule 5.18(i)(ii), neither the Company nor any of its Subsidiaries has arranged, by contract, agreement, or otherwise, for the transportation, disposal or treatment of Hazardous Materials at any location such that it is or could reasonably be expected to be liable for Remedial Action of such location pursuant to Environmental Laws. 33 --------------------------------------------------------------------------------             (j) The Company and its Subsidiaries have furnished to Purchaser copies of all environmental assessments, reports, audits and other documents in their possession or under their control that relate to the environmental condition of any real property currently or formerly owned, operated or leased by the Company or any of its Subsidiaries or the Company’s or any of its Subsidiaries’ compliance with Environmental Laws.           5.19 Financial Advisors. Except as set forth on Schedule 5.19, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for the Selling Stockholder or the Company in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment from Purchaser in respect thereof.           5.20 Accounts Receivable; Bank Accounts.           (a) The accounts receivable of the Company and its Subsidiaries shown on the balance sheets provided by the Company pursuant to Section 5.6, or thereafter acquired by any of them, have arisen or will arise from the sale of goods or services in bona fide transactions to Persons not Affiliated with the Selling Stockholder or the Company.           (b) Schedule 5.20 sets forth the names of all banks or other financial institutions with which the Company or any Subsidiary has an account or safe deposit box and identifies each such account and safe deposit box, together with the names of all Persons authorized to draw therefrom or to have access thereto.           5.21 Inventory. All of the Company’s and the Subsidiaries’ existing inventories, whether reflected in the Interim Balance Sheet or otherwise:           (a) consist of such quality and quantity as to be usable by the Company or any Subsidiary in the Ordinary Course of Business and, with respect to finished goods, are in a condition such that they can be sold in the Ordinary Course of Business, subject to reserves for unrealizable or obsolete inventory reflected in the Financial Statements as adjusted for the passage of time through the Closing Date (which adjustment has been disclosed in writing to Purchaser) in accordance with the past custom and practice of the Company, free and clear of all Liens except A) Liens set forth on Schedule 5.21 and (B) Permitted Exceptions;           (b) have been properly recorded in the books and records of the Company in accordance with GAAP applied consistent with past practice; and           (c) to the Knowledge of the Company, are free of any material Defect (other than Defects properly reserved for on the Balance Sheet). Inventories now on hand that were purchased after the date of the Interim Balance Sheet were purchased in the Ordinary Course of Business of the Company or its Subsidiaries. Except as set forth on Schedule 5.21, neither the Company nor its Subsidiaries are in possession of any inventory not owned by the Company or any Subsidiary, including 34 --------------------------------------------------------------------------------   goods already sold. The inventory levels maintained by the Company and its Subsidiaries: (i) are not excessive in any material respect in light of the Company’s normal operating requirements; and (ii) are adequate in all material respects for the conduct of the Company’s and the Subsidiaries’ operations in the Ordinary Course of Business. Neither the Company nor its Subsidiaries is under any Liability with respect to accepting returns of items of inventory or merchandise in the possession of their customers other than in the Ordinary Course of Business.           5.22 Insurance. Schedule 5.22 lists all policies of title, asset, fire, hazard, casualty, directors and officers liability and general liability, life, worker’s compensation and other forms of insurance of any kind owned or held by the Company and its Subsidiaries. All such policies: (a) are in full force and effect; (b) are sufficient for compliance by the Company and its Subsidiaries with all requirements of Law and of all Contracts to which the Company or any Subsidiary is a party; (c) to the Knowledge of the Company are valid and outstanding policies enforceable against the insurer; and (d); have the policy expiration dates set forth in Schedule 5.22.           5.23 Books and Records.(a) The books of account, stock records, minute books and other records of the Company and its Subsidiaries are true and complete and have been maintained in all material respects in accordance with all requirements of Law. The Company and its Subsidiaries maintain, in the reasonable judgment of the Company, a system of internal accounting controls designed to provide reasonable assurance that (a) transactions are executed with management’s general or specific authorization, (b) transactions are recorded as necessary to permit preparation of financial statements of the Company and its Subsidiaries and to maintain accountability for assets, and (c) access to assets of the Company and its Subsidiaries is permitted only in accordance with management’s authorization.           5.24 Transactions With Related Parties. Except as set forth on Schedule 5.24, neither any present or former officer, director or stockholder of the Company or any Subsidiary, nor any Affiliate of such officer, director or stockholder, is currently a party to any transaction with the Company or any Subsidiary, including, without limitation, any Contract providing for the employment of, furnishing of services by, rental of assets from or to, or otherwise requiring payments to, any such officer, director, stockholder or Affiliate.           5.25 Off-Balance Sheet Transactions. Except to the extent that the information described below concerning transactions, arrangements and other relationships is otherwise specifically identified on the Financial Statements, Schedule 5.25 sets forth a true, complete and correct list and description of the following: (i) any repurchase obligation or liability of the Company or any its Subsidiaries with respect to receivables sold by the Company or any of its Subsidiaries, (ii) any liability of the Company or any of its Subsidiaries under any sale and leaseback transaction which does not create a liability on the consolidated balance sheet of the Company, (iii) any liability of the Company or any of its Subsidiaries under any financing lease or so-called “synthetic lease” or “tax ownership operating lease” transaction, or (iv) any obligations of the Company or any of its Subsidiaries arising with respect to any other transaction which 35 --------------------------------------------------------------------------------   is the functional equivalent of, or takes the place of, borrowing but which does not constitute a liability on the consolidated balance sheet of the Company and its Subsidiaries.           5.26 Suppliers; Customers; Dealers. Schedule 5.26 sets forth a list of each of (a) the ten (10) largest suppliers, (b) the ten (10) largest customers, and (c) the ten (10) largest dealers of the Company and its Subsidiaries, taken as a whole, for the twelve-month period ended December 31, 2004 and the twelve-month period ended December 31, 2005, and sets forth opposite the name of each such supplier, customer and dealer the approximate percentage and dollar amount of net sales by the Company and its Subsidiaries attributable to such customer, supplier or dealer for each such period. Since December 31, 2005, no customer, supplier or dealer listed on Schedule 5.26 has cancelled, terminated or made any written threat, or, to the Knowledge of the Company, the Company has not received any threat, to cancel or otherwise terminate its contract, or to decrease in any material respect its usage of the Company’s or any Subsidiary’s services or products. Neither the Company nor any Subsidiary has received any notice that any customer or supplier listed on Schedule 5.26 intends to terminate or materially alter its business relationship with the Company or any Subsidiary, either as a result of the transactions contemplated by this Agreement or otherwise.           5.27 Warranties; Recalls; Product Liability.           (a) Except as provided in the terms and conditions of any Contract provided to Purchaser, neither the Company nor any Subsidiary has given any warranties or indemnities relating to Products or technology sold or licensed or services rendered by the Company or its Subsidiaries, other than standard warranties and indemnities arising in the Ordinary Course of Business and imposed by Law. The warranty claim expense incurred by the Company and its Subsidiaries for each of the four years ended December 31, 2005 is set forth in Schedule 5.27(a).           (b) To the Knowledge of the Company, except as set forth on Schedule 5.27(b), there are currently no material Defects or any breach of express or implied warranties or representations which involve any Product manufactured by the Company or any of its Subsidiaries (it being agreed and understood that for purposes of the representation contained in the prior sentence, a “breach of express or implied warranties” shall not be deemed to occur as a result of warranty claims made in the Ordinary Course of Business under the Company’s express warranties for its Products, but only to the extent that the nature and amount of such claims do not, individually or when aggregated with other claims, result in an increase in any current or future reserve maintained on the Company’s financial statements as determined in good faith by Purchaser (it being further agreed and understood that, without limitation, claims made related to any Recall disclosed on any Disclosure Schedule shall not be considered made in the Ordinary Course of Business)).           (c) Except as set forth on Schedule 5.27(c), (i) there is no demand, claim, action, suit, hearing, proceeding, or notice of violation of a civil, criminal or administrative nature pending against the Company, or, to the Knowledge of the 36 --------------------------------------------------------------------------------   Company, threatened against the Company before any Governmental Body in which a Product is alleged to have a Defect or from any alleged breach of express or implied warranties or representations made by the Company or to the Company’s Knowledge, any investigation of any of the foregoing, (ii) there has not been any recall, rework, retrofit or post-sale general consumer warning (collectively, “Recalls”) of any Company product, or to the Company’s Knowledge, any investigation or consideration of or decision made by any Person concerning whether to undertake or not to undertake any such Recalls, and (iii) neither the Company nor any Subsidiary has received any written notice or, to the Knowledge of the Company, any notice from any Governmental Entity or any other Person in respect of the foregoing.           (d) There is no suit, action, proceeding against the Company or, to the Knowledge of the Company, any claim or investigation pending with respect to the Company or, to the Knowledge of the Company, threatened against the Company or its Subsidiaries arising out of any injury to individuals or property as a result of the ownership, possession, or use of any Product designed, manufactured, assembled, repaired, maintained, delivered, sold or installed, or services rendered, by or on behalf of the Company or any of the Subsidiaries.           5.28 Certain Payments; International Trade Laws.           (a) The operations of the Company have been and are in material compliance with all export control Laws, and the Company has obtained all material licenses, authorizations or similar approvals required under applicable export control Laws.           (b) Neither the Company nor any Subsidiary has committed any act or made any omission prohibited by the Foreign Corrupt Practices Act (15 U.S.C. 78dd-1,-1 during the past five (5) years. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER           The Selling Stockholder hereby represents to Purchaser that:           6.1 Organization and Good Standing. The Selling Stockholder is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate, limited liability, partnership or limited partnership power and authority to own, lease and operate its properties and assets and to carry on its business as now conducted.           6.2 Authorization of Agreement. The Selling Stockholder has all requisite power, authority and legal capacity to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by the Selling Stockholder in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the “Selling Stockholder Documents”), to perform its obligations hereunder 37 --------------------------------------------------------------------------------   and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each of the Selling Stockholder Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all required limited partnership action on the part of the Selling Stockholder. This Agreement has been, and each of the Selling Stockholder Documents has been or will be at or prior to the Closing, duly and validly executed and delivered by the Selling Stockholder, and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Selling Stockholder Document, when so executed and delivered will constitute, the legal, valid and binding obligation of the Selling Stockholder, enforceable against the Selling Stockholder in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).           6.3 Conflicts; Consents of Third Parties.           (a) Except as set forth on Schedule 6.3(a), none of the execution and delivery by the Selling Stockholder of this Agreement or the Selling Stockholder Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Selling Stockholder with any of the provisions hereof or thereof does or will conflict with, or result in any violation of or constitute a breach of or a default (with or without notice or lapse of time, or both) under, or result in the loss of any benefit under, or permit the acceleration of any obligation under, or give rise to a right of termination, modification or cancellation under or result in the creation of any Lien upon any of the properties or assets of the Selling Stockholder under, any provision of (i) the certificate of incorporation and bylaws or comparable organizational documents of the Selling Stockholder (if applicable); (ii) any Contract, or Permit to which the Selling Stockholder is a party or by which any of the properties or assets of the Selling Stockholder are bound; (iii) any Order of any Governmental Body applicable to the Selling Stockholder or by which any of the properties or assets of the Selling Stockholder are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, breaches, loss of benefits, accelerations, modifications, terminations, Liens or cancellations, that would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the Selling Stockholder’s ability to consummate the transactions contemplated hereby.           (b) Except as set forth on Schedule 6.3(b), no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Selling Stockholder in connection with the execution, delivery or performance of this Agreement or the Selling Stockholder Documents or the compliance by the Selling Stockholder with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for (i) compliance with the applicable requirements of the HSR Act and (ii) such consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not, individually or in the aggregate, have or reasonably 38 --------------------------------------------------------------------------------   be expected to have a material adverse effect on the Selling Stockholder’s ability to consummate the transactions contemplated hereby.           6.4 Ownership and Transfer of Shares.           (a) The Selling Stockholder is the record and beneficial owner of the Shares, and the Shares are (i) validly issued, fully paid and nonassessable, and (ii) free and clear of any and all Liens, except such Liens as will be released concurrently with the Closing. The Selling Stockholder has the limited partnership power and authority to sell, transfer, assign and deliver such Shares as provided in this Agreement, and such delivery will convey to Purchaser good and valid title to such Shares, free and clear of any and all Liens, except such Liens as may be created by the Purchaser.           (b) Other than the Shares, there are no outstanding shares of capital stock of the Company or any other equity security of the Company, or any option, warrant, right, call, commitment or right of any kind outstanding to have any such equity security issued.           6.5 Litigation. There are no Legal Proceedings pending or, to the knowledge of the Selling Stockholder, threatened that are reasonably likely to prohibit or restrain the ability of the Selling Stockholder to enter into this Agreement or the Selling Stockholder Documents or consummate the transactions contemplated hereby or thereby or to perform its obligations hereunder or thereunder.           6.6 Amounts Owed to Selling Stockholder. Except as set forth on Schedule 6.6, the Company does not owe and is not obligated to pay the Seller Stockholders or any of their Affiliates any amount.           6.7 Financial Advisors. Except as set forth on Schedule 6.7, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for the Selling Stockholder in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER           Purchaser hereby represents and warrants to the Selling Stockholder that:           7.1 Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and assets and carry on its business.           7.2 Authorization of Agreement. Purchaser has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Purchaser in connection with the consummation of the transactions contemplated hereby and 39 --------------------------------------------------------------------------------   thereby (the “Purchaser Documents”), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Purchaser of this Agreement and each Purchaser Document have been duly authorized by all necessary corporate action on behalf of Purchaser. This Agreement has been, and each Purchaser Document has been or will be at or prior to the Closing, duly executed and delivered by Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Purchaser Document when so executed and delivered will constitute, the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).           7.3 Conflicts; Consents of Third Parties.           (a) Except as set forth on Schedule 7.3(a) hereto, none of the execution and delivery by Purchaser of this Agreement or the Purchaser Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by Purchaser with any of the provisions hereof or thereof does or will conflict with, or result in any violation of or constitute a breach of or a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, modification or cancellation under or result in the creation of any Lien upon any of the properties or assets of Purchaser under, any provision of (i) the certificate of incorporation and bylaws or comparable organizational documents of Purchaser; (ii) any Contract, or Permit to which the Purchaser is a party or by which any of the properties or assets of Purchaser are bound; (iii) any Order of any Governmental Body applicable to Purchaser or by which any of the properties or assets of Purchaser are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations, modifications, breaches, Liens, or cancellations, that would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated hereby.           (b) Except as set forth on Schedule 7.3(b), no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of Purchaser in connection with the execution, delivery or performance of this Agreement or the Purchaser Documents or the compliance by Purchaser with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for (i) compliance with the applicable requirements of the HSR Act and (ii) such consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated hereby. 40 --------------------------------------------------------------------------------             7.4 Litigation. There are no Legal Proceedings pending or, to the knowledge of Purchaser, threatened that are reasonably likely to prohibit or restrain the ability of Purchaser to enter into this Agreement or the Purchaser Documents or consummate the transactions contemplated hereby or thereby or perform its obligations hereunder or thereunder.           7.5 Investment Intention. Purchaser is acquiring the Shares for its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”) thereof. Purchaser understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.           7.6 Financing. Purchaser: (a) has, and at the Closing will have, sufficient internal funds, firm commitments for credit facilities and/or equity contributions (written evidence of which, together with all amendments or additions thereto, have been provided to the Selling Stockholder) available to pay the Purchase Price and any expenses incurred by Purchaser in connection with the transactions contemplated by this Agreement; (b) has, and at the Closing will have, the resources and capabilities (financial or otherwise) to perform its obligations hereunder; and (c) has not incurred any obligation, commitment, restriction or Liability of any kind, that would impair or adversely affect such resources and capabilities.           7.7 No Financial Advisers. No person has acted, directly or indirectly, as a broker, finder or financial advisor for the Purchaser in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment. ARTICLE VIII COVENANTS           8.1 Access to Information. Prior to the Closing Date, Purchaser shall be entitled, through its officers, employees and representatives (including, without limitation, its legal advisors and accountants), to make such investigation of the properties, businesses and operations of the Company and its Subsidiaries and such examination of the books and records of the Company and its Subsidiaries as it reasonably requests and to make extracts and copies of such books and records. Any such investigation and examination shall be conducted during regular business hours and under reasonable circumstances and shall be in accordance with applicable Law. The Company shall cause the officers, employees, consultants, agents, accountants, attorneys and other representatives of the Company and its Subsidiaries to cooperate with Purchaser and Purchaser’s representatives in connection with such investigation and examination, and Purchaser and its representatives shall cooperate with the Company and its representatives and shall use their reasonable efforts to minimize any disruption to the Company’s business. Notwithstanding anything to the contrary contained herein, prior to the Closing, (a) Purchaser shall not contact any suppliers to, or customers of, the 41 --------------------------------------------------------------------------------   Company in connection with the transactions contemplated hereby and (b) Purchaser shall have no right to perform invasive or subsurface investigations of the Company Property or facilities of the Company or any of its Subsidiaries, in each case without prior notice to the Company.           8.2 Conduct of the Business Pending the Closing.           (a) Prior to the Closing, except (i) as set forth on Schedule 8.2, (ii) as required by applicable Law, (iii) as otherwise contemplated by this Agreement or (iv) with the prior written consent of Purchaser (which consent shall not be unreasonably withheld, delayed or conditioned), the Company shall, and shall cause its Subsidiaries to:           (i) conduct the respective businesses of the Company and its Subsidiaries only in the Ordinary Course of Business;           (ii) use its commercially reasonable efforts to (A) preserve the present business operations, organization and goodwill of the Company and its Subsidiaries, (B) keep its current officers and employees available for future employment by Purchaser and (C) preserve the present relationships with customers and suppliers of the Company and its Subsidiaries;           (iii) duly and timely file or cause to be filed all material reports and returns required to be filed with any Governmental Body and promptly pay or cause to be paid when due all material Taxes, assessments and governmental charges, including interest, fines and penalties levied or assessed, unless diligently contested in good faith by appropriate proceedings; and           (iv) manage working capital and cash management practices in the Ordinary Course of Business and use commercially reasonable efforts to continue to collect its accounts receivable and pay its accounts payable in the Ordinary Course of Business.           (b) Except (i) as set forth on Schedule 8.2, (ii) as required by applicable Law, (iii) as otherwise contemplated by this Agreement or (iv) with the prior written consent of Purchaser (which consent shall not be unreasonably withheld, delayed or conditioned), the Company shall not, and shall not permit its Subsidiaries to:           (i) declare, set aside, make or pay any dividend or other distribution in respect of the capital stock of the Company or repurchase, redeem or otherwise acquire any outstanding shares of the capital stock or rights or obligations convertible into or exchangeable for shares of capital stock or other securities of, or other ownership interests in, the Company or any of its Subsidiaries;           (ii) transfer, issue, sell or dispose of any shares of capital stock or rights or obligations convertible into or exchangeable for shares of capital stock or other securities of the Company or any of its Subsidiaries or grant options, warrants, calls or other rights to purchase or otherwise acquire shares of the 42 --------------------------------------------------------------------------------   capital stock or rights or obligations convertible into or exchangeable for shares of capital stock or other securities of the Company or any of its Subsidiaries;           (iii) effect any recapitalization, reclassification or like change in the capitalization of the Company or any of its Subsidiaries;           (iv) amend the certificate of incorporation or bylaws or comparable organizational documents of the Company or any of its Subsidiaries;           (v) (A) increase the annual level of compensation of any director, executive officer or employee of the Company or any of its Subsidiaries, (B) increase the annual level of compensation payable or to become payable by the Company or any of its Subsidiaries to any of their respective directors, executive officers or employees, (C) grant any unusual or extraordinary bonus, benefit or other direct or indirect compensation to any director, executive officer or employee, (D) increase the coverage or benefits available under any (or create any new) severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan or arrangement made to, for, or with any of the directors, executive officers or employees of the Company or any of its Subsidiaries or otherwise modify or amend or terminate any such plan or arrangement or (E) enter into any employment, deferred compensation, severance, consulting, non-competition or similar agreement (or amend any such agreement) to which the Company or any of its Subsidiaries is a party or involving a director, executive officer or employee of the Company or any of its Subsidiaries, except, in each case, as required by applicable Law from time to time in effect or by the terms of any Company Benefit Plans;           (vi) (A) incur or assume any Indebtedness or mortgage or pledge any of its properties or assets (whether tangible or intangible) of the Company and its Subsidiaries, or create or suffer to exist any Lien thereupon, other than Permitted Exceptions, (B) assume, guarantee, endorse or otherwise become liable or responsible (whether directly or indirectly, contingently or otherwise) for the obligations of any other Person, (C) make any loans or advances to any other Person;           (vii) acquire any material properties or assets or sell, assign, license, transfer, convey, lease or otherwise dispose of any of the material properties or assets of the Company and its Subsidiaries (except in the Ordinary Course of Business or for the purpose of disposing of obsolete or worthless assets);           (viii) cancel or compromise any material debt or claim or waive or release any material right of the Company or any of its Subsidiaries; 43 --------------------------------------------------------------------------------             (ix) enter into any commitment for capital expenditures of the Company and its Subsidiaries in excess of $50,000 for any individual commitment and $250,000 for all commitments in the aggregate;           (x) enter into, modify or terminate any labor or collective bargaining agreement of the Company or any of its Subsidiaries or, through negotiations or otherwise, make any commitment or incur any liability to any labor organizations;           (xi) create, dissolve or liquidate any Subsidiary or permit the Company or any of its Subsidiaries to enter into or agree to enter into any merger or consolidation with any corporation or other entity, or acquire the securities or equity interests of any other Person;           (xii) dispose of any asset outside the Ordinary Course of Business, or permit rights attaching to any material Intellectual Property owned or used by the Company or its Subsidiaries to lapse;           (xiii) enter into, terminate or amend in any material respect any Material Contract;           (xiv) other than in the Ordinary Course of Business, permit the Company or any of its Subsidiaries to enter into or modify any Contract with the Selling Stockholder or any Affiliate of the Selling Stockholder;           (xv) make or rescind any election relating to Taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit controversy relating to Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or any of its Subsidiaries, change any of its methods of accounting or methods of reporting income or deductions for Tax or accounting practice or policy from those employed in the preparation of its most recent Tax Return (except as required by applicable Law or GAAP), or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such action would have the effect of increasing the Tax liability of the Company or any Subsidiary for any period ending after the Closing Date, or decreasing any Tax attribute of the Company or any Subsidiary existing on the Closing Date; or           (xvi) agree to do anything prohibited by this Section 8.2.           8.3 Consents. Each of the Purchaser, Selling Stockholder and the Company shall use their commercially reasonable efforts to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement, including, without limitation, the consents and approvals referred to in Sections 5.3(b), 6.3(b) and 7.3(b) hereof, provided, however, that Purchaser shall be obligated to pay any consideration to any third party from whom consent or approval is requested. 44 --------------------------------------------------------------------------------             8.4 Regulatory Approvals. Each of Purchaser, the Company and the Selling Stockholder (if necessary) shall (a) use its commercially reasonable efforts to make or cause to be made all filings required of each of them or any of their respective Subsidiaries or Affiliates under the HSR Act with respect to the transactions contemplated hereby prior to the date of this Agreement, (b) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other materials received by each of them or any of their respective Subsidiaries from any Governmental Body in respect of such filing, (c) coordinate and cooperate with each other in connection with any such filing including exchanging such information and providing such reasonable assistance as the other may require to comply with the HSR Act, (d) use its commercially reasonable efforts to furnish to each other all information required for any application or other filing to be made pursuant the HSR Act, and (e) use its commercially reasonable efforts to respond as appropriate to such objections, if any, as may be asserted by any Person in connection with all filings required under the HSR Act. In connection with the foregoing, each party shall promptly notify the other parties of any communication received by that party or its Affiliates from any other applicable Governmental Body and, subject to applicable Law, provide the other parties with a copy of any such written communication (or summary of any oral communication). No party hereto shall independently participate in any substantive meeting or discussion with any Governmental Body in respect of any such filings, investigation, or other inquiry concerning the transactions contemplated by this Agreement without giving the other parties hereto prior notice of the meeting and, to the extent permitted by such Governmental Body, the opportunity to attend and/or participate. Notwithstanding anything to the contrary in this Agreement, neither Purchaser nor any of its Affiliates shall be required, in connection with the matters covered by this Section 8.4, (i) to pay any amounts (other than the payment of filing fees and expenses and fees of Purchaser’s or its Affiliates’ counsel), (ii) to commence or defend any litigation, (iii) to hold separate (including by trust or otherwise) or divest any of their respective businesses, product lines or assets, including the Company and its Subsidiaries, (iv) to agree to any limitation on the operation or conduct of their or the Company’s or any of its Subsidiaries’ respective businesses or (v) to waive any of the conditions set forth in Article IX of this Agreement.           8.5 Further Assurances. Except as otherwise provided in Section 8.4, each of Purchaser and the Company shall use (and the Company shall cause each of its Subsidiaries to use) its commercially reasonable efforts to (a) take or cause to be taken and do or cause to be done all things necessary, appropriate or advisable under applicable Laws or otherwise to consummate as promptly as practicable and make effective the transactions contemplated by this Agreement, and (b) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement, in accordance with the terms hereof, and (c) obtain any consent or notification, or take other action, listed on Schedule 5.18(c)(iii).           8.6 Confidentiality. Purchaser acknowledges that the information provided to it in connection with this Agreement and the transactions contemplated hereby is subject to the terms of the confidentiality agreement between Purchaser and the Company dated September 12, 2005 (the “Confidentiality Agreement”), the terms of 45 --------------------------------------------------------------------------------   which are incorporated herein by reference. Effective upon, and only upon, the Closing Date, the Confidentiality Agreement shall terminate.           8.7 Preservation of Records. The Selling Stockholder and Purchaser agree that each of them shall preserve and keep the records held by them relating to the respective businesses of the Company and its Subsidiaries for a period of seven (7) years from the Closing Date and shall make such records and personnel available to the other as may be reasonably required by such party in connection with, among other things, any insurance claims by, Legal Proceedings or tax audits against or governmental investigations of the Selling Stockholder or Purchaser or any of their Affiliates or in order to enable the Selling Stockholder or Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby or thereby. In the event the Selling Stockholder or Purchaser wishes to destroy such records after that time, such party shall first give ninety (90) days prior written notice to the other and such other party shall have the right at its option and expense, upon prior written notice given to such party within that ninety (90) day period, to take possession of the records within one hundred and eighty (180) days after the date of such notice.           8.8 Publicity. None of the Selling Stockholder, the Company or Purchaser shall issue any press release or public announcement concerning this Agreement or the transactions contemplated hereby or make any other public disclosure containing the terms of this Agreement without obtaining the prior written approval of the other party hereto, which approval will not be unreasonably withheld or delayed, unless, in the judgment of the Selling Stockholder, the Company or Purchaser, disclosure is otherwise required by applicable Law or by the applicable rules of any stock exchange on which the Selling Stockholder, the Company or Purchaser lists securities, provided that, to the extent required by applicable law, the party intending to make such release shall use its commercially reasonable efforts consistent with applicable Law to consult with the other party with respect to the text thereof.           8.9 Exclusivity. From the date of this Agreement until the Closing, neither the Selling Stockholder nor the Company will (and the Company and the Selling Stockholder will cause their respective employees, officers, directors, agents, representative and Affiliates not to) directly or indirectly: (a) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to, or enter into or consummate any transaction relating to, the acquisition of any equity interests in the Company or its Subsidiaries or any merger, consolidation, business combination, recapitalization, share exchange, sale of a material portion of the assets of the Company or its Subsidiaries or any similar transaction or alternative to the transactions contemplated hereunder, or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner, any effort or attempt by any Person to do or seek any of the foregoing. The Company and the Selling Stockholder will promptly notify Purchaser if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing (whether solicited or unsolicited) with the Company or the Selling Stockholder. 46 --------------------------------------------------------------------------------             8.10 Tax Matters.           (a) Tax Returns           (i) The Selling Stockholder shall prepare or shall cause to be prepared and timely file or cause to be timely filed (at its expense) all Tax Returns for the Company and the Subsidiaries for all periods ending on or prior to the Closing Date, that are filed after the Closing Date (except to the extent that the operations of the Company and the Subsidiaries on the Closing Date are required to be included in the consolidated, unitary or combined income Tax Return of the Purchaser and its Affiliates). Such Tax Returns shall be prepared in a manner consistent with the Tax Returns (including amended Tax Returns) of the Company and Subsidiaries filed on or prior to the Closing Date for prior fiscal periods, and are subject to the Purchaser’s right to review any such Tax Returns within not less than 30 days (or such shorter period as may reasonably be required) prior to their required filing date and to the Purchaser’s agreement with the relevant positions, information and data set forth in such Tax Returns (which agreement shall not be unreasonably withheld). The Selling Stockholder shall pay, or cause to be paid, all Taxes shown as due (or required to be shown as due) on such Tax Returns to the extent that such Taxes exceed the amount of Taxes taken into account in determining the Closing Net Working Capital adjustment in Section 3.3 (the “Target Tax Amount”).           (ii) Purchaser shall prepare or cause to be prepared and file or cause to be filed (at its expense) any Tax Returns of the Company and Subsidiaries for Tax periods which begin before the Closing Date and end after the Closing Date (and to the extent that the operations of the Company and the Subsidiaries on the Closing Date are required to be included in the consolidated, unitary or combined Tax Return of Purchaser and its Affiliates, Purchaser will cause the operations of the Company and Subsidiaries to be so included). Subject to the Selling Stockholder’s right to review any such Tax Returns within not less than 30 days (or such shorter period as may reasonably be required) prior to their required filing date and to the Selling Stockholder’s agreement with the relevant information and data set forth in such Tax Returns, which agreement shall not be unreasonably withheld, the Selling Stockholder shall pay to Purchaser within fifteen days after the date on which Taxes are paid with respect to such periods an amount equal to the portion of such Taxes which relates to the portion of such Taxable period ending on the Closing Date to the extent that such Taxes (together with the Taxes with respect to Tax Returns described in Section 8.10(a)(i)) exceed the Target Tax Amount.           (iii) Purchaser shall prepare or cause to be prepared and file or cause to be filed (at its expense) any Tax Returns of the Company and Subsidiaries for Tax periods which begin after the Closing Date.           (b) Notwithstanding anything set forth in Section 10.5 (including, without limitation, the Basket Amount and cap in Section 10.5(b)), the Selling 47 --------------------------------------------------------------------------------   Stockholder shall indemnify Purchaser for any and all Taxes arising out of or attributable to (i) any Taxable period that ends before or on the Closing Date, and (ii) any period that begins before the Closing Date and ends after the Closing Date, to the extent such Taxes relate to the portion of such Taxable period before and including the Closing Date; provided that such indemnity shall only apply to the extent such Taxes in the aggregate exceed the Target Tax Amount.           (c) Purchaser shall indemnify the Selling Stockholder for any Taxes arising out of or attributable to (i) any Taxable period that begins after the Closing Date, and (ii) any period that begins before the Closing Date and ends after the Closing Date, to the extent such Taxes relate to the portion of such Taxable period after the Closing Date.           (d) Purchaser may, and may cause the Company or its Subsidiaries to, carry back any item of loss, deduction or credit which arises in any taxable period of the Company into any prior taxable period, provided that such carryback, refund claim or related amended Tax Return does not have the effect of increasing the liability of the Selling Stockholder for any Taxes, reducing any Tax benefit of the Selling Stockholder or increasing any obligation of the Selling Stockholder to Purchaser hereunder or increasing any amount Purchaser is entitled to recover from the Selling Stockholder hereunder. The Selling Stockholder shall be entitled to any refund of Taxes attributed to the operations of the Company and its Subsidiaries for periods ending on or before the Closing Date, to the extent such refund exceeds deferred Tax assets taken into account in determining the Closing Net Working Capital adjustment in Section 3.3, including any refund or reduction in Taxes payable by the Purchaser or the Company attributable to a net operating loss or other Tax attributes of the Company or any of its Subsidiaries arising in any period ending on or before the Closing Date.           (e) Following the Closing, Purchaser shall control all audits or administrative or judicial proceedings relating to Taxes of the Company or any of its Subsidiaries, except as otherwise provided in Section 8.10(f).           (f) In the case of an audit or administrative or judicial proceeding that relates to periods ending on or before the Closing Date or for which the Purchaser may seek indemnification from the Selling Stockholder, the Selling Stockholder shall have the right, at its expense, to participate with the Purchaser in the conduct of such audit or proceeding but only to the extent that such audit or proceeding relates to a potential adjustment for which the Selling Stockholder has acknowledged the Selling Stockholder’s liability. The Purchaser may not settle any audit or administrative or judicial proceedings for which the Selling Stockholder has an indemnification obligation under this Agreement without the Selling Stockholder’s written consent, which consent shall not be unreasonably withheld.           (g) Purchaser, the Selling Stockholder, the Company, and the Subsidiaries shall cooperate fully, as and to the extent reasonably requested by the other parties, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon any other party’s request) the provision of records and 48 --------------------------------------------------------------------------------   information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. In addition to the provisions in Section 8.7 relating to preservation of records, Purchaser, the Company, and the Subsidiaries agree (i) upon reasonable request, to use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby) and (ii) upon reasonable request, to provide the other parties with all information that any party may be required to report pursuant to Code Section 6043 and all Treasury Regulations promulgated thereunder.           8.11 Noncompetition; Nonsolicitation.           (a) The Selling Stockholder and its Affiliates shall not, for a period of three (3) years following the Closing Date (computed by excluding from such computation any time during which the Selling Stockholder or an Affiliate is found by a court of competent jurisdiction to have been in violation of any provision of this Section 8.11(a)), for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other Person, engage as a shareholder, owner, partner, joint venturer, or in a managerial capacity, or as an independent contractor, consultant, advisor or sales representative, in the design, manufacture, distribution and sale of flatbed trailers, or use Intellectual Property of the Company (exclusive of know how), anywhere in the United States. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit the Selling Stockholder from acquiring as an investment not more than two (2%) percent of the capital stock of a competing business whose stock is traded on a national securities exchange or market, or over-the-counter.           (b) The Selling Stockholder and its Affiliates shall not, for a period of three (3) years following the Closing Date (computed by excluding from such computation any time during which the Selling Stockholder or an Affiliate is found by a court of competent jurisdiction to have been in violation of any provision of this Section 8.11(b)), for any reason whatsoever, directly or indirectly, solicit, hire (or assist or encourage any other Person to solicit or hire) or otherwise interfere with the employment relationship of any Person who is employed by the Company or its Subsidiaries as of the date of this Agreement or employed by the Company or its Subsidiaries during the operation of this provision. For the avoidance of doubt, an employee shall not be deemed to have been solicited or as a result hired for employment solely as a result of (i) a general public advertisement or other such general solicitation of employment, or (ii) the employee voluntarily and without any direct or indirect solicitation from the Selling Stockholder or any representative or Affiliate thereof (other than a general solicitation to the public described above) seeks employment with the Selling Stockholder or Affiliate thereof.           8.12 Notice; Supplementation and Amendment of Schedules. Each of the parties hereto shall promptly notify the other parties hereto in writing of, and shall use commercially reasonable efforts to cure before the Closing Date, any event, transaction or 49 --------------------------------------------------------------------------------   circumstance, that causes or shall cause any covenant or agreement of such party to be breached in any material respect or that renders or shall render untrue in any material respect any representation or warranty of such party contained in this Agreement and, in that regard, from time to time prior to the Closing, the Company shall have the right to, promptly after obtaining knowledge thereof, supplement or amend the Schedules with respect to any matter hereafter arising or discovered after the delivery of the Schedules pursuant to this Agreement (solely for purposes of notifying Purchaser of same); provided, however, that no such notice, supplement or amendment shall (a) have any effect on Purchaser’s ability to assert the failure of any conditions to Purchaser’s obligation to close set forth in Article IX hereof or (b) relieve the Company or the Selling Stockholder of liability or diminish any right or remedies of Purchaser with respect to any breach of representation or warranty made prior to the date of such supplement or amendment, including pursuant to Article X hereof.           8.13 Indemnity Obligations. The Purchaser covenants and agrees that the Purchaser shall take no action to terminate or adversely modify the tail to any existing director and officer liability insurance policy of the Company and its Subsidiaries purchased by the Selling Stockholder or the Company with respect to periods on and prior to the Closing Date (as it may be extended or modified thereafter by the Selling Stockholder or its Affiliates, the “Tail Policy”).           8.14 Montgomery County Facility. At least one (1) day prior to the Closing Date, the Selling Stockholder shall, or shall cause, at the Selling Stockholder’s sole cost and expense, the County of Montgomery, Kentucky (the “County”) to execute and deliver to the Selling Stockholder (a) a release and termination for recording in the County’s record books (the “Montgomery Facility Release”) of that certain Lease Agreement dated as of November 1, 1994, as amended, by and between the County and the Company (the “Montgomery Facility Lease”), and (b) a Deed and Consideration Certificate made and entered into by and between the County and the Company recordable in the County’s record books (the “Montgomery Facility Deed”) for the sale of the property subject to the Montgomery Facility Lease (the “Montgomery Property”). Immediately following the Closing Date but in no case later than one (1) Business Day after the Closing Date, the Selling Stockholder shall, or shall cause, at its sole cost and expense, the Montgomery Facility Release and the Montgomery Facility Deed to be recorded in the County’s record books. The Selling Stockholder shall also take, at its sole cost and expense, any and all actions such that immediately following the Closing Date, but in no case later than one (1) Business Day after the Closing Date, the Company shall be fully released from the Montgomery Facility Lease with not further obligations thereunder, such lease shall be terminated in its entirety, and the Company will have good, valuable and marketable title to the Montgomery Property without any further action being required by any other Person (including without limitation any party hereto or their respective Affiliates). Any and all costs and expenses incurred in connection with this Section 8.14 shall be borne by the Selling Stockholder whether or not such cost is incurred before or after the Closing Date. 50 --------------------------------------------------------------------------------   ARTICLE IX CONDITIONS TO CLOSING           9.1 Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by Purchaser in whole or in part to the extent permitted by applicable Law):           (a) the representations and warranties of the Selling Stockholder and the Company set forth in this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case when made and at and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and Purchaser shall have received a certificate signed by an authorized officer of the Company, dated the Closing Date, to the foregoing effect;           (b) the Company and the Selling Stockholder shall have performed and complied in all material respects with all covenants, obligations and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date, and Purchaser shall have received a certificate signed by an authorized officer of the Company, dated the Closing Date, to the foregoing effect;           (c) no Legal Proceedings shall have been instituted or threatened against the Selling Stockholder, the Company or its Subsidiaries, or Purchaser, seeking to restrain, delay or prohibit, or to obtain substantial damages or other injunctive or other equitable relief with respect to, the consummation of the transactions contemplated hereby, and there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby or imposing any limitation on the operation or conduct of the Company’s or its Subsidiaries’ respective businesses;           (d) the parties shall have received any consents, Permits, approvals and waivers of any Governmental Body required in order for the parties to consummate the transactions contemplated hereby, including any necessary approval, or termination or expiration of any waiting period applicable to the transactions contemplated by this Agreement under the HSR Act;           (e) the Selling Stockholder shall have delivered to Purchaser an executed resignation from each member of the board of directors (or comparable governing body) of the Company and each Subsidiary and, at Purchaser’s request, any officers of the Company and Subsidiaries; 51 --------------------------------------------------------------------------------             (f) the Company shall have paid in full the Closing Date Payments and shall have obtained and delivered to Purchaser executed documentation (including pay-off letters) reasonably satisfactory to Purchaser evidencing the payment of the Closing Date Payments and termination of all agreements and Liens on the Shares and the assets of the Company and its Subsidiaries arising under or related to the obligations satisfied by payment of the Closing Date Payments;           (g) Purchaser shall have received opinions, dated the Closing Date, addressed to Purchaser, from Pitney Hardin, LLP, counsel to the Company and the Selling Stockholder, in a form attached hereto as Exhibit E;           (h) all agreements, including the management agreement, between the Company and Lincolnshire or any of its Affiliates shall have been terminated and the Company shall have been released from all obligations thereunder, written evidence of which shall have been delivered to Purchaser;           (i) the Selling Stockholder shall have delivered, or caused to be delivered, to Purchaser stock certificates representing the Shares, duly endorsed in blank or accompanied by stock transfer powers;           (j) the Selling Stockholder and the Escrow Agent shall have executed and delivered counterparts of the Indemnification Escrow Agreement;           (k) the Company shall have delivered to Purchaser all minute books, share records and ledgers and corporate seals of Company and its Subsidiaries;           (l) there shall be no outstanding Preferred Shares and, to the extent not properly redeemed, in full, the Company shall have redeemed each Preferred Share using the Company’s own funds;           (m) the Company shall have obtained and delivered to Purchaser (i) all of the consents or notifications listed on Schedule 5.3(b), 5.18(c)(iii) and 6.3(b) and (ii) all other consents that may be required to be obtained in connection with the transactions the failure of which to obtain would, individually or in the aggregate have or reasonably be expected to have a Material Adverse Effect;           (n) without limiting the generality of this Section 9.1, there shall not be or have been any event, change, occurrence or circumstance that, individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect;           (o) the Warrant shall have been cancelled and the Company shall have been released from all obligations thereunder written evidence of which shall have been delivered to Purchaser; and           (p) The Selling Stockholder shall have obtained the Montgomery Facility Release and the Montgomery Facility Deed and delivered a copy thereof to Purchaser. 52 --------------------------------------------------------------------------------             9.2 Conditions Precedent to Obligations of the Selling Stockholder. The obligations of the Selling Stockholder to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by the Selling Stockholder in whole or in part to the extent permitted by applicable Law):           (a) the representations and warranties of Purchaser set forth in this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case when made and at and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and the Selling Stockholder shall have received a certificate signed by an authorized officer of Purchaser, dated the Closing Date, to the foregoing effect;           (b) Purchaser shall have performed and complied in all material respects with all agreements, obligations and covenants required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date, and the Selling Stockholder shall have received a certificate signed by an authorized officer of Purchaser, dated the Closing Date, to the foregoing effect;           (c) no Legal Proceedings shall have been instituted or threatened against the Selling Stockholder, the Company or its Subsidiaries, or Purchaser, seeking to restrain, delay or prohibit, or to obtain substantial damages or other injunctive or other equitable relief with respect to, the consummation of the transactions contemplated hereby, and there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby or imposing any limitation on the operation or conduct of the Company’s or its Subsidiaries’ respective businesses;           (d) the parties shall have received any consents, Permits, approvals and waivers of any Governmental Body required in order for the parties to consummate the transactions contemplated hereby, including any necessary approval, or termination or expiration of any waiting period applicable to the transactions contemplated by this Agreement under the HSR Act;           (e) Purchaser shall have delivered, or caused to be delivered, to the Selling Stockholder evidence of the wire transfers referred to in Section 3.2(a) hereof; and           (f) Purchaser and the Escrow Agent shall have executed and delivered counterparts of the Indemnification Escrow Agreement. 53 --------------------------------------------------------------------------------   ARTICLE X INDEMNIFICATION           10.1 Survival. The representations and warranties of the parties contained in this Agreement shall survive until the later of (a) the first anniversary of the Closing Date and (b) ninety (90) days after the completion of Purchaser’s audit for the fiscal year ended December 31, 2006, except that the representations and warranties (i) set forth in Section 5.9 shall survive until the expiration of the applicable statute of limitations, (ii) set forth in Section 5.18 shall survive until December 31, 2010, (iii) set forth in Section 5.27 shall survive until September 30, 2007, (iv) set forth in Section 5.14 shall survive until the third anniversary of the Closing Date, and (v) set forth in Sections 5.2, 5.4, 6.2 and 6.4 shall survive indefinitely. Unless otherwise expressly provided in this Agreement, all of the covenants and obligations of the parties contained in this Agreement shall survive the Closing indefinitely. Notwithstanding the foregoing, if a written claim or written notice is given under Article X with respect to any representation or warranty prior to the expiration of the applicable survival period, the claim with respect to such representation or warranty shall continue indefinitely until such claim is finally resolved.           10.2 Indemnification by Selling Stockholder.           (a) Subject to Section 10.5 hereof, the Selling Stockholder hereby agrees to reimburse, defend, indemnify and hold Purchaser, the Company, and their respective directors, officers, employees, Affiliates (present and future), stockholders, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Purchaser Indemnified Parties”) harmless from and against any and all losses, liabilities, obligations, damages and Expenses (individually, a “Loss” and, collectively, “Losses”) based upon or resulting or arising from (x) any inaccuracy or breach of any of the representations or warranties made by the Selling Stockholder or the Company in this Agreement (both when made and as if such representations and warranties were made as of the Closing Date) or in any certificate delivered hereunder, (y) any breach of or failure to perform any covenant or agreement made by the Selling Stockholder or the Company in this Agreement or in any certificate delivered hereunder, or (z) the failure of William R. Cunningham or the William R. Cunningham Revocable Trust (the “Cunningham Parties”) to fulfill their respective obligations with respect to the matter described on Schedule 10.2 (the “Scheduled Obligations”) under the agreement described on Schedule 10.2 (the “Scheduled Agreement”), subject (in the case of this clause (z)) to Purchaser using reasonable efforts to seek performance by the Cunningham Parties under the Scheduled Agreement prior to seeking recovery pursuant to this Section 10.2(a)(z); and           (b) Purchaser acknowledges and agrees that the Selling Stockholder shall not have any liability under any provision of this Agreement for any Loss to the extent that such Loss is the direct result of any action taken by Purchaser in breach of this Agreement. Purchaser shall take and shall cause its Affiliates to take all reasonable steps that a prudent business person would take in the conduct of his or her business to mitigate 54 --------------------------------------------------------------------------------   any Loss upon becoming aware of any event that would reasonably be expected to, or does, give rise thereto; provided that the Purchaser shall not be required to expend any non deminimus amount (unless paid by the Selling Stockholder) to remedy the breach that gives rise to the Loss.           10.3 Indemnification by Purchaser.           (a) Subject to Section 10.5, Purchaser hereby agrees to reimburse, indemnify and hold the Selling Stockholder and its respective directors, officers, employees, Affiliates, stockholders, agents, attorneys, representatives, successors and assigns (collectively, the “Selling Stockholder Indemnified Parties”) harmless from and against any and all Losses based upon or resulting or arising from (x) any inaccuracy or breach of any of the representations or warranties made by Purchaser in this Agreement (both when made and as if such representations and warranties were made as of the Closing Date) or in any certificate delivered hereunder or (y) any breach of or failure to perform any covenant or agreement made by Purchaser in this Agreement or in any certificate delivered hereunder; and           (b) Selling Stockholder acknowledges and agrees that the Purchaser shall not have any liability under any provision of this Agreement for any Loss to the extent that such Loss is the direct result of any action taken by Selling Stockholder in breach of this Agreement. Selling Stockholder shall take and shall cause its Affiliates to take all reasonable steps that a prudent business person would take in the conduct of his or her business to mitigate any Loss upon becoming aware of any event that would reasonably be expected to, or does, give rise thereto; provided that the Selling Stockholder shall not be required to expend any non deminimus amount (unless paid by the Purchaser) to remedy the breach that gives rise to the Loss.           10.4 Indemnification Procedures.           (a) In the event that any Legal Proceedings shall be instituted, or that any claim shall be asserted, by any Person not party to this Agreement in respect of an Indemnification Claim, the party seeking indemnification (the “Indemnified Party”) shall promptly cause written notice of the assertion of any Indemnification Claim of which it has knowledge that is covered by this indemnity to be delivered to the party from whom indemnification is sought (the “Indemnifying Party”); provided that no delay on the part of the Indemnified Party in giving any such notice shall relieve the Indemnifying Party of any indemnification obligation hereunder unless (and then solely to the extent that) the Indemnifying Party is materially prejudiced by such delay. The Indemnifying Party shall have the right, at its sole option and expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the Indemnified Party, and to defend against, negotiate, settle or otherwise deal with any Indemnification Claim and if the Indemnifying Party elects to defend against, negotiate, settle or otherwise deal with any Indemnification Claim, it shall within thirty (30) days (or sooner, if the nature of the Indemnification Claim so requires) (the “Dispute Period”) notify the Indemnified Party of its intent to do so. If the Indemnifying Party does not elect within the Dispute Period to defend against, negotiate, settle or otherwise deal with any Indemnification Claim,the 55 --------------------------------------------------------------------------------   Indemnified Party may defend against, negotiate, settle or otherwise deal with such Indemnification Claim. If the Indemnifying Party elects to defend against, negotiate, settle or otherwise deal with any Indemnification Claim, (i) the Indemnifying Party shall use its commercially reasonable efforts to defend and protect the interests of the Indemnified Party with respect to such Indemnification Claim, (ii) the Indemnified Party, prior to or during the period in which the Indemnifying Party assumes the defense of such matter, may take such reasonable actions as the Indemnified Party deems necessary to preserve any and all rights with respect to such matter, without such actions being construed as a waiver of the Indemnified Party’s rights to defense and indemnification pursuant to this Agreement, and (iii) the Indemnified Party may participate, at his or its own expense, in the defense of such Indemnification Claim; provided, however, that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if, (A) so requested by the Indemnifying Party to participate or (B) in the reasonable opinion of counsel to the Indemnified Party, a conflict or potential conflict exists between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable; and provided, further, that the Indemnifying Party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Indemnification Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Indemnification Claim. Notwithstanding anything in this Section 10.4 to the contrary, the Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any Indemnification Claim or permit a default or consent to entry of any judgment (each a “Settlement”) unless (i) the claimant and such Indemnifying Party provide to such Indemnified Party an unqualified release from all liability in respect of the Indemnification Claim (ii) such Settlement does not impose any liabilities or obligations on the Indemnified Party and (iii) with respect to any non-monetary provision of such Settlement, such provisions would not, in the Indemnified Party’s reasonable judgment, have or be reasonably expected to have any adverse effect on the business, assets, properties, condition (financial or otherwise), results of operations or prospects of the Indemnified Party.           (b) After any final decision, judgment or award shall have been rendered by a Governmental Body of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a Settlement or arbitration shall have been consummated, or the Indemnified Party and the Indemnifying Party shall have arrived at a mutually binding agreement with respect to an Indemnification Claim hereunder, the Indemnified Party shall forward to the Indemnifying Party and the Escrow Agent notice of any sums due and owing by the Indemnifying Party pursuant to this Agreement with respect to such matter and the Indemnifying Party and/or Escrow Agent, as applicable, shall make prompt payment thereof pursuant to the terms of the Indemnification Escrow Agreement.           (c) If the Indemnifying Party does not undertake within the Dispute Period to defend against an Indemnification Claim, then the Indemnifying Party shall have the right to participate in any such defense at its sole cost and expense, but, in such case, the Indemnified Party shall control the investigation and defense and may settle or take any other actions the Indemnified Party deems reasonably advisable without in any 56 --------------------------------------------------------------------------------   way waiving or otherwise affecting the Indemnified Party’s rights to indemnification pursuant to this Agreement.           (d) In the event that an Indemnified Party should have a claim against the Indemnifying Party hereunder which it determines to assert, but which does not involve a Legal Proceeding or claim by a third party, the Indemnified Party shall send written notice to the Indemnifying Party describing in reasonable detail the nature of such claim and the Indemnified Party’s estimate of the amount of Losses attributable to such claim. The Indemnifying Party shall have thirty (30) days from the date such claim notice is delivered during which to notify the Indemnified Party in writing of any good faith objections it has to the Indemnified Party’s notice or claims for indemnification, setting forth in reasonable detail each of the Indemnifying Party’s objections thereto. If the Indemnifying Party does not deliver such written notice of objection within such thirty (30) day period, the Indemnifying Party shall be deemed to have accepted responsibility for the prompt payment of the Indemnified Party’s claims for indemnification, and shall have no further right to contest the validity of such indemnification claims, and the Indemnified Party shall be permitted to notify the Escrow Agent of the same and receive payment therefrom. If the Indemnifying Party does deliver such written notice of objection within such thirty (30) day period, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve any such dispute within forty-five (45) days of the delivery by the Indemnifying Party of such written notice of objection, and if not resolved in such forty-five day period, may be resolved through Legal Proceedings brought by either party or by such other means as such parties mutually agree.           10.5 Limitations on Indemnification for Breaches of Representations and Warranties.           (a) Any Indemnification Claim required to be made by either Purchaser or the Selling Stockholder, as the case may be, on or prior to the expiration of the applicable survival period set forth in Section 10.1, and not made, shall be irrevocably and unconditionally released and waived by such party.           (b) Notwithstanding the provisions of this Article X, the Selling Stockholder shall not have any indemnification obligations for Losses under Section 10.2(a)(x) unless the aggregate amount of all such Losses exceeds five hundred thousand dollars $500,000 (the “Basket Amount”); provided, that from and after such time as the total amount of Losses under Section 10.2(a)(x) exceeds the Basket Amount then the Selling Stockholder shall be liable for the entire Basket Amount and for all amounts exceeding the Basket Amount, and (ii) with the exception of indemnification for breaches of representations, warranties, and covenants set forth in Section 5.4, in no event shall the aggregate indemnification to be paid by the Selling Stockholder under Section 10.2(a)(x) exceed an amount equal to the sum of the Indemnification Escrow Amount and the Earnout Escrow Amount. Notwithstanding the provisions of this Article X, in no event shall the aggregate indemnification to be paid by the Selling Stockholder under Section 10.2(a)(z) exceed $350,000. 57 --------------------------------------------------------------------------------             (c) Subject to the provisions set forth in this Article X, Purchaser and the Selling Stockholder hereby acknowledge and agree that the Indemnification Escrow Amount shall be available to compensate the Purchaser Indemnified Parties for any and all Losses, incurred or sustained by such parties, provided, however, that the termination of the Indemnification Escrow Agreement shall not serve as a bar to recovery from the Selling Stockholder of any indemnifiable Losses that are not specifically limited to recovery prior to the termination of the Indemnification Escrow Agreement.           (d) Neither party shall make any claim for indemnification under this Article X in respect of any matter that is taken into account in the calculation of any adjustment to the Purchase Price pursuant to Section 3.3.           (e) The amount of Losses payable by an Indemnifying Party under this Article X shall (x) be reduced by any insurance proceeds recovered or, as determined in good faith by the Indemnified Party, recoverable, by the Indemnified Party with respect to the claim for which indemnification is sought (whether or not the Indemnified Party chooses to pursue such recovery), in each case (i) net of any applicable deductibles or similar costs or payments and (ii) net of any increase in the premium or other costs of obtaining insurance coverage reasonably related to such claim, as determined in good faith by the Indemnified Party, and (y) be reduced by the actual reduction in Taxes due and payable by the Indemnified Party in the fiscal year in which such claim occurs below the amount of Taxes that otherwise would have been paid by the Indemnified party in such fiscal year solely but for the tax effect of the payment by the Indemnifying Party to the Indemnified Party in respect of such Loss, as determined in good faith by the Indemnified Party (it being agreed and understood that (1) in the event that the reduction to the amount of Losses as a result of the application of this clause (y) cannot be computed in good faith by the Indemnified Party at the time payment from the Indemnifying Party in respect of Losses under this Article X is otherwise due, that such payment shall nonetheless be made by Indemnifying Party to the Indemnified Party at such time without any reduction thereto pursuant to this clause (y), and that the Indemnified Party shall reimburse the Indemnifying Party for the amount of any such reduction required pursuant to this clause (y) promptly following such time as the amount of any such reduction is determined in good faith by the Indemnified Party, and (2) this clause (y) does not require the Indemnified Party to take any action or make any election that it determines in good is not in the best interests of the Indemnified Party.           (f) The disclosure of any matter or item in any Schedule hereto shall not be deemed to constitute an acknowledgment that any such matter is required to be disclosed.           (g) For purposes of this Article X, the terms “material” and “Material Adverse Effect”, as such terms are used in any representation or warranty contained in Article V or VI or in any certificate delivered hereunder, shall be disregarded and, for purposes of this Article X, such representation and warranties shall be deemed to be not qualified by such terms. 58 --------------------------------------------------------------------------------             (h) The right of the Indemnified Parties to indemnification or to assert or recover on any claim, shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy of or compliance with, any of the representations, warranties, covenants, or agreements set forth in this Agreement. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or agreement, shall not affect the right to indemnification or other remedy based on such representations, warranties, covenants, and obligations.           10.6 Tax Treatment of Indemnity Payments. The Selling Stockholder and Purchaser agree to treat any indemnity payment made pursuant to this Article X as an adjustment to the Purchase Price for federal, state, local and foreign income tax purposes.           10.7 No Consequential Damages. Notwithstanding anything to the contrary elsewhere in this Agreement, no party shall, in any event, be liable to any other Person for any consequential, incidental, indirect, or punitive damages of such other Person, including loss of future revenue, income or profits, diminution of value or loss of business reputation or opportunity relating to a breach of or alleged breach hereof, except with respect to any claim based upon fraud or willful misrepresentation or willful misconduct or criminal acts.           10.8 Exclusive Remedy. Following the Closing Date, the sole and exclusive remedy for any breach of or inaccuracy, or alleged breach of or inaccuracy, of any representation or warranty in this Agreement or any covenant or agreement to be performed on or prior to the Closing Date, shall be indemnification in accordance with this Article X, except with respect to any claim based upon fraud or willful misrepresentation or willful misconduct by Purchaser or the Selling Stockholder. ARTICLE XI MISCELLANEOUS           11.1 Payment of Sales, Use or Similar Taxes. All sales, use, transfer, intangible, recordation, documentary stamp or similar Taxes or charges, of any nature whatsoever, applicable to, or resulting from, the transactions contemplated by this Agreement shall be borne by the Purchaser.           11.2 Expenses. Except as otherwise provided in this Agreement, each of the Selling Stockholder and Purchaser shall bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby.           11.3 Submission to Jurisdiction; Consent to Service of Process.           (a) The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of New York over any 59 --------------------------------------------------------------------------------   dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.           (b) Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by delivery of a copy thereof in accordance with the provisions of Section 11.7.           11.4 Entire Agreement; Amendments and Waivers. This Agreement (including the schedules and exhibits hereto), the Indemnification Escrow Agreement and the Confidentiality Agreement represent the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.           11.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed in such State.           11.6 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given (a) when delivered personally by hand (with written confirmation of receipt), (b) when sent by facsimile (with written confirmation of transmission) or (c) one business day following the day sent by overnight courier (with written confirmation of receipt), in each case at the following addresses and facsimile numbers (or to such other address or facsimile number as a party may have specified by notice given to the other party pursuant to this provision): 60 --------------------------------------------------------------------------------   If to the Selling Stockholder, to: Transcraft Investment Partners, L.P. c/o Lincolnshire Management, Inc. 780 Third Avenue, 40th Floor New York, NY 10017 Attention: Mr. Charles C. Mills Phone: (212) 319-3633 Facsimile: (212) 755-5457 With a copy (which shall not constitute notice) to: Pitney Hardin, LLP Seven Times Square, 20th Floor New York, NY 10036 Attention: Barry T. Mehlman, Esq. Phone: (212) 297-5851 Facsimile: (212) 916-2940 If to Purchaser, to: Wabash National Corporation 1000 Sagamore Parkway South Lafayette, IN 47905 Attention: Chief Financial Officer Phone: (765) 771-5300 Facsimile: (765) 771-5579 With a copy (which shall not constitute notice) to: Wabash National Corporation 1000 Sagamore Parkway South Lafayette, IN 47905 Attention: General Counsel Phone: (765) 771-5300 Facsimile: (765) 771-5579 With a further copy (which shall not constitute notice) to: Hogan & Hartson L.L.P. 111 South Calvert Street Baltimore, MD 21202 Attention: Michael J. Silver, Esq. Phone: (410) 659-2700 Facsimile: (410) 539-6981 With a further copy (which shall not constitute notice) to: Hogan & Hartson L.L.P. 875 Third Avenue New York, New York 10022 Attention: Alexander B. Johnson, Esq. Phone: (212) 918-3000 Facsimile: (212) 918-3100 61 --------------------------------------------------------------------------------             11.7 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Except as otherwise expressly provided for in this Agreement, nothing contained in any representation or warranty, or the fact that any representation or warranty may or may not be more specific than any other representation or warranty, shall in any way limit or restrict the scope, applicability or meaning of any other representation or warranty contained in this Agreement.           11.8 Binding Effect; No Third-Party Beneficiaries; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement except as contemplated by Sections 10.2 and 10.3. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Selling Stockholder or Purchaser, directly or indirectly (by operation of law or otherwise), without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that Purchaser may assign its rights, interests and obligations hereunder to any direct or indirect subsidiary or financing source; provided, further, that no assignment of any obligations hereunder shall relieve the parties hereto of any such obligations. Upon any such permitted assignment, the references in this Agreement to Purchaser shall also apply to any such assignee unless the context otherwise requires.           11.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. ** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ** 62 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.             WABASH NATIONAL CORPORATION       By:   /s/ Robert J. Smith         Name:   Robert J. Smith        Title:   Senior Vice President, Chief Financial Officer                  TRANSCRAFT CORPORATION       By:   /s/ Charles Mills         Name:   Charles Mills        Title:   Vice President and Secretary                  TRANSCRAFT INVESTMENT PARTNERS, L.P.       By:   Transcraft G.P., Inc.         Its General Partner                        By:   /s/ Charles Mills         Name:   Charles Mills        Title:   Vice President and Secretary      63

EXHIBIT 10.2   CERIDIAN CORPORATION NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM   1.                                       Purpose.   The purpose of the Ceridian Corporation Non-employee Director Compensation Program (the “Program”) is to advance the interest of the Company, and its stockholders by enabling the Company to attract and retain the services of experienced and knowledgeable non-employee directors, to increase the proprietary interests of such non-employee directors in the Company’s long-term success and their identification with the interests of the Company’s stockholders. All Awards that are part of the compensation paid or deferred pursuant to this Program are awarded pursuant to the terms of the applicable Stock Plan and any applicable Award Agreement. The Program is designed and intended to comply with Rule 16b-3 of the Exchange Act. The Program is also intended to comply in form and operation with Section 409A of the Code.   2.                                       Definitions.   The following terms will have the meanings set forth below, unless the context clearly otherwise requires:   2.1                                 “Affiliate” means all persons with whom the Company would be considered a single employer under Section 414(b) or 414(c) of the Code.   2.2                                 “Annual Retainer” means the annual Board retainer payable to an Eligible Director for services as a member of the Board during the calendar year, excluding any Committee Chair Retainer paid to an Eligible Director for serving as the chair of a committee during the calendar year. The amount of the Annual Retainer is set forth on Exhibit A hereto, and may be amended from time to time by the Board or the Committee.   2.3                                 “Annual Retainer Election” means the election made or deemed to have been made by an Eligible Director relating to the Eligible Director’s Annual Retainer and Committee Chair Retainer, as provided in Section 7.1 hereof.   2.4                                 The “Average Market Price” of a share of Common Stock means the average of the closing sale prices of a share of Common Stock, at the end of the regular trading session, which as of the Effective Date is 4:00 p.m., New York City time, as reported on the New York Stock Exchange Composite Tape for the ten trading days immediately prior to the date as of which the Average Market Price is being determined.   2.5                                 “Award” means an Option, Restricted Stock Award, or Retainer Share Award granted to an Eligible Director pursuant to the Program and the Stock Plan.   2.6                                 “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing an award granted under the Stock Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Stock Plan under   --------------------------------------------------------------------------------   which such Award Agreement was granted and any other terms and conditions (not inconsistent with such Stock Plan) determined by the Committee.   2.7                                 “Board” means the Board of Directors of the Company.   2.8                                 “Change of Control” shall mean the first of the following events to occur:   (a)                                  there is consummated a merger or consolidation to which the Company or any direct or indirect subsidiary of the Company is a party if the merger or consolidation would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) less than 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or   (b)                                 the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of the Company representing 20% or more of the total combined voting power of the Company’s then issued and outstanding securities is acquired by any person or entity or group of associated persons or entities acting in concert; provided, however, that for purposes hereof, the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company or any of its subsidiaries, (ii) any acquisition directly from the Company or any of its subsidiaries, (iii) any acquisition by any employee benefit plan (or related trust or fiduciary) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by an underwriter temporarily holding securities pursuant to an offering of such securities, (v) any acquisition by 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 (vi) any acquisition in connection with which, pursuant to Rule 13d-1 promulgated pursuant to the Exchange Act, the individual, entity or group is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor Schedule); provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor Schedule), then, for purposes of this paragraph, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the voting securities of the Company beneficially owned by it on such date, and (vii) any acquisition in connection with a merger or consolidation which, pursuant to paragraph (a) above, does not constitute a Change of Control; or   (c)                                  there is consummated a transaction contemplated by an agreement for the sale or disposition by the Company of all or substantially all of the Company ‘s assets, other than a sale or disposition by the Company of all or substantially all of the Company ‘s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or   2 --------------------------------------------------------------------------------   (d)                                 the stockholders of the Company approve any plan or proposal for the liquidation of the Company; or   (e)                                  a change in the composition of the Board such that the “Continuity Directors” cease for any reason to constitute at least a majority of the Board. For purposes of this clause, “Continuity Directors” means those members of the Board who either (i) were directors on January 1, 2006 or (ii) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board (other than a director whose initial assumption of office was in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company); or   (f)                                    such other event or transaction as the Board shall determine constitutes a Change of Control.   2.9                                 “Code” means the Internal Revenue Code of 1986, as amended (including, when the context requires, all regulations, interpretations and rulings issued thereunder).   2.10                           “Committee” means the Nominating and Corporate Governance Committee of the Board, or any successor committee thereto.   2.11                           “Committee Chair Retainer” means the annual cash retainer payable to Eligible Directors for service as the chair of committees of the Board during the calendar year. The amount of the Committee Chair Retainer is set forth on Exhibit A hereto, and may be amended from time to time by the Board or the Committee.   2.12                           “Common Stock” means the common stock of the Company, par value $0.01 per share.   2.13                           “Company” means Ceridian Corporation, a Delaware corporation.   2.14                           “Deferred Shares” shall have the meaning set forth in Section 7.3(a) hereof.   2.15                           “Deferred Stock Account” means a book keeping account established and maintained by the Committee to evidence amounts credited with respect to an Eligible Director’s election to receive a portion of his or her Annual Retainer and, if applicable, Committee Chair Retainer in the form of Retainer Deferred Share Awards.   2.16                           “Effective Date” means January 1, 2006.   2.17                           “Eligible Director” means a director of the Company who is not an employee of the Company or any subsidiary of the Company.   2.18                           “Exchange Act” means the Securities Exchange Act of 1934, as amended.   2.19                           “Fair Market Value” means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on   3 --------------------------------------------------------------------------------   which there was such a trade or quote), the closing sale price of a share of the Common Stock, at the end of the regular trading session, which as of the Effective Date is 4:00 p.m., New York City time, as reported on the New York Stock Exchange Composite Tape on that date.   2.20                           “Issuance Year” means the calendar year in which the Award was made to an Eligible Director.   2.21                           “Option” means a right to purchase shares of Common Stock granted to an Eligible Director pursuant to Section 6 of the Program that does not qualify as an “incentive stock option” within the meaning of Section 422 of the Code. The amount of shares underlying an Option is set forth on Exhibit A hereto, and may be amended from time to time by the Board or the Committee.   2.22                           “Program” means this Ceridian Corporation Non-Employee Director Compensation Program, as from time to time amended or restated.   2.23                           “Restricted Shares” means shares of Common Stock that are the subject of (a) a Restricted Stock Award, and therefore subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of Section 5 of the Program; or (b) a Retainer Restricted Share Award, and therefore subject to the restrictions on transferability and risk of forfeiture imposed by the provisions of Section 7.2 of the Program, as applicable.   2.24                           “Restricted Stock Award” means a grant of Restricted Shares to an Eligible Director pursuant to Section 5 of the Program. The dollar value of a Restricted Stock Award is set forth on Exhibit A hereto, and may be amended from time to time by the Board or the Committee.   2.25                           “Retainer Deferred Share Award” means that portion of the Annual Retainer and, if applicable, Committee Chair Retainer that an Eligible Director has elected to defer in the form of a credit to the Eligible Director’s Deferred Stock Account pursuant to Section 7.3 of the Program.   2.26                           “Retainer Restricted Share Award” means that portion of an Eligible Director’s Annual Retainer and, if applicable, Committee Chair Retainer that the Eligible Director has elected to receive in the form of Restricted Shares pursuant to Section 7.2 of the Program.   2.27                           “Retainer Share Award” means a Retainer Deferred Share Award and/or a Retainer Restricted Share Award.   2.28                           “Securities Act” means the Securities Act of 1933, as amended.   2.29                           “Separation from Service” means a termination of an Eligible Director’s service with the Company and all Affiliates as a director and non-employee consultant/advisor, provided such termination constitutes a “separation from service” within the meaning of Section 409A of the Code, or such other change in the Eligible   4 --------------------------------------------------------------------------------   Director’s relationship with the Company and all Affiliates that constitutes a “separation from service” within the meaning of Section 409A of the Code.   2.30                           “Stock Plan” means the then current shareholder-approved stock incentive plan of the Company pursuant to which stock based awards shall be granted to Eligible Directors, which as of the Effective Date is the Ceridian Corporation 2004 Long-Term Stock Incentive Plan.   3.                                       Program Administration.   The Program will be administered by the Committee. The Committee may retain such actuarial, accounting, legal, clerical and other services as may reasonably be required in the administration of the Program, and may pay reasonable compensation for such services. The Company will pay all costs of administering the Program. All questions of interpretation of the Program will be determined by the Committee, each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Program will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Program or any Award granted under the Program and the Stock Plan.   4.                                       Annual Retainer, Committee Chair Retainer and Expenses.   4.1                                 Annual Retainer. Each Eligible Director is entitled to receive an Annual Retainer. The portion of the Annual Retainer payable in cash shall be paid in arrears on a quarterly basis on or about the 15th day of March, June, September and December. In the event an Eligible Director joins the Board during a calendar year, the Eligible Director will receive a pro rata portion of the Annual Retainer and such portion will be paid entirely in cash on a quarterly basis. In addition, a pro rata portion of the Annual Retainer payable in cash shall be forfeited if an Eligible Director ceases to be an Eligible Director prior to December 31.   4.2                                 Committee Chair Retainer. The chairs of committees of the Board are each entitled to receive a Committee Chair Retainer. The portion of any Committee Chair Retainer payable in cash shall be paid in arrears on a quarterly basis on or about the 15th day of March, June, September and December. In the event an Eligible Director becomes a chair of a committee of the Board during a calendar year, the committee chair will receive a pro rata portion of the Committee Chair Retainer and such portion will be paid entirely in cash on a quarterly basis. In addition, a pro rata portion of the Committee Chair Retainer payable in cash shall be forfeited if the Eligible Director ceases to be a chair of a committee of the Board prior to December 31.   4.3                                 Expenses. Each Eligible Director is entitled to reimbursement for reasonable travel costs of attending Board and committee meetings and other business purposes related to Board membership. Such reimbursement shall be payable in cash after receipt of proper documentation by the Company from such Eligible Director.   5 --------------------------------------------------------------------------------   5.                                       New Director Restricted Stock Awards.   5.1                                 Grants to New Directors. At such time after the Effective Date as additional Eligible Directors are first elected or appointed to the Board to fill new directorships or to fill vacancies, each such Eligible Director will receive, on a one-time basis on the date of his or her first election or appointment to the Board, a Restricted Stock Award. The number of Restricted Shares to be awarded to each such Eligible Director pursuant to such Restricted Stock Award shall be determined by dividing the dollar value of the Restricted Stock Award by the Average Market Price calculated on the date of such Eligible Director’s first election or appointment to the Board, and then rounding the result to the nearest 100 shares. Such Restricted Stock Award shall be awarded under the Stock Plan. In addition to the terms and conditions set forth below, such Restricted Stock Award shall be subject to the terms and conditions of the Stock Plan and any applicable Award Agreement.   5.2                                 Restrictions. Restricted Shares that are awarded to an Eligible Director pursuant to a Restricted Stock Award may not be sold, assigned or otherwise transferred, or subjected to any lien, either voluntarily or involuntarily, by operation of law or otherwise, until such time and only to the extent that such restrictions on transferability have lapsed as provided in this Section 5.2 and in the Award Agreement. For purposes of this Program, the lapsing of such transferability restrictions is referred to as “vesting,” and Restricted Shares that are no longer subject to such transferability restrictions are referred to as “vested.” Except as otherwise provided in the Award Agreement, 20% of the total number of Restricted Shares subject to a Restricted Stock Award will vest on each of the first five anniversary dates of the date such Restricted Stock Award was granted.   6.                                       Option.   6.1                                 Grant. Each Eligible Director will be granted on an annual basis, at such time as the Eligible Director is elected or re-elected to the Board by the stockholders of the Company, an Option. Such Option will be granted only upon such election or re-election of the Eligible Director, and no Option will be granted if the Eligible Director is not so elected or re-elected. Such Option shall be awarded under the Stock Plan. In addition to the terms and conditions set forth below, such Option shall be subject to the terms and conditions of the Stock Plan and any applicable Award Agreement.   6.2                                 Exercise Price, Exercisability and Duration. The per share price to be paid by an Eligible Director upon exercise of an Option will be 100% of the Fair Market Value of one share of Common Stock on the date of grant. Except as otherwise provided in the Award Agreement, one-third of each Option will become exercisable on each of the first three anniversaries of its date of grant and will expire and will no longer be exercisable on the fifth anniversary of its date of grant.   6 --------------------------------------------------------------------------------   7.                                       Payment of Portion of Annual Retainer in Retainer Share Award.   7.1                                 Annual Retainer Election.   (a)                                  Each year an Eligible Director must elect to receive at least fifty percent (50%) (or such other greater percentage as the Committee shall determine) and may elect to receive more of his or her Annual Retainer in the form of (a) Retainer Restricted Share Awards pursuant to Section 7.2, (b) Retainer Deferred Share Awards pursuant to Section 7.3, or (c) a combination of Retainer Restricted Share Awards and Retainer Deferred Share Awards. Each year an Eligible Director, if applicable, may elect to receive a portion of his or her Committee Chair Retainer in the form of (a) Retainer Restricted Share Awards pursuant to Section 7.2, (b) Retainer Deferred Share Awards pursuant to 7.3, or (c) a combination of Retainer Restricted Share Awards and Retainer Deferred Share Awards. In the event that an Eligible Director fails to make a valid Annual Retainer Election, such Eligible Director shall be deemed to have elected to receive (a) fifty percent (50%) (or such other greater percentage as the Committee shall determine) of his or her Annual Retainer in the form of Retainer Restricted Share Awards and any balance of his or her Annual Retainer in cash and (b) if applicable, one hundred percent (100%) of the Committee Chair Retainer in cash.   (b)                                 The Annual Retainer Election is made by the Eligible Director by filing, no later than December 31 of each year (or by such other date as the Committee shall determine), an irrevocable election with the Company on a form provided for that purpose. The Annual Retainer Election shall be effective with respect to the Annual Retainer and Committee Chair Retainer payable with respect to services performed during the next calendar year. The Annual Retainer Election form shall specify an amount to be received in the form of Retainer Restricted Share Awards and/or Retainer Deferred Share Awards expressed as a dollar amount or as a percentage of the Eligible Director’s Annual Retainer and, if applicable, Committee Chair Retainer. The issuance of such a Retainer Restricted Share Award or Retainer Deferred Share Award shall be in lieu of payment of that portion of the Annual Retainer and Committee Chair Retainer in cash.   7.2                                 Retainer Restricted Share Awards.   (a)                                  On the first trading day of the calendar year, an Eligible Director shall be granted a Retainer Restricted Share Award equal to the number of shares of Common Stock determined by dividing an amount equal to the amount of the Annual Retainer and, if applicable, the Committee Chair Retainer that the Eligible Director elected to receive (or is deemed to have elected to receive) in the form of a Retainer Restricted Share Award by the Average Market Price calculated on the first trading day of the calendar year, rounded up to the nearest whole share. Any such Retainer Restricted Share Award shall be awarded under the Stock Plan. In addition to the terms and conditions set forth below, such Retainer Restricted Share Award shall be subject to the terms and conditions of the Stock Plan and any applicable Award Agreement.   7 --------------------------------------------------------------------------------   (b)                                 Shares subject to a Retainer Restricted Share Award may not be sold, assigned or otherwise transferred, or subjected to any lien, either voluntarily or involuntarily, by operation of law or otherwise, until the Eligible Director’s service with the Company ceases. In the event an Eligible Director’s service with the Company ceases prior to December 31 of the Issuance Year (unless such cessation of service occurs following a Change of Control), a portion of the shares subject to a Retainer Restricted Share Award will be forfeited in an amount equal to the number of shares subject to such Retainer Restricted Share Award multiplied by a fraction, the numerator of which is the number of days remaining in the Issuance Year after the date of such Eligible Director’s service with the Company ceases and the denominator of which is 365, rounded down to the nearest whole share.   7.3                                 Retainer Deferred Share Awards.   (a)                                  On the first trading day of the calendar year, an Eligible Director shall receive a credit to his or her Deferred Stock Account equal to the number of shares of Common Stock (“Deferred Shares”) determined by dividing an amount equal to the amount of the Annual Retainer and, if applicable, the Committee Chair Retainer that the Eligible Director elected to receive in the form of a Retainer Deferred Share Award by the Average Market Price calculated on the first trading day of the calendar year, rounded up to the nearest whole share. Any such Retainer Deferred Share Award shall be awarded under the Stock Plan. In addition to the terms and conditions set forth below, such Retainer Deferred Share Award shall be subject to the terms and conditions of the Stock Plan; provided, however, that the terms and conditions set forth below shall be deemed to constitute the Award Agreement with respect to any Retainer Deferred Share Award and no separate, executed Award Agreement shall be required under the terms of the Program or the Stock Plan.   (b)                                 In the event an Eligible Director incurs a Separation from Service prior to December 31 of the Issuance Year (unless such Separation from Service occurs following a Change of Control), a portion of the Deferred Shares credited to the Eligible Director’s Deferred Stock Account will be forfeited in an amount equal to the Deferred Shares multiplied by a fraction, the numerator of which is the number of days remaining in the Issuance Year after the date of such Eligible Director’s Separation from Service and the denominator of which is 365, rounded down to the nearest whole share.   (c)                                  Each time a cash dividend is paid on the Common Stock, the Eligible Director shall receive a credit to his or her Deferred Stock Account equal to that number of shares of Common Stock (rounded to the nearest whole share) having a Fair Market Value on the dividend payment date equal to the amount of the cash dividend payable on the number of shares credited to the Eligible Director’s Deferred Stock Account on the dividend record date. Each time there is a change in the number or character of the Common Stock (through any stock dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation split-up, spin-off, combination, repurchase or exchange of shares or otherwise), the Eligible Director shall receive a credit to his or her Deferred Stock Account equal to that change in number or character of the Common Stock.   8 --------------------------------------------------------------------------------   (d)                                 At the time of making the Annual Retainer Election, each Eligible Director shall also complete a deferral payment election specifying one of the payment options described in Section 7.3(e) below with respect to the Deferred Shares subject to such Annual Retainer Election.   (e)                                  An Eligible Director may elect to receive payment of his or her Deferred Stock Account in a lump sum on January 10 of the year (or the first business day thereafter) following the Eligible Director’s Separation from Service on the Board or in five, ten or fifteen annual installments beginning on January 10 of the year (or the first business day thereafter) following the Eligible Director’s Separation from Service. If an Eligible Director fails to make a deferral payment election, such Eligible Director shall be deemed to have elected a single lump sum payment. All payments shall be made in shares of Common Stock plus cash in lieu of any fractional share. If an Eligible Director elects to receive installment payments from his or her Deferred Stock Account, the amount of each installment payment shall be computed as the number of shares credited to the Eligible Director’s Deferred Stock Account, multiplied by a fraction, the numerator of which is one and the denominator of which is the total number of installments elected (i.e., five, ten or fifteen) minus the number of installments previously paid. Amounts paid prior to the final installment payment shall be rounded to the nearest whole number of shares; the final installment payment shall be for the whole number of shares then credited to the Eligible Director’s Deferred Stock Account, together with cash in lieu of any fractional share.   (f)                                    An Eligible Director may elect to change the form of his or her distribution after making his or her Annual Retainer Election (other than on account of a Change in Control under Section 7.3(i)), provided (i) the Eligible Director makes such election in accordance with rules established by the Committee at least 12 months prior to the date that the Eligible Director’s first scheduled payment was to begin, (ii) the election may not take effect until at least 12 months after the date on which a completed election is filed with the Committee, and (iii) the election defers commencement of the benefit at least 5 years beyond the date payment otherwise would have been made or commenced, except with respect to payments on account of death. An installment distribution shall be treated as a single payment for purposes of this Section 7(f).   (g)                                 If an Eligible Director dies before receiving all payments to which he or she is entitled under this Section 7.3 of the Program, payment shall be made in the form elected by the Eligible Director to the beneficiary designated by the Eligible Director on a form provided for that purpose and delivered to and accepted by the Committee or, in the absence of a valid designation or if the designated beneficiary does not survive the Eligible Director, to such Eligible Director’s estate.   (h)                                 No right to receive payments under this Section 7.3 of the Program nor any shares of Common Stock credited to an Eligible Director’s Deferred Stock Account shall be assignable or transferable by an Eligible Director other than by will or the laws of descent and distribution. The designation of a beneficiary by an Eligible Director pursuant to Section 7.3(g) does not constitute a transfer.   9 --------------------------------------------------------------------------------   (i)                                     Notwithstanding anything to the contrary set forth in the Program, upon the occurrence of a Change of Control of the Company, then if, and only if, such Change of Control is determined by the Committee to be a “change of control” within the meaning of Section 409A of the Code, credits to an Eligible Director’s Deferred Stock Account as of the business day immediately prior to the effective date of the transaction constituting the Change of Control shall be paid in full to the Eligible Director or the Eligible Director’s beneficiary or estate, as the case may be, in whole shares of Common Stock (together with cash in lieu of a fractional share) on such date.   8.                                       Rights of Eligible Directors.   8.1                                 Service as a Director. Nothing in the Program nor the Stock Plan will interfere with or limit in any way the right of the stockholders of the Company to remove an Eligible Director, and neither the Program nor the Stock Plan, nor the granting of an Award nor any other action taken pursuant to the Program or Stock Plan, will constitute or be evidence of any agreement or understanding, express or implied, that the stockholders of the Company will re-elect an Eligible Director for any period of time or at any particular rate of compensation.   8.2                                 Non-Exclusivity of the Program. Nothing contained in the Program is intended to create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements for non-employee directors as the Board may deem necessary or desirable.   9.                                       Securities Law and Other Restrictions.   Notwithstanding any other provision of the Program or any agreements entered into pursuant to the Program, the Company will not be required to issue any shares of Common Stock under this Program, and an Eligible Director may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Awards granted under the Program, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.   10.                                 Program Effective Date, Duration, Amendment, Modification and Termination.   The Program shall be deemed effective as of the Effective Date and shall continue in full force and effect until suspended or terminated by the Committee or the Board. The Committee or the Board may suspend or terminate the Program or any portion thereof at any time, and may amend the Program from time to time in such respects as the   10 --------------------------------------------------------------------------------   Committee or the Board may deem advisable in order that Awards under the Program will conform to any change in applicable laws or regulations or in any other respect the Committee or the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Program will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to the rules of the New York Stock Exchange or any similar regulatory body. Payments of amounts due under Section 7.3 may not be accelerated on account of a termination of the Program unless and only to the extent permitted under Section 409A of the Code.   11.                                 Stock Plan.   Notwithstanding anything stated to the contrary herein, all Awards granted pursuant to the Program shall be awarded under, and in accordance with, the terms of the Stock Plan.   12.                                 Miscellaneous.   12.1                           Governing Law. Notwithstanding conflict of law provisions, the validity, construction, interpretation, administration and effect of the Program and any rules, regulations and actions relating to the Program will be governed by and construed exclusively in accordance with the laws of the State of Delaware.   12.2                           Successors and Assigns. The Program will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Eligible Directors.   12.3                           No Representation or Warranty. The Company makes no representation or warranty regarding the tax consequences relating to any Award, and the Company recommends that the Eligible Director consult with his or her own advisors before making any determination regarding the election to receive, exercise or the sale of an Award.   12.4                           Unfunded Program. The Program shall be unfunded and shall not create (or be construed to create) a trust or separate fund or funds. The Program shall not establish any fiduciary relationship between the Company and any Eligible Director or other person. To the extent any person holds any rights by virtue of a grant under the Program, such rights shall be no greater than the rights of an unsecured general creditor of the Company. If the Company shall, in fact, elect to set aside monies or other assets to meet its obligations under Section 7.3 of the Program (there being no obligation to do so), whether in a grantor trust or otherwise, the same shall, nevertheless, be regarded as a part of the general assets of the Company subject to the claims of its general creditors, and neither any Eligible Director nor any beneficiary of any Eligible Director shall have a legal, beneficial, or security interest therein.   11 --------------------------------------------------------------------------------   EXHIBIT A   Annual Retainer   $ 65,000           Committee Chair Retainer (Audit)   $ 15,000           Committee Chair Retainer (Other)   $ 10,000           Option Award   8,000  shares         New Director Restricted Stock Award   $ 150,000  value   1 --------------------------------------------------------------------------------

  Exhibit 10.1 LEASE by and between AMERICAN INTERNATIONAL COMPANY LIMITED and ALLIED WORLD ASSURANCE COMPANY, LTD   --------------------------------------------------------------------------------   This LEASE (the “Lease”) has been made and entered into this 29th day of November, 2006, by and between AMERICAN INTERNATIONAL COMPANY LIMITED, a company incorporated under the laws of the Islands of Bermuda (hereinafter called the “Landlord”), of the one part and ALLIED WORLD ASSURANCE COMPANY, LTD, a company incorporated under the laws of the Islands of Bermuda (hereinafter called the “Tenant”), of the other part. NOW THIS LEASE WITNESSES as follows: 1. DEFINITIONS (1) “Land” shall mean the lot of land situate in Pembroke Parish in the said Islands owned by the Landlord and outlined in red on the plan hereto annexed marked “i”. (2) “Building” shall mean the new office building that has been erected by the Landlord on the Land. (3) “Premises” shall mean all those office premises comprising a total of 78,057 square feet of rentable space on the top six floors and basement of the Building as shown outlined in red and marked “ii”, “iii”, “iv”, “v”, “vi”, “vii” and “viii” on the floor layout plans annexed and including: (a) the floor finishes and floor screed including raised floors and floor jacks supporting the same; (b) the inner surface of the ceiling slabs of each ceiling of the Premises and any void between any suspended ceilings and such inner surface; (c) the inner half severed medially of the internal non-load bearing walls that divide the Premises from other premises; (d) the interior plaster and decorative finishes of all walls bounding the Premises; (e) the doors and windows and door frames and window frames bounding the Premises; (f) all additions and improvements to the Premises; (g) all conducting media and conduits exclusively serving the Premises and light fittings and air conditioning equipment incorporated in any ceiling or wall within the Premises but not any other part of the air conditioning system; but excluding the roof and roof space, the foundations of the Building, all external structural or load bearing walls, columns, beams and supports that form part of the Building, as well as all stairwells, elevator shafts, mechanical shafts and air vents AND ALSO EXCLUDING for the purpose of calculating the Rents (only) the data rooms, the electrical rooms and the janitor’s closets. -1- --------------------------------------------------------------------------------   (4) “Landlord” and “Tenant” shall include the successors and permitted assigns and person or persons for the time being deriving title from under the Landlord and the Tenant respectively. (5) “Rent” shall mean the rent provided for in Clause 3(a) hereof and any increase thereof. (6) “Rents” shall mean the Rent the User Fee and the Maintenance Expenses. (7) “Term” shall mean the period of fifteen (15) years commencing on 1st October 2006 and expiring on 30th September 2021. (8) “Maintenance Expenses” shall mean the actual amount expended or allocated by the Landlord (acting reasonably and properly) during each Maintenance Period with respect to the costs, expenses and outgoings incurred by it with respect to the matters mentioned in the Third Schedule. (9) “Maintenance Period” shall mean the period from and including 1st October 2006 until and including 30th November 2006 and thereafter each financial year of the Landlord that is the period of 12 calendar months commencing on the 1st day of December in each year of the Term. (10) “Services” shall mean the services for which the Landlord is responsible as detailed in the Third Schedule. (11) “Tenant’s Percentage” shall mean in respect of those services detailed in Part I of the Third Schedule a percentage calculated (subject to the agreement of the parties to the contrary) on the basis of the total square footage of the Premises as a percentage of the total rentable square footage of the Building (whether or not the same is actually rented) and in respect of those services detailed in Part II of the Third Schedule a percentage calculated (subject to the agreement of the parties to the contrary) on the basis of the total square footage of the Premises as a percentage of the total rentable square footage of the Building and the AIG Building (whether or not the same is actually rented). (12) “AIG Building” shall mean the Landlord’s building situate at and known as 29 Richmond Road, Pembroke Parish. (13) “Business Day” shall mean any day upon which banks in Bermuda are open for business. (14) “Open Market Rent” shall mean the best rent which might reasonably be expected to be paid by a willing tenant to a willing landlord for a letting of the Premises (on a floor by floor basis) while taking into consideration any discount that may be appropriate for the rental of the whole of the Premises in the open market with vacant possession and without a fine or premium for a term equivalent to the then unexpired residue of the Term commencing on the date of review and otherwise upon the same terms as this Lease (except as to the amount of the Rent and the User Fee) and upon the assumption that: -2- --------------------------------------------------------------------------------   (a) there has been a reasonable period in which to negotiate the terms of the letting taking into account the nature of the Premises and the state of the market; (b) no account will be taken of any additional rent which might be offered by a prospective tenant with a special interest; (c) all the covenants on the part of the Tenant contained in this Lease have been complied with; (d) if the Premises or any access or essential services to them have been destroyed or damaged by a risk against which the Landlord is required to insure under the terms of this Lease they have been fully restored; (e) the Premises may lawfully be used for the purpose permitted by this Lease; and (f) the willing tenant is to receive whatever rental concessions or other inducements may at the time be usual on the grant of a new lease with vacant possession provided that such concessions or inducements are granted for fitting out purposes only; but disregarding: (g) any effect on rent of the fact that the Tenant any undertenant or any of their respective predecessors in title has been or is in occupation of the Premises; (h) any goodwill attached to the Premises by reason of the carrying on of the business of the Tenant any undertenant or their respective predecessors in title; (i) any improvement to the Premises which (i) was carried out by and at the expense of the Tenant or a permitted undertenant or any of their respective predecessors in title and (ii) was not carried out pursuant to an obligation to the Landlord or its predecessors in title under the terms of this Lease and (iii) was carried out with all consents required under this Lease and (iv) was carried out and completed during the Term or during any period of occupation immediately before the start of the Term under a licence or agreement for lease; (j) any work carried out to the Premises by the Tenant which diminishes the rental value of the Premises at the relevant renewal date; and (k) any temporary works of construction demolition alteration or repair being carried out on the Premises. (15) “User Fee” shall mean the sum specified in clause 3(a)(ii) hereof. (16) “Tennis Court” means the tennis court located on the Land. (17) “Review Date(s)” means each fifth anniversary of the date the Term commences during the Term. -3- --------------------------------------------------------------------------------   2. THE DEMISE      IN CONSIDERATION of the Rent hereinafter reserved, and of the covenants on the part of the Tenant hereinafter contained, the Landlord HEREBY DEMISES unto the Tenant ALL THAT the Premises TOGETHER WITH the easements, rights and privileges mentioned in the First Schedule hereto, but excepting and reserving as mentioned in the Second Schedule hereto, TO HOLD the same unto the Tenant for the Term YIELDING AND PAYING THEREFOR to the Landlord during the first five years of the Term the Rent set forth in Clause 3(a) hereof and thereafter with effect from each Review Date such Rent as shall be agreed to between the Landlord and the Tenant, and failing agreement, to be the Open Market Rent for the Premises determined by arbitration pursuant to clause 6(5) hereof (but to be not less than the immediately preceding five-year-period Rent) and such Rent shall be paid monthly in advance on the first day of every month in every year commencing with effect from 1st October 2006 AND in addition, the Tenant hereby covenants to pay to the Landlord the User Fee specified in clause 3(a)(ii) AND with respect to each Maintenance Period the Tenant’s Percentage of the Maintenance Expenses as set forth in Clause 3 hereof. 3. RENT AND MAINTENANCE EXPENSES (a) The Tenant shall pay to the Landlord the following: (i) annual Rent with respect to the Premises at the following rates (per floor) for the first five years of the Term:                   Seventh floor   US$72.50 per sq. ft.   7,688 sq. ft.   US$557,380.00   per annum Sixth floor   US$62.50 per sq. ft.   13,307 sq. ft.   US$831,687.50   per annum Fifth floor   US$60.25 per sq. ft.   13,390 sq. ft.   US$806,747.50   per annum Fourth floor   US$58.50 per sq. ft.   13,390 sq. ft.   US$783,315.00   per annum Third floor   US$58.50 per sq. ft.   13,390 sq. ft.   US$783,315.00   per annum Second floor   US$54.00 per sq. ft.   13,390 sq. ft.   US$723,060.00   per annum Basement Storage   US$27.00 per sq. ft.   3,502 sq ft.   US$94,554.00   per annum Accordingly, the Tenant shall pay US$4,580,059.00 to the Landlord annually for the first five years of the Term by payments of US$381,671.58 per month payable in advance on the first day of every month in every year commencing on 1st October 2006 ; and (ii) from (and including) the 1st January 2007 and thereafter throughout the Term, an annual User Fee in respect of the Tenant’s use of the cafeteria situated on the ground floor of the Building and shown outlined in blue on the plan marked “ix” hereto annexed, -4- --------------------------------------------------------------------------------   which comprises approximately 3,837 square feet (the “Cafeteria”) and the fitness centre situated on the basement floor of the Building and shown outlined in green on the said plan marked “viii” hereto annexed which comprises approximately 4,083 square feet (the “Fitness Centre”) AND the User Fee shall for the period from (and including) the 1st January 2007 to (and including) the 30th September, 2011 be $140,561.98 per annum (being the aggregate of $91,747.71 per annum for the Cafeteria and $48,814.71 per annum for the Fitness Centre) (apportioned as necessary for any part of a year) and shall be payable in advance (with the Rent) by way of equal monthly instalments each in the sum of $11,713.50 (apportioned as necessary for any part of a month) AND on the first Review Date and on each Review Date thereafter during the Term, the User Fee shall increase by a rate that equates to the percentage rate of increase of the Rent payable in respect of the Second Floor of the Building (as determined in accordance with clause 2 hereof). (b) The Tenant shall also pay to the Landlord by way of additional Rent the Tenant’s Percentage of the Maintenance Expenses and from the date of commencement of the Term until 30th November 2007 the Tenant shall pay to the Landlord an amount on account of the Tenant’s Percentage of the Maintenance Expenses in the sum of $11.00 per square foot of the Premises the Cafeteria and the Fitness Centre per annum and payable by payments of US$ 74,766.98 per month in advance on the first day of every month commencing on the 1st October 2006. (c) At any time prior to the 1st December 2007 and at any time or times during or immediately prior to each Maintenance Period thereafter, the Landlord may serve written notice on the Tenant notifying the Tenant of the amount that the Landlord reasonably estimates the Maintenance Expenses to be with respect to that Maintenance Period or the next Maintenance Period together with details of the Tenant’s Percentage of the same and thereupon the Tenant shall pay to the Landlord the Tenant’s Percentage by equal monthly payments in advance on the 1st day of each month (d) As soon as is reasonably practicable after the end of each Maintenance Period the Landlord shall cause accounts to be prepared showing the Maintenance Expenses and the Tenant’s Percentage thereof, and if the Tenant shall in writing so request, the Landlord shall provide supporting documentation for all Maintenance Expenses incurred. For the avoidance of doubt, the accounts prepared by or on behalf of the Landlord relating to Part I of the Third Schedule shall relate to its costs in respect of the Building only and not (either in whole or part) to the AIG Building. If the sums paid to the Landlord by the Tenant in accordance with sub- -5- --------------------------------------------------------------------------------   clauses (b) or (c) hereof shall exceed the Tenant’s Percentage of the Maintenance Expenses, then such excess shall be carried forward to the Tenant’s account and set off against its liability for the next Maintenance Period or any succeeding Maintenance Period or periods and shall be repaid to the Tenant on the termination of the Term, and if the sums paid to the Landlord by the Tenant in accordance with sub-clauses (b) or (c) hereof shall be less than the Tenant’s proportion of the Maintenance Expenses, then such shortfall shall be made up by the Tenant within ten (10) Business Days of written demand by the Landlord. (e) Notwithstanding the contents of sub-clauses (b), (c) and (d) hereof, the Landlord may demand by notice in writing to the Tenant, and the Tenant shall pay, the Tenant’s Percentage of the costs of any significant expense incurred or necessary for the Landlord to carry out its maintenance obligations as set out in the Third Schedule hereto. (f) The Rent and Maintenance Expenses for the first and last months of the Term shall be apportioned if necessary and any credit under sub-clause (d) hereof or any payment towards a reserve fund under sub-clause (e) hereof shall be repaid to the Tenant at the end of the Term. (g) Where any payments due under this Clause 3 would otherwise fall to be paid on a date that is not a Business Day such payment shall be due on the last Business Day immediately preceding such date. (h) On the date of completion of the fit out works relating to the Cafeteria and the Fitness Centre respectively as well as the completion of the works relating to the Tennis Court, or (if later) within ten (10) Business Days of receipt of a written demand from the Landlord, the Tenant shall pay to pay fifty percent (50%) of all costs reasonably incurred by the Landlord in relation to to such works (or any of them) and the Landlord shall provide copy invoices or other documentary evidence acceptable to the Tenant (acting reasonably) to support the demand. 4. TENANT’S COVENANTS THE TENANT, to the intent that the obligations may continue throughout the Term, hereby covenants with the Landlord as follows: (1) To pay Rent hereby reserved and the Maintenance Expenses at the times and in the manner aforesaid without any deductions whatsoever. (2) To pay all telephone charges incurred by the Tenant. (3) To keep the interior of the Premises and the fixtures therein and the interior and exterior doors and windows thereof including the glass in good repair and condition (provided always that the Tenant shall not be responsible for cleaning the exterior of the external windows in the Premises). (4) Not without the previous consent in writing of the Landlord (which consent shall not be unreasonably withheld or delayed) to cut, alter or -6- --------------------------------------------------------------------------------   injure or permit to be cut, altered or injured any of the main walls, timbers or floors or any other part of the Premises or the Building or to make any alteration or addition to the exterior of the Premises or any part of the Land. (5) To repay to the Landlord the costs and expenses of any work carried out by the Landlord caused by or resulting from damage caused by the Tenant, its servants, employees, agents, visitors or sub-tenants to any part of the Land or the Building or resulting from any negligent act or omission or breach of covenant of the Tenant, its servants, agents, visitors or sub-tenants. (6) To permit the Landlord and its duly approved Agent (if any) with or without workmen or others at all reasonable times of the day upon giving 24 hours’ previous notice in writing to enter the Premises to view the state, repair and condition thereof and upon the Landlord serving upon the Tenant a notice specifying any defects or want of reparation then and there found and requiring the Tenant forthwith to execute the same if the Tenant shall not within the period of one month after such notice or sooner if requisite proceed to repair and make good the same according to such notice and the covenants in that behalf hereinbefore contained then to permit the Landlord to enter upon the Premises and execute such repairs and the costs thereof shall be a debt due from the Tenant to the Landlord and shall be forthwith recoverable by action. (7) Subject to the Landlord providing the Tenant with a copy of the insurance policy for the Property and any variations to the same made at any time during the Term not to do or permit or suffer to be done or omitted anything on any part of the Premises or the Land that may render void or voidable any insurance policy provided by the Landlord under the terms of this Lease or that may increase the rate of premium payable with respect thereto. (8) Not without the Landlord’s consent (which consent shall not be unreasonably withheld or delayed) at any time during the Term to use or occupy or permit to be used or occupied the Premises or any part thereof otherwise than as an office. (9) Not to do or permit or suffer to be done on the Premises or the Land any act or thing that may be or become illegal or a nuisance, disturbance, annoyance or inconvenience to the Landlord or the other tenants or occupiers of the Land or the Building or the owners, tenants or occupiers of any adjoining or neighboring land or that may deteriorate or tend to deteriorate the value of the Land or the Building any part thereof. (10) Not to assign or underlet or part with the possession of the Premises or any part thereof without the consent in writing of the Landlord first being obtained (which consent shall not be unreasonably withheld or delayed) and any and all governmental or regulatory consents or -7- --------------------------------------------------------------------------------   permissions; provided that, the Tenant shall notify the Landlord in writing of such intention to assign, underlet (whether in whole or part) or part with the possession of the Premises, and the Landlord shall have the right by notice in writing to the Tenant within 30 days thereof to take such assignment or sub-lease on the terms that the Tenant would have entered into with a third party, and as a condition of consent to any assignment or underlease to a third party and contemporaneously therewith, the Landlord may require to be made a party to such assignment or underlease of the Premises to signify its consent to such assignment or underlease, which in the case of an assignment shall contain a covenant by such intended assignee to perform the covenants on the part of the Tenant contained in this Lease as if these covenants were therein repeated with the substitution of the name of the intended assignee for the name of the Tenant and in the case of an underlease shall contain a covenant to perform the covenants on the part of the undertenant contained in the underlease and in both cases containing also a provision that the proviso for re-entry contained in this Lease shall take effect as if the covenant contained in such assignment or underlease were a covenant on the part of the Tenant contained in this Lease and thereupon with respect to an assignment only the obligations of the Tenant or other assigning party under this Lease or any such assignment as aforesaid shall cease but without prejudice to any right of action against the Tenant or other assigning party for any antecedent breach thereof; provided, however, that Tenant hereby agrees to pay to the Landlord as additional rent 50% of the excess of (i) the sum of any and all Rent and other consideration paid to Tenant by the assignee or underleasee over (ii) the sum of any and all Rent and other consideration that would be payable by Tenant to the Landlord pursuant to the terms of this Lease. (11) Not to affix any placard, announcement, advertisement, name or sign upon the external walls or in the windows of the Premises or write upon the Premises or any part of the Building or the Land any name or sign except the Tenant’s name or business without the consent in writing of the Landlord first being obtained, such consent not to be unreasonably withheld or delayed. (12) To observe the restrictions set out in the Fourth Schedule hereto. (13) To conform to all reasonable regulations made by the Landlord from time to time in accordance with the provisions of paragraph 2 of the Fourth Schedule hereto. (14) Save where the Tenant exercises its option under clause 6(4) to renew the Term, at the expiration or sooner determination of the Term, if so required by the Landlord to make the reinstatements to the Building design as set out in the Fifth Schedule in a good and workmanlike manner and on completion of the required works, which shall be completed before the said expiration or sooner determination of the Term, quietly to -8- --------------------------------------------------------------------------------       yield up unto the Landlord the Premises with all fixtures and fittings (other than the Tenant’s fittings) that now or at any time during the Term shall be thereon or added thereto in accordance with the obligations of the Tenant contained in this Lease and with all locks and keys and fastenings complete.       (15) The Tenant shall not at any time during the Term use the generator situated in the basement of the Building (“the Generator”) for purposes other than those specified in the schedule marked A hereto annexed without the Landlord’s prior written consent (which shall not be unreasonably withheld or delayed) and the Tenant shall not in any event use more than 60% of the Generator’s total available power capacity at Optimal Design Load as described in Schedule A.       (16) The Tenant shall observe and perform all rules and regulations imposed by the Landlord (acting reasonably) in respect of the use of the Cafeteria and the Fitness Centre from time to time during the Term.   5.   LANDLORD’S COVENANTS       THE LANDLORD, hereby covenants with the Tenant as follows:       (l) That the Tenant paying the Rents hereby reserved and performing and observing the covenants and stipulations herein on the Tenant’s part to be performed and observed shall peaceably hold and enjoy the Premises during the Term without any interruptions by the Landlord or any person rightfully claiming under or in trust for the Landlord.       (2) To keep the Building comprehensively insured against loss or damage, including windstorm, public liability and such other risks as the Landlord may deem necessary in some insurance office of good repute to the full reinstatement value thereof and to make all payments necessary for that purpose before the same shall have become due and payable, and to produce to the Tenant, if and when requested, the most recent valuation of the Building, the policy of insurance and the receipt for the current year’s premium. In the event that the Building, or any part thereof, shall be damaged or destroyed by an insured cause, the Landlord shall use all insurance money received under the said insurance policy to reinstate and make good the Building as soon as practicable after such damage or destruction.       (3) That subject to the payments of the Rent, the User Fee and Maintenance Expenses hereinbefore specified on the dates and in the manner hereinbefore provided, and subject to the observance and performance of the covenants and stipulations herein contained and on the part of the Tenant to be observed and performed, the Landlord will undertake the obligations on its part detailed in Clause 3 and will carry out and perform or arrange for the carrying out and performance of the several matters and things set forth in the Third Schedule hereto and will defray -9- --------------------------------------------------------------------------------       the reasonable costs and expenses thereof PROVIDED ALWAYS and without prejudice to the generality of the foregoing it is hereby expressly agreed that the Landlord may appoint and remunerate at the current market rate a managing agent who shall be responsible to the Landlord for carrying out and performing the several matters and things set forth in the Third Schedule hereto and for arranging for the defraying of the costs and expenses thereof.       (4) That leases of all or any part of the Building granted or to be granted by the Landlord shall contain substantially the same covenants, stipulations and conditions as are herein set forth except as to the dates of such leases and the amount of the rents PROVIDED ALWAYS that nothing herein contained shall be construed to prevent the Landlord from giving or selling by way of conveyance any minor part of the Land to any public authority or body providing services of a public nature.       (5) To apply the Maintenance Expenses hereinbefore referred to and payable under the terms of this Lease and all Maintenance Expenses payable by the tenants of all the other part or parts of the Building to pay the insurance premiums referred to in Clause 5(2) hereof, and the costs and expenses of carrying out the several matters and things set forth in the Third Schedule hereto.       (6) To permit the Tenant to name the Building in accordance with the terms and conditions contained in Clause 4(11) hereof.   6.   MUTUAL COVENANTS       IT IS MUTUALLY AGREED and DECLARED as follows:       (1) If the Rent or the User Fee or any part thereof shall be in arrears for the space of 30 days after the day whereon the same ought to be paid as aforesaid, whether formally demanded or not or if any payment of Rent or the User Fee or the Maintenance Expenses or any part thereof payable under Clause 3 hereof shall be unpaid for 30 days after becoming due or after service of a notice served under the terms hereof or any covenant on the Tenant’s part herein contained shall not be performed or observed or if the Tenant or other person or persons in whom for the time being the Term shall be vested or any of them shall become bankrupt or insolvent or make any assignment for the benefit of its creditors or make any arrangements with its creditors for liquidation of its debts by composition or otherwise or suffer any distress or process of execution to be levied on its goods then, and in any such case, the Landlord may at any time thereafter by seven days notice in writing to the Tenant terminate this Lease and on the expiry thereof this demise shall absolutely cease and determine but without prejudice to any right of action that either party may have against the other in respect of any antecedent breach of the Tenant’s covenants or of any of the provisions and stipulations herein contained. -10- --------------------------------------------------------------------------------   (2) Any notice under this Lease shall be in writing, and any notice to the Tenant shall be sufficiently served if left addressed to the Tenant at the Premises or sent to the Tenant at such address or left at or sent to its registered office by registered post, and any notice to the Landlord shall be sufficiently served if delivered at or sent by registered post to the Landlord at its registered office or at such other address as the Landlord shall from time to time notify the Tenant in writing or sent to the Landlord’s managing agent (if any) at that time by registered post at the address of such managing agent. Any notice sent by post shall be deemed to be given at the time when in due course it would be delivered at the address to which it is sent. (3)(i)   In the event of the Building or the Premises or any part thereof at any time during the Term being damaged so as to be unfit for occupation and use, and if the Landlord’s policy or policies of insurance shall not have been rendered void or voidable or payment of the policy monies refused in whole or in part by reason of any act or default on the part of the Tenant, then the Rent or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Building and the Premises shall again be rendered fit for occupation and use and any dispute concerning this Clause shall be determined by arbitration in accordance with the provisions of Clause 6(5) hereof.   (ii)   Provided that whenever insured damage occurs and the Premises or any part thereof is damaged to such an extent that the rebuilding and reinstatement of the same cannot be completed within a period of six months, then the Tenant shall be entitled to terminate this Lease by serving a notice upon the Landlord setting out the Tenant’s opinion in this regard and in the event that the notice is accepted by the Landlord the Lease shall terminate at the expiration of 30 days from the date of such notice, but without prejudice to any right of action that either party may have against the other in respect of any antecedent breach by the other of the terms and provisions of this Lease, and in the event that the notice is not accepted by the Landlord, then the matter shall be determined by arbitration in accordance with the provisions of Clause 6(5) hereof.   (4)(i)   If the Tenant shall be desirous of renewing the Term hereby created for a further term of ten years (the “Further Term”) following the expiration of the Term, it shall give to the Landlord notice in writing to that effect not less than 12 months’ before the expiration of the Term and provided that at the date of giving such notice, and at the date of termination of the Term the Tenant shall have paid the Rents hereby reserved together with any other sums -11- --------------------------------------------------------------------------------       due hereunder and shall have performed and observed in all material respects the several covenants, conditions and provisions herein contained and on the part of the Tenant to be performed and observed, then the Landlord will grant a new Lease of the Premises to the Tenant for the Further Term commencing on the day immediately following the expiration of the Term (the “New Commencement Date”) at a rent to be agreed to between the Landlord and the Tenant, subject to the same covenants and provisions as are herein contained including rent reviews at the same intervals and on the same terms as contained herein but save and except for the amounts of Rents (which shall be determined for the first five years of the Further Term under sub-clause (ii) of this clause 6(4) and thereafter subject to review) and save and except this present provision for renewal.   (ii)   the Rent for the first five years of the Further Term commencing on the New Commencement Date, shall be calculated by reference to the Rent payable by the Tenant during the last year of the Term, increased by a rate to be agreed between the Landlord and the Tenant and failing such agreement to be determined by reference to the Open Market Rent payable in respect of the Premises (on a floor by floor basis) for a period of ten years (subject to a review on the fifth anniversary thereof) from the New Commencement Date and decided by arbitration in accordance with clause 6(5) hereof;   (iii)   the User Fee for the first five years of the Further Term commencing on the New Commencement Date shall be calculated by reference to the User Fee payable by the Tenant during the last year of the Term, increased by a rate that equates to the percentage rate of increase of the Rent payable in respect of the Second Floor of the Building as calculated pursuant to the provisions of clause 6(4)(ii) above and the User Fee for the remaining five years of the Further Term shall increase by a rate that equates to the percentage rate increase of the Rent payable in respect of the Second Floor during this period . (5) Where this Lease provides that a dispute question or matter arising between the parties hereto shall be decided by arbitration, the matter shall be submitted to arbitration within the meaning of The Arbitration Act l986, or any act amending or replacing the same for the time being in force and decided by a sole arbitrator who shall be appointed by agreement between the parties or in the absence of agreement by the President from time to time of the Bermuda Bar Association. Any such arbitration shall be held in Bermuda and the procedures shall be decided by the arbitrator. -12- --------------------------------------------------------------------------------   The decision of such arbitrator shall be final and binding on the parties hereto. (6) The Landlord shall not be liable to the Tenant for any loss of profits, business interruption loss, or any economic or other loss or damage arising from the interruption of the services provided in or to the Building, including any interruptions affecting the air conditioning supply, and/or the electricity supply (whether from the Bermuda Electric Light Company Limited, the Generator, or otherwise), save to the extent that such interruption is caused by gross negligence or willful default on the part of the Landlord its agents or employees. IN WITNESS WHEREOF, the parties to these presents have caused their Common Seals to be hereunto affixed the day and year first before written. THE FIRST SCHEDULE BEFORE REFERRED TO (Tenant’s Easements, Rights and Privileges) 1.   The free uninterrupted passage of running water, electricity, gas and other utilities and soil and waste from and to the Premises through the sewers, drains, water-courses, cables, pipes, wires, fiber optic cables and apparatus that now are or may at any time hereafter be in, under or passing through the Land and/or the Building or any part thereof provided that, in the event of any services that pass through other parts of the Building require attention, the Tenant may with or without workmen have access to such other parts of the Building as may be strictly necessary for that purpose and will be responsible for ensuring that no unnecessary inconvenience is caused and that any damage done is forthwith made good in a satisfactory manner and at the Tenant’s expense.   2.   The right to subjacent and lateral support and to shelter and protection from the other part of the Building and from the site and roof thereof.   3.   The use at all times, in common with the Landlord and the other tenants of the Building, of the entrance, lobbies, stairways and elevators for the purpose only of ingress and egress from the Premises and where the Premises do not comprise an entire floor use of the common toilet facilities.   4.   The right in common with other occupiers of the Building and the occupiers of the AIG Building to use the car and cycle parking spaces shown on the plans marked “x” and “xi” hereto annexed on a first-come, first-serve basis (excluding four car and one cycle parking spaces which will be designated and reserved for use by the Landlord), and the exclusive right to use four such car and one such cycle parking spaces which shall be designated and reserved for use by the Tenant only.   5.   The use, in common with the other tenants of the Building and the AIG Building, of the Fitness Centre and Cafeteria in the Building and related -13- --------------------------------------------------------------------------------       common areas subject to paying its proportion of the costs associated with running the same.   6.   The use in common with the Landlord and other occupiers of the Building of the Generator provided always that the parties agree that the Tenant shall be entitled to use the same to generate output up to a maximum of 60% of the Generator’s total available capacity at Optimal Design Load as described in Schedule A and the Landlord and other occupiers of the Building and the AIG Building shall be entitled to use the same up to a maximum of 40% of the Generator’s total available capacity at Optimal Design Load as described in Schedule A.   7.   The exclusive use of the area designated “Terrace Area” and shaded yellow on the said plan marked “vii”. THE SECOND SCHEDULE BEFORE REFERRED TO (Exceptions and Reservations) There is excepted and reserved out of this Lease unto the Landlord and the other tenants of the Building: l.   The right for the Landlord and its surveyors or agents with or without workmen and others at all reasonable times on 24 hours’ prior notice (except in case of emergency in which case no such notice is required) to enter the Premises for the purpose of carrying out the obligations of the Landlord hereunder.   2.   Easements, rights and privileges equivalent to those set forth in the First Schedule hereto for the owners and occupiers of the other part of the Building subject, in the case of the rights set out in paragraph 6 of the First Schedule, to the proviso to that paragraph. THE THIRD SCHEDULE BEFORE REFERRED TO (Landlord’s Maintenance Obligations) (Part I) The management, maintenance and repair of the Building and all the facilities thereof and the provisions of all services in connection therewith (excluding those additional services provided in relation to the fitness facility and cafeteria in the Building as further detailed in Part II of this Schedule), including (but without prejudice to the generality of the foregoing): l.   Maintaining in good and substantial repair and condition the main structure, exterior and roof, including door and window frames of the Building and the tank and foundations thereof.   2.   The repairing, renewing, painting, glazing, maintaining, repainting and, when necessary, the rebuilding of the Building (including the foundations and footings), the external walls and external wood and ironwork, the joists, the roofs, canopies, the interior parts of the Building, the air conditioning plant and equipment, the elevator systems, the drains, the -14- --------------------------------------------------------------------------------       pumps, the hot and cold water cisterns and pipes, the waste pipes, the main electricity cables, the heating apparatus, the ventilating apparatus and shafts and the fire prevention apparatus and security systems serving the Building.   3.   Cleansing, maintaining and lighting of the roadways, forecourts, loading bays, lobbies, staircases, passages, landings and other common parts of the Building and Land.   4.   The cleaning of the exterior of all windows of the Building together with the interior of all windows in the common parts of the Building at regular intervals.   5.   The provision and replacement of all light bulbs, fluorescent tubes and other light fittings in all interior parts and exterior parts of the Building, as necessary throughout the Term.   6.   The treatment as required for the eradication or removal of any pests or vermin from the common parts of the Building when necessary.   7.   The provision of janitorial services to the common parts of the Building.   8.   The provision of electronic security services to the boundary between the Landlord and Tenant spaces.   9.   The provision of the fire alarm and sprinkler systems in the Building.   10.   The removal of refuse from the Building.   11.   Paying all existing and future rates taxes and assessments payable by law by the Landlord with respect to the Building other than any rentable parts of the Building not forming part of the Premises.   12.   Keeping all toilet facilities available for use in common with other occupiers of the Building clean and in good repair and condition, and to provide fresh water to the Building.   13.   Maintaining the elevators in safe and good working condition 24 hours of the day.   14.   Paying all monies necessary to keep the whole of the Land and the Building insured against loss or damage by fire, windstorm, public liability and such other risks as the Landlord may deem necessary in some insurance office of good repute to the full reinstatement value thereof.   15.   Paying any fees or expenses of a managing agent referred to in Clause 5(3) of this Lease.   16.   The cost of employing staff reasonably required for the performance of the duties and services before mentioned and for the security of the Building and all other incidental expenditures in relation to such employment, including (but not by way of limitation) the payment of the statutory and such other insurance, health, welfare, pension and other payments, contributions and premiums that the Landlord may in its discretion deem desirable or necessary, including the provision of uniforms, working clothes, tools, appliances, cleaning and other materials, bins, receptacles and other equipment for the proper performance of their duties and all -15- --------------------------------------------------------------------------------       costs and expenses incurred in providing suitable accommodation within the Building.   17.   All other matters relating to the use and enjoyment of the Premises and specifically agreed to be the responsibility of the Landlord. Part II 1.   The cost of maintaining and replacing the exercise and other equipment situated in the Fitness Centre as well as the stove(s) oven(s) and other appliances and equipment situated in the Cafeteria provided that the costs of replacement of any such equipment shall only be included where the Tenant has given its prior consent to its replacement (such consent not to be unreasonably withheld or delayed).   2.   The cost of employing staff reasonably required for the operation and management of both the Fitness Centre and Cafeteria and all other incidental expenditures in relation to such employment, including (but not by way of limitation) the payment of the statutory and such other insurance, health, welfare, pension and other payments, contributions and premiums that the Landlord may in its discretion deem desirable or necessary, including the provision of uniforms, working clothes, tools, appliances, cleaning and other materials, bins, receptacles and other equipment for the proper performance of their duties and all costs and expenses incurred in providing suitable accommodation within the Building.   3.   The cost of keeping the Fitness Centre and Cafeteria insured against loss or damage by fire, windstorm, public liability and such other risks as the Landlord may deem necessary (or where such facilities are insured together with other land and/or buildings owned by the Landlord a fair and reasonable proportion according to user of the costs of such policy) in some insurance office of repute to the full reinstatement value thereof.   4.   The costs of supplying electricity to the Premises, the Fitness Centre, the Cafeteria and all common parts of the Building.   5.   The cost of maintaining the landscaped areas around the Building and the AIG Building in good condition at all times.   6.   The cost of maintaining the car park used by the Tenant and by the occupiers the Building and the AIG Building in good and substantial repair and condition.   7.   The cost of maintaining the Tennis Court in good and substantial repair and condition.   8.   The cost of maintaining the Generator in good and substantial repair and condition. -16- --------------------------------------------------------------------------------   THE FOURTH SCHEDULE BEFORE REFERRED TO (Restrictions on Tenant — Covenant in Clause 4(12) hereof) 1.   The Tenant shall not in any way encumber or interfere with the access to or egress from or place or leave rubbish upon any part of the Land used in common with other tenants thereof (other than such part thereof as is specifically reserved for such purpose) nor allow any car, cycle, carriage or other vehicles or thing or any goods or packages belonging to the Tenant or the Tenant’s servants, employees, agents or invitees to be placed or remain upon any part of the Land used in common with other tenants (other than such part thereof as is specifically reserved for such purpose).   2.   The Landlord reserves the right to make such other rules and regulations from time to time (either in addition to or by way of substitution for these rules and regulations or any or them) as the Landlord may reasonably deem needful for the safety, care and cleanliness of the Land and the Building or for securing the comfort or convenience of the tenants thereof generally, but nothing in this Clause shall without the prior consent of the Tenant impose on the Tenant the burden or obligation to make increased financial payment. THE FIFTH SCHEDULE (Tenant’s reinstatement works) 1. Seventh Floor powder room to be reinstated as a data closet. 2. Showers in seventh floor washrooms to be removed and toilet reinstated. 3. Coffee stations on floors two to six inclusive to be removed.           THE COMMON SEAL of     )   AMERICAN INTERNATIONAL     )   COMPANY LIMITED was     )   hereunto affixed in the presence of:     )         )   Director/Director     )             /s/ George Cubbon /s/ Lars Bergquist                   THE COMMON SEAL of     )   ALLIED WORLD ASSURANCE     )   COMPANY, LTD was hereunto     )   affixed in the presence of:     )         )   Director/Secretary     )             /s/ Scott A. Carmilani         /s/ Wesley D. Dupont         Stamps to the value of $400.00 have been affixed for the purpose of Stamp Duty. -17-

Exhibit 10.8 Fourth Amendment to Employment Agreement This Fourth Amendment to Employment Agreement (the “Fourth Amendment”) is entered into as of September 1, 2005, by and between DEL MONTE FOODS COMPANY, a Delaware corporation, with its principal place of business in San Francisco, California (“Company”) and RICHARD G. WOLFORD, an individual residing in the State of California (“Executive”), to amend the Employment Agreement dated March 16, 1998 between the Company and Executive (“Agreement”), the Second Amendment to the Agreement dated March 26, 2002 (“Second Amendment”), and the Third Amendment to the Agreement dated November 11, 2004 (“Third Amendment”) as follows: 1. In the first sentence of Section 3(d) of the Agreement, the phrase “or Termination by the Employee of the Employment Period” shall be deleted in its entirety. 2. Section 3(e) of the Agreement shall be renumbered to 3(f), without any change to the text of that Section. 3. Section 3(f) of the Agreement shall be renumbered to 3(g), without any change to the text of that Section. 4. Section 3(g) of the Agreement shall be renumbered to 3(h), without any change to the text of that Section. 5. A new Section 3(e) shall be added to the Agreement in the following form: (e) Termination by the Executive of the Employment Period. In the event of the termination of the Employment pursuant to this Section 3(e), the Executive shall be entitled to the following payments and benefits: (i) The Company shall pay to the Executive (1) any earned but unpaid Base Salary and (2) a pro rata portion of Executive’s target Bonus for the year in which Executive’s termination occurs, prorated for Executive’s actual employment period during such year. (ii) The Company shall pay Executive an amount equal to $3,990,000, less standard withholdings, payable in equal monthly installments on the Company’s regular payroll schedule over a period of eighteen (18) months, and the Company shall have no further payment obligations pursuant to this Section 3(e)(ii) thereafter. -------------------------------------------------------------------------------- (iii) Executive shall receive the benefits set forth in Sections 3(d)(iii) and 3(d)(iv), subject to the terms and conditions set forth therein. (iv) No amounts paid pursuant to Sections 3(e)(ii) or 3(e)(iii) will constitute compensation for any purpose under any retirement plan or other employee benefit plan, program, arrangement or agreement of the Company or any of its affiliates. (v) As a condition to the receipt of the benefits described in this Section 3(e) the Executive shall be required to execute a general release and waiver in form and substance satisfactory to the Company and substantially similar to Annex A hereto. 6. A new Section 3(i) shall be added to the Agreement in the following form: (i) Notwithstanding the severance terms and benefits provided for in Section 3 of this Agreement, upon termination of employment Executive shall be entitled to Executive’s vested retirement benefits pursuant to the terms and conditions of the applicable retirement plans and agreements. Except as expressly provided in this Fourth Amendment, all other provisions of the Agreement, the Second Amendment and Third Amendment shall remain in full force and effect. [Remainder of page intentionally left blank. Signatures on following page.]   2 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of the date set forth below.   EXECUTIVE         /s/ Richard G. Wolford            12/14/2005 Richard G. Wolford          Date   COMPANY:   DEL MONTE FOODS COMPANY     By:   /s/ David L. Meyers       12/14/2005 Name:   David L. Meyers       Date Title:   Executive Vice President         Administration & Chief Financial Officer         3

Exhibit 10.5   AMENDMENT NO. 1 TO AVIZA, INC. 2003 EQUITY INCENTIVE PLAN Pursuant to the authority reserved to the Board of Directors (the “Board”) of Aviza, Inc., formerly Aviza Technology, Inc. (the “Company”), a corporation organized under the laws of State of Delaware, under Section 15 of the Company’s 2003 Equity Incentive Plan (the “Plan”), the Board hereby amends the Plan as follows. 1.             Effective as of December 15, 2006, Section 2 of the Plan is hereby amended to incorporate a new definition following the definition of “Employee,” re-lettering each subsequent definition accordingly, to read in its entirety as follows: “(L)   “EQUITY RESTRUCTURING” SHALL MEAN A NON-RECIPROCAL TRANSACTION BETWEEN THE COMPANY AND ITS STOCKHOLDERS, SUCH AS A STOCK DIVIDEND, STOCK SPLIT, SPIN-OFF, RIGHTS OFFERING OR RECAPITALIZATION THROUGH A LARGE, NONRECURRING CASH DIVIDEND, THAT AFFECTS THE SHARES OF STOCK (OR OTHER SECURITIES OF THE COMPANY) OR THE SHARE PRICE OF STOCK (OR OTHER SECURITIES) AND CAUSES A CHANGE IN THE PER SHARE VALUE OF THE STOCK UNDERLYING OUTSTANDING AWARDS.” 2.             Effective as of December 15, 2006, Section 13(a) of the Plan is hereby amended to read in its entirety as follows: “(A)         IN THE EVENT OF ANY COMBINATION OR EXCHANGE OF SHARES, MERGER, CONSOLIDATION OR OTHER DISTRIBUTION (OTHER THAN NORMAL CASH DIVIDENDS) OF COMPANY ASSETS TO STOCKHOLDERS, OR ANY OTHER CHANGE AFFECTING THE SHARES OF STOCK OR THE SHARE PRICE OF THE STOCK OTHER THAN AN EQUITY RESTRUCTURING, THE COMMITTEE SHALL MAKE SUCH PROPORTIONATE ADJUSTMENTS, IF ANY, AS THE COMMITTEE IN ITS DISCRETION MAY DEEM APPROPRIATE TO REFLECT SUCH CHANGE WITH RESPECT TO (I) THE AGGREGATE NUMBER AND KIND OF SHARES THAT MAY BE ISSUED UNDER THE PLAN (INCLUDING, BUT NOT LIMITED TO, ADJUSTMENTS OF THE LIMITATIONS IN SECTIONS 3 AND 6(C)); (II) THE TERMS AND CONDITIONS OF ANY OUTSTANDING AWARDS (INCLUDING, WITHOUT LIMITATION, ANY APPLICABLE PERFORMANCE TARGETS OR CRITERIA WITH RESPECT THERETO); AND (III) THE GRANT OR EXERCISE PRICE PER SHARE FOR ANY OUTSTANDING AWARDS UNDER THE PLAN.  ANY ADJUSTMENT AFFECTING AN AWARD INTENDED AS “QUALIFIED PERFORMANCE-BASED COMPENSATION” AS DESCRIBED IN SECTION 162(M)(4)(C) OF THE CODE SHALL BE MADE CONSISTENT WITH THE REQUIREMENTS OF SECTION 162(M) OF THE CODE.” 3.             Effective as of December 15, 2006, Section 13 of the Plan is hereby amended to incorporate a new subsection (c) following the existing subsection (b) to read in its entirety as follows, with each subsequent subsection re-lettered accordingly: “(c)          In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Section 13(a): (i)                   The number and type of securities subject to each outstanding award and the exercise price or grant price thereof, if applicable, will be proportionately adjusted.  The adjustments provided under this Section 13(b)(i) shall    -------------------------------------------------------------------------------- be nondiscretionary and shall be final and binding on the affected Holder and the Company. (ii)                  The Administrator shall make such proportionate adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3 and 6(c)).” 4.             Notwithstanding anything in this Amendment No. 1 to the Plan to the contrary, this Amendment No. 1 to the Plan shall not apply to, and instead Sections 13(a) and 13(b) of the Plan shall apply to, any award to which the adoption of this Amendment No. 1 to the Plan by the Board would (A) result in a penalty tax under Section 409A of the Code and the Department of Treasury proposed and final regulations and guidance thereunder or (B) cause any Incentive Stock Option to fail to qualify as an “incentive stock option” under Section 422 of the Code. --------------------------------------------------------------------------------

  Exhibit 10.3 AMENDMENT   AMENDMENT, dated as of September 14, 2006 (this “Amendment”), to the PLEDGE AGREEMENT dated as of September 28, 2005 (as amended hereby and as further amended, supplemented or modified from time to time, the “Pledge Agreement”) made by CCH I, LLC (the “Grantor”) in favor of THE BANK OF NEW YORK TRUST COMPANY, NA, as collateral agent (in such capacity, the “Collateral Agent”) for the holders (the “Holders”) from time to time of the Notes (as defined below) and any holders of Pari Passu Secured Indebtedness (as defined in the Indenture), pursuant to the Indenture, dated as of September 28, 2005 (as amended by the Supplemental Indenture (as defined below) and as further amended, supplemented or otherwise modified from time to time, the “Indenture”), among the Grantor, CCH I Capital Corp. (“Capital Corp.”) and The Bank of New York Trust Company, NA, as Trustee.   W I T N E S S E T H :   WHEREAS, the Grantor and Capital Corp. have issued 11% Senior Secured Notes due 2015 pursuant to the Indenture (collectively, the “Original Notes”);   WHEREAS, in connection with the purchase of the Original Notes by the Holders the Pledge Agreement was executed and delivered by the Grantor to the Collateral Agent for the benefit of the Secured Parties;   WHEREAS, the Grantor and Capital Corp. have issued Additional Notes (together with the Original Notes and any other Additional Notes issued after the date hereof, the “Notes”) pursuant to a Supplemental Indenture dated as of the date hereof (the “Supplemental Indenture”); and   WHEREAS, in connection with the Supplemental Indenture the parties have agreed to amend the Pledge Agreement upon the terms and conditions set forth herein;   NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises contained herein, the parties hereto agree as follows:   1. Defined Terms. Unless otherwise defined herein, capitalized terms which are defined in the Indenture are used herein as defined therein.   2. Amendment to First Recital. The first recital to the Pledge Agreement is hereby amended by replacing the parenthetical “(collectively, the ‘Notes’)” with the parenthetical “(collectively, the ‘Original Notes’).”   3. Amendment to Definition of “Issuer”. The definition of “Issuer” in Section 1.1 of the Pledge Agreement is hereby deleted in its entirety and replaced with the following definition:       --------------------------------------------------------------------------------   “Issuers”: CCH II, LLC, a Delaware limited liability company, and CC VIII, LLC, a Delaware limited liability company.   4. New Definition of “Notes”. Section 1.1 of the Pledge Agreement is hereby amended by inserting the following definition:   “Notes”: the Original Notes, the Additional Notes issued on September 14, 2006 and any other Additional Notes issued after such date.   5. Amendment to Definition of “Pledged LLC Interests”. The words “the Issuer” in the definition of “Pledged LLC Interests” in Section 1.1 of the Pledge Agreement are hereby deleted in its entirety and replaced with the words “each Issuer.”   6. Amendment to Section 3.4(a). Section 3.4(a) of the Pledge Agreement is hereby deleted in its entirety and replaced with the following:   “The Pledged LLC Interests constitute all the issued and outstanding shares of all classes of Equity Interests of CCH II, LLC and all the issued and outstanding shares of all classes of Equity Interests owned by the Grantor of CC VIII, LLC.”   7. Amendments to Sections 4.3(a) and 4.3(d). Each occurrence of the words “the Issuer” in Sections 4.3(a) and 4.3(d) of the Pledge Agreement is hereby deleted in its entirety and replaced with the words “any Issuer.”   8. Amendment to Section 4.3(b). Section 4.3(b) of the Pledge Agreement is hereby deleted in its entirety and replaced with the following:   “Without delivery of all certificates representing any equity interests in any Issuer that are owned by the Grantor, the Grantor will not and will not permit such Issuer to, amend such Issuer’s certificate of formation or operating agreement to provide that any Equity Interests in such Issuer constitute a security under Section 8-103 of the Applicable UCC or the corresponding code or statute of any other applicable jurisdiction.”   9. Amendment to Section 4.3(c). Section 4.3(c) of the Pledge Agreement is hereby amended by deleting the words “the Issuer” and replacing them with the words “CCH II, LLC.”   10. CC VIII Acknowledgement and Consent. The Grantor shall use its commercially reasonable efforts to cause CC VIII, LLC to execute and deliver on the date hereof the Acknowledgement and Consent in the form of Annex 1 hereto.   11. Grant of Security Interest in New Collateral. The Grantor hereby grants to the Collateral Agent, for the benefit of the Secured Parties, a security interest in all of the following property now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interest, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations (as defined in the Pledge Agreement):   2 --------------------------------------------------------------------------------   all of the Grantor’s right, title and interest in and to the Equity Interests of CC VIII, LLC and all Proceeds (as defined in the Pledge Agreement) thereof.   12. Reaffirmation of Existing Grant of Security Interest. The Grantor hereby reaffirms its grant to the Collateral Agent, for the benefit of the Secured Parties, of a security interest in all of the following property now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interest, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations: all of the Grantor’s right, title and interest in and to the Equity Interests of CCH II, LLC and all Proceeds thereof.   13. Reaffirmation of Representations and Warranties. The Grantor hereby reaffirms the accuracy of the representations and warranties set forth in Section 3 of the Pledge Agreement.   14. Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon receipt by the Collateral Agent of counterparts of this Amendment duly executed by the Issuers, the Parent Guarantor and the Trustee.   15. Counterparts. This Amendment may be executed by one or more of the parties to this Amendment 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 of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.   16. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.   * * * * *   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written.   CCH I, LLC   By: /s/ Eloise Schmitz                                         Name: Eloise Schmitz                               Title: Senior Vice President, Strategic Planning       CCH I CAPITAL CORP.   By: /s/ Eloise Schmitz                                             Name: Eloise Schmitz                                                    Title: Senior Vice President, Strategic Planning       CHARTER COMMUNICATIONS HOLDINGS, LLC   By: /s/ Eloise Schmitz                                             Name: Eloise Schmitz                                       Title: Senior Vice President, Strategic Planning       THE BANK OF NEW YORK TRUST COMPANY, NA   By: /s/ M Callahan                                             Name: M. Callahan                       Title: Vice President       Pledge Agreement Amendment --------------------------------------------------------------------------------                                                                                                                     ANNEX 1   ISSUER’S ACKNOWLEDGMENT AND CONSENT   The undersigned hereby acknowledges receipt of a copy of (i) the Pledge Agreement, dated as of September 28, 2005 (as amended and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Agreement”; capitalized terms used herein as defined therein), made by CCH I, LLC, a Delaware limited liability company, for the benefit of The Bank of New York Trust Company, NA, as Collateral Agent and (ii) the Amendment to the Agreement, dated as of September 14, 2006. The undersigned agrees for the benefit of the Collateral Agent and the Holders as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 4.3(a) of the Agreement. CC VIII, LLC   By: /s/ Eloise Schmitz                  Name: Eloise E. Schmitz       Title: Senior Vice President, Strategic Planning Address for Notices: 12405 Powerscourt Drive, Suite 100 St. Louis, Missouri 63131 Fax: (314) 965-8793

  Exhibit 10.121 CHANGE OF CONTROL SEVERANCE AGREEMENT 87 --------------------------------------------------------------------------------   TABLE OF CONTENTS       1. Purpose   90 2. Your Agreement   90 3. Events That Trigger Severance Benefits   90 a. Termination After a Change in Control   90 b. Termination After a Potential Change in Control   90 c. Successor Fails to Assume This Agreement   90 4. Events That Do Not Trigger Severance Benefits   90 5. Termination Procedures   91 6. Severance Benefits   91 a. In General   91 b. Lump-Sum Payment in Lieu of Future Compensation   91 c. Incentive Compensation and Options   91 d. Group Insurance Benefit Continuation   91 7. Time for Payment   92 8. Payment Explanation   92 9. Relation to Other Severance Programs   92 10. Potential Limitations   92 a. Golden Parachute Limitation   92 b. Section 162(m) Limitation   93 11. Disability   93 12. Effect of Reemployment   93 13. Successors   93 a. Assumption Required   93 b. Heirs and Assigns   93 14. Amendments   93 15. Governing Law   94 16. Claims [ERISA requirement]   94 a. When Required; Attorneys’ Fees   94 b. Initial Claim   94 c. Claim Decision   94 d. Appeal of Denied Claims   94 e. Appeal Decision   95 f. Procedures   95 17. Limitation on Employee Rights   95 18. Validity   95 19. Counterparts   95 20. Giving Notice   95 a. To the Company   95 b. To You   95 21. Definitions   95 a. Agreement   95 b. Beneficial Owner   95 c. Board   96 d. Cause   96 88 --------------------------------------------------------------------------------         e. Change in Control   96 (1) Acquisition of Controlling Interest   96 (2) Change in Board Control   96 (3) Merger Approved   96 (4) Sale of Assets   96 (5) Liquidation or Dissolution   97 (6) Private Transaction   97 f. Code   97 g. Company   97 h. Disability   97 i. Exchange Act   97 j. Good Reason   97 (1) Demotion   97 (2) Pay Cut   97 (3) Relocation   97 (4) Breach of Promise   98 (5) Discontinuance of Compensation Plan Participation   98 (6) Discontinuance of Benefits   98 (7) Improper Termination   98 (8) Notice of Prospective Action   98 k. Incentive Compensation   98 l. Management Action   99 m. Person   99 n. Potential Change in Control   99 (1) Agreement Signed   99 (2) Notice of Intent to Seek Change in Control   99 (3) Board Declaration   99 o. Severance Benefits   99 p. Term of this Agreement   99 (1) Expiration   99 (2) Change in Control   99 89 --------------------------------------------------------------------------------   CHANGE OF CONTROL SEVERANCE AGREEMENT This Agreement between Jeffrey A. Wagonhurst (“you”) and VERSAR, INC.(“Company”) has been entered into as of March 17, 2006. This Agreement promises you severance benefits if, following a Change of Control, you are terminated without Cause or resign for Good Reason during the Term of this Agreement. Capitalized terms are defined in the last section of this Agreement. 1. Purpose The Company considers a sound and vital management team to be essential. Management personnel who become concerned about the possibility that the Company may undergo a Change in Control may terminate employment or become distracted. Accordingly, the Board has determined that appropriate steps should be taken to minimize the distraction executives may suffer from the possibility of a Change in Control. One step is to enter into this Agreement with you. 2. Your Agreement If one or more Potential Changes in Control occur during the Term of this Agreement, you agree not to resign for at least six full calendar months after a Potential Change in Control occurs, except as follows: (a) you may resign after a Change in Control occurs; (b) you may resign if you are given Good Reason to do so; and (c) you may terminate employment on account of retirement on or after 65 or because you become unable to work due to serious illness or injury. 3. Events That Trigger Severance Benefits   a.   Termination After a Change in Control You will receive Severance Benefits under this Agreement if, during the Term of this Agreement and after a Change in Control has occurred, your employment is terminated by the Company without Cause (other than on account of your Disability or death) or you resign for Good Reason.   b.   Termination After a Potential Change in Control You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement and after a Potential Change in Control has occurred but before a Change in Control actually occurs, your employment is terminated by the Company without Cause or you resign for Good Reason, but only if either: (i) you are terminated at the direction of a Person who has entered into an agreement with the Company that will result in a Change in Control; or (ii) the event constituting Good Reason occurs at the direction of such Person.   c.   Successor Fails to Assume This Agreement You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement, a successor to the Company fails to assume this Agreement, as provided in Section 13(a). 4. Events That Do Not Trigger Severance Benefits You will not be entitled to Severance Benefits if your employment ends because you are terminated for Cause or on account of Disability or because you resign without Good 90 --------------------------------------------------------------------------------   Reason, retire, or die. Except as provided in Section 3(c), you will not be entitled to Severance Benefits while you remain protected by this Agreement and remain employed by the Company, its affiliates, or their successors. 5. Termination Procedures If you are terminated by the Company after a Change in Control and during the Term of this Agreement, the Company shall provide you with 30 days’ advance written notice of your termination, unless you are being terminated for Cause. The notice will indicate why you are being terminated and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination. If you are being terminated for Cause, your notice of termination will include a copy of a resolution duly adopted by the affirmative vote of not less than 51 % of the entire membership of the Board (at a meeting of the Board called and held for the purpose of considering your termination (after reasonable notice to you and an opportunity for you and your counsel to be heard before the Board)) finding that, in the good faith opinion of the Board, Cause for your termination exists and specifying the basis for that opinion in detail. If you are purportedly terminated without the notice required by this Section, your termination shall not be effective. 6. Severance Benefits   a.   In General If you become entitled to Severance Benefits under this Agreement, you will receive all of the Severance Benefits described in this Section.   b.   Lump-Sum Payment in Lieu of Future Compensation In lieu of any further cash compensation for periods after your employment ends, you will be paid a cash lump sum equal to 2 times your annual base salary in effect when your employment ends or, if higher, in effect immediately before the Change in Control, Potential Change in Control, or Good Reason event for which you terminate employment. In addition, and without duplication, you will be paid a cash lump sum equal to 2 times the higher of the amounts paid to you (if any) under any existing bonus or incentive plans in the calendar year preceding the calendar year in which your employment ends or in the calendar year preceding the calendar year in which the Change in Control occurred (or in which the Potential Change in Control occurred, if benefits are payable under Section 3(b)hereof).   c.   Incentive Compensation and Options The Company will pay you a cash lump sum equal to any unpaid incentive compensation (that is not otherwise paid to you) that you have been allocated or awarded under any existing bonus or incentive plans for measuring periods completed before you became entitled to Severance Benefits under this Agreement. All unvested options to purchase Company common stock will immediately vest and remain exercisable for the longest period of time permitted under the applicable stock option plan.   d.   Group Insurance Benefit Continuation During the period that begins when you become entitled to Severance Benefits under this Agreement and ends on the last day of the 24th calendar month 91 --------------------------------------------------------------------------------   beginning thereafter, the Company shall provide, at no cost to you or your spouse or dependents, the life, disability, accident, and health and dental insurance benefits (or substantially similar benefits) it was providing to you and your spouse and dependents immediately before you became entitled to Severance Benefits under this Agreement (or immediately before a benefit reduction that constitutes Good Reason, if you terminate employment for that Good Reason). These benefits shall be treated as satisfying the Company’s COBRA obligations. After benefit continuation under this subsection ends, you and your spouse and dependents will be entitled to any remaining COBRA rights. 7. Time for Payment You will be paid your cash Severance Benefits within five days after you become entitled to Severance Benefits under this Agreement (e.g., within five days following your termination of employment). If the amount you are due cannot be finally determined within that period, you will receive the minimum amount to which you are clearly entitled, as estimated in good faith by the Company. The Company will pay the balance you are due (together with interest at the rate provided in Internal Revenue Code Section 1274(b)(2)(B)) as soon as the amount can be determined, but in no event later than 30 days after you terminate employment. If your estimated payment exceeds the amount you are due, the excess will be a loan to you, which you must repay to the Company within five business days after demand by the Company (together with interest at the rate provided in Code Section 1274(b)(2)(B)). 8. Payment Explanation When payments are made to you, the Company will provide you with a written statement explaining how your payments were calculated and the basis for the calculations. This statement will include any opinions or other advice the Company has received from auditors or consultants as to the calculation of your benefits. If your benefit is affected by the golden parachute limitation in Section 10, the Company will provide you with calculations relating to that limitation and any supporting materials you reasonably need to permit you to evaluate those calculations. 9. Relation to Other Severance Programs Your Severance Benefits under this Agreement are in lieu of any severance or similar benefits that may be payable to you under any other employment agreement or other arrangement; to the extent any such benefits are paid to you, they shall be applied to reduce the amount due under this Agreement. This Agreement constitutes the entire agreement between you and the Company and its affiliates with respect to such benefits. 10. Potential Limitations   a.   Golden Parachute Limitation Your aggregate payments and benefits under this Agreement and all other contracts, arrangements, or programs shall not exceed the maximum amount that may be paid without triggering golden parachute penalties under Section 280G and related provisions of the Internal Revenue Code, as determined in good faith by the Company’s independent auditors. The preceding sentence shall not apply to the extent the shareholder approval requirements of Code Section 280G(b)(5) are satisfied. If your benefits must be reduced to avoid triggering such penalties, your 92 --------------------------------------------------------------------------------   benefits will be reduced in the priority order you designate or, if you fail promptly to designate an order, in the priority order designated by the Company. If an amount in excess of the limit set forth in this Section is paid to you, you must repay the excess amount to the Company on demand, with interest at the rate provided in Code Section 1274(b)(2)(B). You and the Company agree to cooperate with each other reasonably in connection with any administrative or judicial proceedings concerning the existence or amount of golden parachute penalties on payments or benefits you receive.   b.   Section 162(m) Limitation To the extent payments or benefits under this Agreement would not be deductible under Code Section 162(m) if made or provided when otherwise due under this Agreement, they shall be made or provided later, immediately after Section 162(m) ceases to preclude their deduction, with interest thereon at the rate provided in Code Section 1274(b)(2)(B). 11. Disability Following a Change in Control, while you are absent from work as a result of physical or mental illness, the Company will continue to pay you your full salary and provide you all other compensation and benefits payable to you under the Company’s compensation or benefit plans, programs, or arrangements. These payments will stop if and when your employment is terminated by the Company for Disability or at the end of the Term of this Agreement, whichever is earlier. Severance Benefits under this Agreement are not payable if you are terminated on account of your Disability. 12. Effect of Reemployment Your Severance Benefits will not be reduced by any other compensation you earn or could have earned from another source. . 13. Successors   a.   Assumption Required In addition to obligations imposed by law on a successor to the Company, during the Term of this Agreement the Company will require any successor to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company was required to perform. If the Company fails to obtain such an assumption and agreement before the effective date of a succession, you will be entitled to Severance Benefits as if you were terminated by the Company without Cause on the effective date of that succession.   b.   Heirs and Assigns This Agreement will inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative, or administrator of your estate. 14. Amendments 93 --------------------------------------------------------------------------------   This Agreement may be modified only by a written agreement executed by you and an authorized officer of the Company. 15. Governing Law This Agreement creates a “top hat” employee benefit plan subject to the Employee Retirement Income Security Act of 1974, and it shall be interpreted, administered, and enforced in accordance with that law; the Company is the “plan administrator.” To the extent that state law is applicable, the statutes and common law of the State of Virginia(excluding its choice of laws statutes or common law) shall apply. 16. Claims [ERISA requirement]   a.   When Required; Attorneys’ Fees You do not need to present a formal claim to receive benefits payable under this Agreement. However, if you believe that your rights under this Agreement are being violated, you must file a formal claim with the Company in accordance with the procedures set forth in this Section. The Company will pay your reasonable attorneys’ fees and related costs in enforcing your rights under this Agreement.   b.   Initial Claim Your claim must be presented to the Company in writing. Within 30 days after receiving the claim, a claims official appointed by the Company will consider your claim and issue his or her determination thereon in writing. With your consent, the initial claim determination period can be extended further. If you can establish that the claims official failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.   c.   Claim Decision If your claim is granted, the benefits or relief you are seeking will be provided. If your claim is wholly or partially denied, the claims official shall, within three days, provide you with written notice of the denial, setting forth, in a manner calculated to be understood by you: (i) the specific reason or reasons for the denial; (ii) specific references to the provisions on which the denial is based; (iii) a description of any additional material or information necessary for you to perfect your claim, together with an explanation of why the material or information is necessary; and (iv) an explanation of the procedures for appealing denied claims. If you establish that the claims official has failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.   d.   Appeal of Denied Claims You may appeal the claims official’s denial of your claim in writing to an appeals official designated by the Company (which may be a person, committee, or other entity) for a full and fair appeal. You must appeal a denied claim within five days after your receipt of written notice denying your claim, or within 60 days after such written notice was due, if the written notice was not sent. In connection with the appeals proceeding, you (or your duly authorized representative) may review pertinent documents and may submit issues and comments in writing. You may only present evidence and theories during the appeal that you presented during the initial claims stage, except for information the claims official requested you to 94 --------------------------------------------------------------------------------   provide to perfect the claim. You will irrevocably waive any theories you do not in good faith pursue through the appeal stage, such as by failing to file a timely appeal request.   e.   Appeal Decision The decision by the appeals official will be made within 60 days after your appeal request, unless special circumstances require an extension of time, in which case the decision will be rendered as soon as possible, but not later than ten days after your appeal request, unless you agree to a greater extension of that deadline. The appeal decision will be in writing, set forth in a manner calculated to be understood by you; it will include specific reasons for the decision, as well as specific references to the pertinent provisions of this Agreement on which the decision is based. If you do not receive the appeal decision by the date it is due, you may deem your appeal to have been denied.   f.   Procedures The Company will adopt procedures by which initial claims and appeals will be considered and resolved; different procedures may be established for different claims. All procedures will be designed to afford you full and fair consideration of your claim. 17. Limitation on Employee Rights This Agreement does not give you the right to be retained in the service of the Company. 18. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 19. Counterparts This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 20. Giving Notice   a.   To the Company All communications from you to the Company relating to this Agreement must be sent to the Company to its principal business office in Springfield, Virginia, in writing, by registered or certified mail, or delivered personally.   b.   To You All communications from the Company to you relating to this Agreement must be sent to you in writing, by registered or certified mail, or delivered personally, addressed as indicated at the end of this Agreement. 21. Definitions   a.   Agreement “Agreement” means this contract, as amended.   b.   Beneficial Owner “Beneficial Owner” has the meaning set “forth in Rule 13d-3 under the Exchange Act. 95 --------------------------------------------------------------------------------   c. Board “Board” means the Board of Directors of the Company. d. Cause “Cause” means any of the following:   (1)   you fail to carry out assigned duties after being given prior warning and an opportunity to remedy the failure,     (2)   you breach any material term of any employment agreement with the Company,     (3)   you engage in fraud, dishonesty, willful misconduct, gross negligence, or breach of fiduciary duty (including without limitation any failure to disclose a conflict of interest)in the performance of your duties for the Company, or     (4)   you are convicted of a felony or crime involving moral turpitude. e. Change in Control “Change in Control” means the first of the following to occur after the date of this Agreement:   (1)   Acquisition of Controlling Interest         Any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities. In applying the preceding sentence, securities acquired directly from the Company or its affiliates with the company’s approval by or for the Person shall not be taken into account.     (2)   Change in Board Control         During the term of this Agreement, individuals who constituted the Board as of the date of this Agreement (or their approved replacements, as defined in the next sentence) cease for any reason to constitute a majority of the Board. A new director shall be considered an “approved replacement” director if his or her election (or nomination for election) was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or were themselves approved replacement directors.     (3)   Merger Approved         The shareholders of the Company approve a merger or consolidation of the Company with any other corporation unless: (a) the voting securities of the Company outstanding immediately before the merger or consolidation would continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; and (b) no Person acquires more than 25% of the combined voting power of the Company’s then outstanding securities.     (4)   Sale of Assets         The shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets. 96 --------------------------------------------------------------------------------     (5)   Liquidation or Dissolution         A complete liquidation or dissolution of the Company.     (6)   Private Transaction         Any transaction or series of transactions not covered in paragraphs (1) through (5) above the result of which is the suspension of the Company’s duty to file reports under the Exchange Act as a result of the remaining number of holders of the Company’s common stock following such transaction or series f. Code “Code” means the Internal Revenue Code of 1986, as amended. g. Company “Company” means Versar, Inc. and any successor to its business or assets that (by operation of law, or otherwise) assumes and agrees to perform this Agreement. However, for purposes of determining whether a Change in Control has occurred in connection with such a succession, the successor shall not be considered to be the Company. h. Disability “Disability” means that, due to physical or mental illness: (i) you have been absent from the full-time performance of your duties with the Company for substantially all of a period of six consecutive months; (ii) the Company has notified you that it intends to terminate you on account of Disability; and (iii) you do not resume the full-time performance of your duties within 30 days after receiving notice of your intended termination on account of Disability. i. Exchange Act “Exchange Act” means the Securities Exchange Act of 1934, as amended. j. Good Reason “Good Reason” means the occurrence of any of the following without your’ express written consent:   (1)   Demotion         Your duties and responsibilities are substantially and adversely altered from those in effect immediately before the Change in Control (or, with respect to Section 3(b), the Potential Change in Control), other than merely as a result of the Company ceasing to be a public company, a change in your title, or your transfer to an affiliate.     (2)   Pay Cut         Your annual base salary is reduced.     (3)   Relocation         Your principal office is transferred to another location, which increases your one-way commute to work by more than 50 miles, based on your residence when the transfer was announced or, if you consent to the transfer, the Company fails to pay (or reimburse you) for all reasonable moving expenses you incur in changing your principal residence in connection with the relocation and to indemnify you against any loss you may realize when you sell your principal residence in connection with the relocation in an arm’s-  97 --------------------------------------------------------------------------------         length sale for adequate consideration. For purposes of the preceding sentence, your “loss” will be the difference between the actual sales price of your residence and the higher of: (a) your aggregate investment in the residence; or (b) the fair market value of the residence, as determined by a real estate appraiser designated by you and satisfactory to the Company.     (4)   Breach of Promise         The Company fails to pay you any present or deferred compensation within seven days after it is due.     (5)   Discontinuance of Compensation Plan Participation         The Company fails to continue, or continue your participation in, any compensation plan in which you participated immediately before the Change in Control (or, with respect to Section 3(b), the Potential Change in Control) that is material to your total compensation, unless an equitable substitute arrangement has been adopted or made available on a basis not materially less favorable to you than the plan in effect immediately before the Change in Control (or the Potential Change in Control, if applicable), both as to the benefits you receive and your level of participation relative to other participants.     (6)   Discontinuance of Benefits         The Company stops providing you with benefits that, in the aggregate, are substantially as valuable to you as those you enjoyed immediately before the Change in Control (or, with respect to Section 3(b), the Potential Change in Control) under the Company’s pension, savings, deferred compensation, life insurance, medical, health, disability, accident, vacation, and fringe benefit plans, programs, and arrangements.     (7)   Improper Termination         You are purportedly terminated, other than pursuant to a notice of termination satisfying the requirements of Section 5.     (8)   Notice of Prospective Action         You are officially notified or it is officially announced that the Company will take any of the actions listed above during the Term of this Agreement. However, an event that is or would constitute Good Reason shall cease to be Good Reason if: (a) you do not terminate employment within 180 days after the event occurs; (b) the Company reverses the action or cures the default that constitutes Good Reason before you terminate employment; or (c) you were a primary instigator of the Good Reason event and the circumstances make it inappropriate for you to receive benefits under this Agreement (e.g., you agree temporarily to relinquish your position on the occurrence of a merger transaction you negotiate). If you have Good Reason to terminate employment, you may do so even if you are on a leave of absence due to physical or mental illness or any other reason.   k.   Incentive Compensation “Incentive Compensation” means the amount of cash and/or securities paid to you under all bonus, incentive or other programs for performance adopted by the Company for its executive officers and other key employees. 98 --------------------------------------------------------------------------------   l. Management Action “Management Action” means any event, circumstance, or transaction occurring during the six-month period following a Potential Change in Control that results from the action of a Management Group. m. Person “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) of that Act, and shall include a “group,” as defined in Rule 13d-5 promulgated thereunder. However, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) 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. n. Potential Change in Control “Potential Change in Control” means that any of the following has occurred during the term of this Agreement, excluding any event that is Management Action:   (1)   Agreement Signed The Company enters into an agreement that will result in a Change in Control.   (2)   Notice of Intent to Seek Change in Control The Company or any Person publicly announces an intention to take or to consider taking actions that will result in a Change in Control.   (3)   Board Declaration With respect to this Agreement, the Board adopts a resolution declaring that a Potential Change in Control has occurred. o. Severance Benefits “Severance Benefits” means your benefits under Section 6 of this Agreement. p. Term of this Agreement “Term of this Agreement” means the period that commences on the date of this Agreement and ends on the earlier of:   (1)   Expiration March 16, 2008; or   (2)   Change in Control The last day of the 24th calendar month beginning after the calendar month in which a Change in Control occurred during the Term of this Agreement. After a Change in Control occurs, the end of the Term of this Agreement shall solely be determined under this Section 21 (p )(2). 99 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have executed this Agreement as if the date set forth above.           Date 3/20/06          By: Versar, Inc.                   /S/ Theodore M. Prociv   President and CEO               Date 3/20/06          /S/ Jeffrey A. Wagonhurst   Jeffrey A. Wagonhurst     Company notices to you shall be addressed as follows (or in any other manner you notify the Company to use):                                                                                                                                                                                                                                                       100

Exhibit 10.1 EXECUTION COUNTERPART AMENDMENT NO. 5 TO FIRST LIEN CREDIT AGREEMENT dated as of April 30, 2006 (this “Amendment Agreement”) among KRISPY KREME DOUGHNUT CORPORATION, a North Carolina corporation (the “Borrower”), the GUARANTORS (as defined in the Credit Agreement referred to below) signatory hereto and the LENDERS (as defined in the Credit Agreement referred to below) signatory hereto.   PRELIMINARY STATEMENTS   WHEREAS, the Borrower is party to a First Lien Credit Agreement dated as of April 1, 2005 (as amended, amended and restated, supplemented or otherwise modified through the date hereof, the “Credit Agreement”) among the Borrower, the Parent Guarantor, the Subsidiary Guarantors, the Lenders, Credit Suisse (formerly known as Credit Suisse First Boston), as Administrative Agent and Issuing Lender, and Wells Fargo Foothill, Inc., as Collateral Agent, Issuing Lender and Swingline Lender; and   WHEREAS, the Borrower has requested that the Required Lenders agree to amend certain provisions of the Credit Agreement, and the Required Lenders have agreed, subject to the terms and conditions hereinafter set forth to such amendments.   Accordingly, in consideration of the premises and for other good and valuable consideration, the sufficiency and receipt of all of which are hereby acknowledged, the parties hereto hereby agree as follows:   SECTION 1. Defined Terms. Capitalized terms used but not herein shall be used herein as defined in the Credit Agreement.   SECTION 2. Amendments. As of the Amendment Effective Date:   (a) The definition of “Restatement Date” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:   “Restatement Date” means the date on which the Parent Guarantor furnishes to the Lenders the audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows of the Parent Guarantor and its Consolidated Subsidiaries as of the end of and for its 2004, 2005 and 2006 Fiscal Years, reported on by PriceWaterhouseCoopers LLP or other independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Parent Guarantor and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied as of the end of and for such Fiscal Year.   (b) Section 6.01(a) of the Credit Agreement is hereby amended by replacing the phrase “(or, in the case of the 2005 Fiscal Year, within 90 days after the Restatement Date)” with the following:   “(or, in the case of the 2005 Fiscal Year and the 2006 Fiscal Year, on or before the Restatement Date)”   -------------------------------------------------------------------------------- 2   (c) Paragraph (t) of Article VIII of the Credit Agreement is hereby amended and restated in its entirety to read as follows:   “(t) the Restatement Date shall not have occurred on or before July 31, 2006; or”   SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants to the undersigned Lenders that (a) the representations and warranties of the Borrower and the Parent Guarantor set forth in the Credit Agreement, and of each Obligor in each of the other Loan Documents to which it is a party, is true and correct in all material respects on and as of the date hereof (except to the extent that any such representation or warranty expressly relates to an earlier date), with each reference therein to the Credit Agreement being deemed for purposes hereof to be a reference to the Credit Agreement as modified hereby and (b) no Default has occurred and is continuing.   SECTION 5. Conditions to Effectiveness. The amendments set forth in Section 2 hereof shall become effective when, and only when, and as of the date (the “Amendment Effective Date”) on which:   (a) the Administrative Agent shall have received counterparts of this Amendment Agreement executed by the Borrower, each of the Guarantors (other than Freedom Rings, LLC) and the Required Lenders;   (b) all the conditions to the effectiveness of the Amendment No. 5 to the Second Lien Credit Agreement of even date herewith, substantially in the form heretofore delivered to the Lenders, shall have occurred other than the effectiveness of this Amendment Agreement;   (c) the Lenders shall have received drafts of the consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows of the Parent Guarantor and its Consolidated Subsidiaries as of the end of and for its 2006 Fiscal Year reflecting the most recent work product of the Parent Guarantor; and   (d) the Administrative Agent shall have received payment of all accrued fees and expenses of the Administrative Agent (including the reasonable and accrued fees of counsel to the Administrative Agent invoiced on or prior to the date hereof).   SECTION 5. Reference to and Effect on the Financing Documents.   (a)  On and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof”, or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as modified hereby.   (b) The Credit Agreement and each of the other Loan Documents, as specifically modified by this Amendment Agreement, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.   (c) The execution, delivery and effectiveness of this Amendment Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Credit Agreement or the other Loan Documents, nor constitute a waiver of any provision of the Credit Agreement or the other Loan Documents.   -------------------------------------------------------------------------------- 3   SECTION 6. Affirmation of Guarantors. Each Guarantor signatory hereto hereby consents to the amendments to the Credit Agreement effected hereby, and hereby confirms and agrees that, notwithstanding the effectiveness of the amendments set forth in Section 3 hereof (and notwithstanding the failure of Freedom Rings, LLC to be a party hereto), the obligations of such Guarantor contained in Article III of the Credit Agreement or in any other Loan Documents to which it is a party are, and shall remain, in full force and effect and are hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such amendments, each reference in Article III of the Credit Agreement and in each of the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import shall mean and be a reference to the Credit Agreement as modified by this Amendment Agreement.   SECTION 7. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.   SECTION 8. Execution in Counterparts. This Amendment Agreement may be executed by one or more of the parties to this Amendment Agreement 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 counterpart of a signature page to this Amendment Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment Agreement.     -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.   KRISPY KREME DOUGHNUT CORPORATION   By: /s/ Michael C. Phalen Name: Michael C. Phalen Title: CFO   GUARANTORS:   KRISPY KREME DOUGHNUTS, INC.   KRISPY KREME DISTRIBUTING COMPANY, INCORPORATED   KRISPY KREME MOBILE STORE COMPANY   KRISPY KREME CANADA, INC.   HD CAPITAL CORPORATION   HDN DEVELOPMENT CORPORATION   KRISPY KREME COFFEE COMPANY, LLC       By: KRISPY KREME DOUGHNUT CORPORATION, an authorized Member   GOLDEN GATE DOUGHNUTS, LLC       By: KRISPY KREME DOUGHNUT CORPORATION, an authorized Member   PANHANDLE DOUGHNUTS, LLC       By: KRISPY KREME DOUGHNUT CORPORATION, an authorized Member   NORTH TEXAS DOUGHNUTS, L.P.       By: KRISPY KREME DOUGHNUT CORPORATION, its General Partner     By: /s/ Michael C. Phalen Name: Michael C. Phalen Title: Authorized Officer   -------------------------------------------------------------------------------- LENDER   Consent of Required Lenders Received  

LOAN AGREEMENT   This LOAN AGREEMENT (this “Agreement”) is entered into and made effective this 11h day of September 2006, by and between GWIN, Inc., a Delaware corporation (the “Company”) and CSI Business Finance, Inc., a Florida corporation (“Lender”).   RECITALS:   WHEREAS, Lender has agreed the lend to the Company, and the Company has agreed to borrow from Lender (the “Loan”) the sum of Six Hundred Fifty-Five Thousand Dollars ($655,000) (the “Loan Amount”) subject to the terms and conditions set forth herein below;   WHEREAS, as a material inducement for Lender to enter into this Agreement and to fund the Loan Amount, the Company has agreed to issue to Lender two (2) promissory notes on the terms and subject to the conditions set forth herein (together, the “Notes” and each, a “Note”), in the form attached hereto as Exhibit A and evidencing the terms and conditions of each Note;   WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company and Lender are executing and delivering a Security Agreement (the “Security Agreement”) pursuant to which the Company is agreeing to provide to Lender a security interest in the Pledged Collateral (as this term is defined in the Security Agreement) to secure the Company’s obligations under this Agreement, the other Transaction Documents (as defined herein below) or any other obligations of the Company to Lender;   WHEREAS, contemporaneously with the execution and delivery of this Agreement, Global SportsEDGE, Inc., a wholly-owned subsidiary of the Company (“GSE”) and Lender are executing and delivering a Security Agreement (the “Subsidiary Security Agreement”) pursuant to which GSE is agreeing to provide to Lender a security interest in Pledged Collateral (as this term is defined in the Security Agreement) to secure the Company’s obligations under this Agreement, the other Transaction Documents, or any other obligations of the Company to Lender;   WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Pledge and Escrow Agreement (the “Pledge and Escrow Agreement”) pursuant to which the Company has agreed to provide to Lender a security interest in the Pledged Shares (as this term is defined in the Pledge and Escrow Agreement) to secure the Company’s obligations under this Agreement, the other Transaction Documents or any other obligations of the Company to Lender;   WHEREAS, contemporaneously with the execution and delivery of this Agreement, Wayne Allyn Root and the parties hereto are executing and delivering an Insider Pledge and Escrow Agreement (the “Insider Pledge Agreement”) pursuant to which Mr. Root has agreed to provide to Lender a security interest in the Pledged Shares (as this term is defined in the Insider Pledge Agreement) to secure the Company’s obligations under this Agreement, the other Transaction Documents or any other obligations of the Company to Lender; and   --------------------------------------------------------------------------------   NOW THEREFORE, and in consideration of the foregoing, the mutual covenants, promises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Lender agree as follows:   SECTION 1. THE LOAN   1.1.  Acknowledgment. The Company acknowledges that each and every term and condition of this Agreement, the Notes, the Security Agreement, the Subsidiary Security Agreement, the Pledge and Escrow Agreement and the Insider Pledge Agreement (collectively, the “Transaction Documents”) are incorporated herein by reference and shall continue in full force and effect, enforceable in accordance with their terms, except to the extent modified, changed or amended by the terms of this Agreement.   1.2.  The Loan. Pursuant to the terms and subject to the conditions set forth in this Agreement, Lender hereby agrees to issue to the Company the Loan in the Loan Amount of Six Hundred Fifty-Five Thousand Dollars ($655,000), of which (a) Three Hundred Fifty-Five Thousand Dollars ($355,000) shall be funded to the Company on the date hereof (the “First Closing”) and Three Hundred Thousand Dollars ($300,000) shall be funded to the Company upon the Company effectuating the Share Increase in accordance with Section 5.8 herein (the “Second Closing” and together with the First Closing, the “Closings” and each, a “Closing”).   1.3.  The Closings. Each Closing shall take place at 12:00 a.m. Eastern Standard Time at the offices of the Company, 5052 South Jones Boulevard, Suite 100, Las Vegas, Nevada 89118, subject to notification of satisfaction of the conditions to each Closing set forth in Section 4 herein (or such later dates as is mutually agreed to by the Company and Lender). The date of the First Closing shall hereinafter be referred to as the “First Closing Date” and the date of the Second Closing shall hereinafter be referred to as the “Second Closing Date”.   1.4.  The Notes. The total indebtedness due to Lender shall be Six Hundred Fifty-Five Thousand Dollars ($655,000), which such amount shall be evidenced by (a) a Note, dated the date hereof, issued to Lender by the Company in the principal amount of Three Hundred Fifty-Five Thousand Dollars ($355,000) and (b) a Note, dated as of the Second Closing Date, in the principal amount of Three Hundred Thousand Dollars ($300,000). The entire principal balance of the Loan together with any accrued but unpaid interest and such other amounts payable by the Company to Lender under the Notes shall be due and payable on or before June 30, 2007 and shall otherwise be payable in accordance with the terms and subject to the conditions set forth in the Notes.   1.5.  Forms of Payment. Subject to the satisfaction of the terms and conditions of this Agreement, at each Closing: (a) Lender shall deliver to the Company such amounts evidenced in the Note to be delivered at such Closing in accordance with the terms and subject to the conditions set forth herein and in such Note, minus those fees to be paid directly from the proceeds of each Closing as set forth in this Agreement and those certain Disbursement Instructions attached hereto as Exhibit B and (b) the Company shall deliver to Lender the Note to be delivered in accordance with Section 1.4 herein, duly executed by the Company.   2 --------------------------------------------------------------------------------   SECTION 2. LENDER’S REPRESENTATIONS AND WARRANTIES   Lender represents and warrants to the Company as of the date hereof that:   2.1.  Information. Lender and its advisors (and its counsel) have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed decision regarding its issuance of the Loan to the Company, which have been requested by Lender. Lender and its advisors have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by Lender, or its advisors, or its representatives shall modify, amend or affect Lender’s right to rely on the Company’s representations and warranties contained in Section 3 below. Lender understands that the Loan involves a high degree of risk. Lender is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and Lender to obtain information from the Company in order to evaluate the merits and risks of this transaction. Lender has sought such accounting, legal and tax advice, as it has considered necessary to make an informed decision with respect to the Loan.   2.2.  Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Lender and is a valid and binding agreement of Lender enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.   2.3.  Receipt of Documents. Lender and its counsel have received and read in their entirety: (a) this Agreement and each representation, warranty and covenant set forth herein and the other Transaction Documents; (b) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (c) the Company’s Annual Report on Form 10-KSB for the fiscal year ended July 31, 2005; (d) the Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended April 30, 2006 and (e) answers to all questions Lender submitted to the Company regarding the Loan to the Company; and Lender has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.   2.4.  Organization and Qualification. Lender is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Lender is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.   2.5.  No Legal Advice From the Company. Lender acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors. Lender is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to the Loan, the transactions contemplated by this Agreement or the laws of any jurisdiction.   3 --------------------------------------------------------------------------------   SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY   The Company represents and warrants as of the date hereof to Lender that, except as set forth in the SEC Documents (as defined herein) or in the Disclosure Schedule attached hereto (the “Disclosure Schedule”):   3.1.  Organization and Qualification. The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.   3.2.  Authorization, Enforcement, Compliance with Other Instruments. The Company has the requisite corporate power and authority to enter into and perform this Agreement and the other Transaction Documents and to issue the Notes in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Notes have been duly authorized by the Company’s Board of Directors (the “Board”) and no further consent or authorization is required by the Company, the Board or the Company’s stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. The authorized officer of the Company executing the Transaction Documents knows of no reason why the Company cannot perform any of the Company’s other obligations under such documents.   3.3.  Capitalization. The authorized capital stock of the Company consists of One Hundred Fifty Million (150,000,000) shares of common stock, par value $0.0001 per share (“Common Stock”), of which 108,383,180 shares are issued and outstanding and 5,000,000 shares of preferred stock, par value $0.0001 (“Preferred Stock”), of which 462,222 shares of convertible Series A Preferred are issued and outstanding. The Company will have Seven Hundred Fifty Millon (750,000,000) authorized shares of Common Stock after it effectuates the Share Increase as required by Section 5.8 herein. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except those shares pledged by the Company pursuant to the Transaction Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Item 3.3 of the Disclosure Schedule, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act of 1933, as amended and (iv) there are no outstanding registration statements and there are no outstanding comment letters from the U.S. Securities and Exchange Commission (the “SEC”) or any other regulatory agency. The Company has furnished to Lender true and correct copies of the Company’s Certificate of Incorporation (as amended) and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants.   4 --------------------------------------------------------------------------------   3.4.  No Conflicts. Except as disclosed in Item 3.4 of the Disclosure Schedule, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which 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 of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as disclosed in Item 3.4 of the Disclosure Schedule, neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.   5 --------------------------------------------------------------------------------   3.5.  SEC Documents: Financial Statements. Since January 1, 2003, the Company has filed, and will timely file and maintain all Nasdaq OTC Bulletin Board listing requirements and all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”). The Company has delivered to Lender or its representatives, or made available through the SEC’s website at http://www.sec.gov., true and complete copies of the SEC Documents. As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to Lender which is not included in the SEC Documents, including, without limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.   3.6.  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 or that otherwise would be reasonably likely to have a material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole, or on the transactions contemplated hereby and by the other Transaction Documents or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents.   3.7.  10(b)-5. Neither the Transaction Documents nor the SEC Documents include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading.   3.8.  Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole.   6 --------------------------------------------------------------------------------   3.9.  Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.   3.10.  Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.   3.11.  Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.   3.12.  Title. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.   3.13.  Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.   3.14.  Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.   7 --------------------------------------------------------------------------------   3.15.  Internal Accounting Controls. The Company and each of its 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, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.   3.16.  No Material Adverse Breaches, etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.   3.17.  Tax Status. The Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all 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 and 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, and the officers of the Company know of no basis for any such claim.   3.18.  Certain Transactions. Except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.   3.19.  Reliance. The Company acknowledges that Lender is relying on the representations and warranties made by the Company hereunder and that such representations and warranties are a material inducement for Lender to fund the Loan Amount and to enter into the transactions contemplated by the Transaction Documents. The Company further acknowledges that without such representations and warranties of the Company made hereunder, Lender would not enter into this Agreement.   8 --------------------------------------------------------------------------------   3.20.  Non-Public Information. The Company confirms that neither it nor any person acting on its behalf has provided Lender with any information that the Company believes constitutes material, non-public information.   3.21.  Sarbanes-Oxley. The Company is in compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, and is actively taking steps to ensure that it will be in compliance with other applicable provisions of such Act not currently in effect at all times after the effectiveness of such provisions except where such noncompliance would not have or reasonably be expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.   SECTION 4. CONDITIONS TO LENDER’S OBLIGATIONS   4.1.  First Closing Conditions. The obligation of Lender to issue to the Company the Note at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions:   (a)  The Company shall have executed the Transaction Documents and delivered the same to Lender.   (b)  The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the First Closing Date.   (c)  The Company shall have executed and delivered to Lender the Note, dated as of the date hereof, in the principal amount of Three Hundred Fifty-Five Thousand Dollars ($355,000);   (d)  The Company shall have provided to Lender a certificate of good standing from the secretary of state from the state in which the Company is incorporated.   (e)  The Company shall have satisfied all obligations with respect to obtaining a waiver of any and all rights of first refusal as to, and any other rights of participation in, the transactions contemplated by the Transaction Documents.   9 --------------------------------------------------------------------------------   (f) Lender shall have received an opinion of counsel from Kirkpatrick & Lockhart Nicholson Graham, LLP in a form satisfactory to Lender.   4.2.  Second Closing Conditions. The obligation of Lender to issue to the Company the Note at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions:   (a)  The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Second Closing Date.   (b)  The Company shall have executed and delivered to Lender the Note, dated as of the Second Closing Date, in the principal amount of Three Hundred Thousand Dollars ($300,000);   (c)  The Company shall have delivered to the Escrow Agent the Pledged Shares and the Transfer Documents (as such terms are defined in the Insider Pledge and Escrow Agreement), including, without limitation, executed medallion guaranteed stock powers as required pursuant to the Insider Pledge Agreement.   (d)  The Company shall have certified, in a certificate executed by two (2) officers of the Company and dated as of the Second Closing Date, that all conditions to the Second Closing have been satisfied.   SECTION 5. AFFIRMATIVE COVENANTS   As long as there remains any amount outstanding under the Notes, the Company shall, unless waived in writing by Lender, comply with the Affirmative Covenants set forth herein:   5.1.  Best Efforts. The Company shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 4 of this Agreement.   5.2.  Use of Proceeds. The Company will use the proceeds from the Loan for general corporate and working capital purposes.   5.3.  Placement Fee. At the First Closing, the Company shall pay to Corporate Strategies, Inc. (“CSI”) a placement fee equal to ten percent (10%) of the gross funding amount ($65,500), which such gross funding amount shall be equal to the aggregate principal amount of the Notes to be delivered at the Closings, directly from the proceeds of the First Closing.   10 --------------------------------------------------------------------------------   5.4.  Documentation Fee. The Company shall pay to Lender, and Lender shall retain from the proceeds of the First Closing, a non-refundable documentation fee equal to Five Thousand Dollars ($5,000) on the First Closing Date.   5.5.  Legal Fees. The Company shall pay to Kirkpatrick & Lockhart Nicholson Graham LLP Sixteen Thousand Eight Hundred Dollars ($16,500) directly from the proceeds of the First Closing on the First Closing Date for legal services rendered to the Company.   5.6.  Reimbursement Fee. At the First Closing, the Company shall pay to CSI an amount equal to Twenty-Five Thousand Dollars ($25,000) payable as a reimbursement fee to Mike King and Princeton Research directly from the proceeds of the First Closing.   5.7.  Investor Relations Fee. The Company shall pay to Clearvision International, Inc. and amount equal to One Hundred Ten Thousand Dollars ($110,000) for investor relations services rendered to the Company, of which (a) Fifty Thousand Dollars ($50,000) shall be paid directly from the proceeds of the First Closing and (b) Sixty Thousand Dollars ($60,000) shall be paid directly from the proceeds of the Second Closing.   5.8.  Amendment to Certificate of Incorporation. The Company shall file an amendment to its Certificate of Incorporation to increase the number of authorized shares of Common Stock to at least Seven Hundred Fifty Million (750,000,000) shares (the “Share Increase”). The failure of the Company to effect the Share Increase before September 20, 2006 shall be deemed an immediate Event of Default without regard to any cure periods thereunder.   5.9.  Financial Statements and Reports. Furnish to Lender, at the times set forth below, the following financial statements and reports:   (a)  As soon as available, but in any event within ninety (90) days after its fiscal year end, an audited financial statement of the Company consisting of a balance sheet, profit and loss statement certified by Company’s independent certified public accountant and reasonably satisfactory to Lender to have been prepared in accordance with GAAP, consistently applied.   (b)  As soon as available, but in any event within twenty (20) days after the last day of each quarter, a balance sheet and profit and loss statement dated as of the last business day of such month in form and detail as reasonably required by Lender certified by the chief financial officer of the Company to have been prepared from the records of the Company on the basis of accounting principles consistently applied by the Company.   (c)  Such other information concerning the business, operations and condition (financial or otherwise) of the Company as Lender may reasonably request.   (d)  As soon as available, but no later than fifteen (15) days after filing, a complete copy of the Company’s tax return filed with the Internal Revenue Service (the “IRS”) and copies of any and all extension requests of the Company filed with the IRS within seven (7) days of filing same.   11 --------------------------------------------------------------------------------   5.10.  Maintenance of Corporate Existence. Maintain and preserve its corporate existence.   5.11.  Taxes, Assessments and Liens. The Company will pay or cause to be paid when due all taxes, assessments and liens upon any and all collateral pledged in the Transaction Documents (collectively, the “Collateral”) or its use or operation, upon this Agreement evidencing the Loan Amount, or upon any of the other Transaction Documents. The Company may withhold any such payment or may elect to contest any lien if the Company is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized, in Lender’s sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, the Company shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest the Company shall defend themselves and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. The Company shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.   5.12.  Notices. Immediately give notice to Lender of:   (a)  The commencement of any litigation relating to the Company involving claimed damages in excess of Ten Thousand Dollars ($10,000) or relating to the transactions contemplated by this Agreement;   (b)  The commencement of any material arbitration or governmental proceeding or investigation not previously disclosed to Lender which has been instituted or, to the knowledge of the Company, is threatened against the Company or its property which, if determined adversely to the Company, would have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company; and   (c)  Any Event of Default under this Agreement or the Transaction Documents.   5.13.  Compliance with Laws. Carry on their business activities in substantial compliance with all applicable federal or state laws and all applicable rules, regulations and orders of all governmental bodies and offices having power to regulate or supervise their business activities. The Company shall maintain all material rights, liens, franchises, permits, certificates of compliance or grants of authority required in the conduct their businesses.    5.14.  Books and Records. Keep books and records reflecting all of their business affairs and transactions in accordance with generally accepted accounting principles consistently applied and permit Lender, and its representatives, at reasonable times and intervals, to visit all of their offices, discuss their financial matters with officers of the Company and its independent public accountants (and by this provision the Company authorizes its independent public accountants to participate in such discussions) and examine any of their books and other corporate records.   12 --------------------------------------------------------------------------------   5.15.  Maintain Property. Maintain and keep their assets, property and equipment in good repair, working order and condition, reasonable wear and tear excepted, other than with respect to assets disposed of in the ordinary course of business and from time to time make or cause to be made all needed renewals, replacements and repairs, including but not limited to, renewals, registrations of all licenses, trademarks and patents and other intangible rights.   5.16.  Conduct of Business. Continue to engage primarily in the business being conducted as of the effective date of this Agreement.   5.17.  Maintenance of Insurance. During the term of this Agreement, the Company shall keep and maintain such insurance coverage with financially reputable insurers providing for such coverage not less, and deductibles not greater, than currently maintained by the Company, other than medical malpractice insurance which may be obtained or not obtained by the Company, as they determine, in their sole discretion. Such insurance policies shall contain a clause requiring the insurer to give Lender thirty (30) days’ prior written notice in the event of any anticipated cancellation of the policy for any reason. Cancellation without replacement shall be a default under this Agreement. The Company will deliver evidence of such paid up insurance and the policies of insurance or copies thereof to Lender upon request.   5.18.  Segregation of Accounts. The Company shall, at all times during the term of this Agreement and while any indebtedness remains outstanding to Lender, maintain the accounts pledged to Lender, segregated on their books, and the proceeds thereof received by the Company shall be promptly deposited and maintained by Company at all such times thereafter in segregated accounts so as to allow such proceeds to be readily identifiable and such proceeds shall not be maintained in or deposited into accounts where they are commingled with other proceeds of the Company, upon which Lender has not been granted a security interest pursuant to the terms of the Transaction Documents.   SECTION 6. NEGATIVE COVENANTS   As long as there remains any amount outstanding under the Notes, the Company shall not, unless waived in writing by Lender:   6.1.  Consolidation; Merger; Sale of Assets; Acquisitions. Consolidate with or merge into or with any other entity; or sell (other than sales of inventory in the ordinary course of business), transfer, lease or otherwise dispose of all or a substantial part of their assets; or acquire a substantial interest in another entity either through the purchase of all or substantially all of the assets of that person or the purchase of a controlling equity interest in that person.   6.2.  Liens. Create, incur, assume or suffer to exist any lien on any of their property, real or personal, except (a) liens in favor of Lender; (b) liens for current taxes and assessments which are not yet due and payable; and (c) liens relating to purchase money security interests and equipment leases.   6.3.  Additional Indebtedness. Create, incur, assume or suffer to exist any indebtedness except: (a) indebtedness in favor of Lender and (b) current liabilities incurred in the ordinary course of business including purchase money obligations and leases.   13 --------------------------------------------------------------------------------   6.4.  Guaranties. Assume, guarantee, endorse or otherwise become liable in connection with the indebtedness of any other person or entity except endorsements of negotiable instruments for deposit or collection in the ordinary course of business.   6.5.  Dividends. Declare or pay any dividends, purchase, redeem, retire or otherwise acquire for value any of their capital stock or membership interests, as applicable, now or hereafter outstanding, return any capital to their stockholders or members, as applicable, or make any distribution of assets to their stockholders or members.   6.6.  Change in Ownership. Permit a material change in the ownership of the Company as in effect on the date of this Agreement.   6.7.  Change in Company. Permit, cause or allow a change in the management of Company without the written consent of Lender.   6.8.  Transfers. The Company shall not sell or transfer all or a portion of the Collateral without the prior written consent of Lender except transfers in the ordinary course of business.   SECTION 7.  EVENTS OF DEFAULT AND REMEDIES   7.1.  Events of Default. The term “Event of Default” shall mean any of the following events:   (a)  The Company shall fail to make any payment to Lender when due; The Company shall have a fifteen (15) day grace period for payment of monthly installments of interest under this paragraph; or   (b)  The Company shall fail to effect the Share Increase in accordance with Section 5.8 herein.   (c)  The Company shall default (other than a default in payment under subsection (a) or (b) above) in the due performance and observance of any of the covenants contained in this Agreement or any of the Transaction Documents and such default shall continue unremedied for a period of thirty (30) days after notice and opportunity to cure from Lender to the Company thereof; or   (d)  The Company shall become insolvent or generally fail to pay or admit in writing its inability to pay its debts as they become due; or the Company shall apply for, consent to, or acquiesce in the appointment of a trustee, receiver or other custodian for itself or any of its property, or make a general assignment for the benefit of its creditors; or trustee, receiver or other custodian shall otherwise be appointed for the Company or any of its assets and not be discharged within thirty (30) days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding shall be commenced by or against the Company and be consented to or acquiesced in by the Company, or remain undismissed for thirty (30) days; or the Company shall take any corporate action to authorize, or in furtherance of, any of the foregoing; or   14 --------------------------------------------------------------------------------   (e)  The Company fails to comply with any obligation, covenant or agreement contained in any of the Transaction Documents; or   (f)  Any representation or warranty set forth in this Agreement or any of the Transaction Documents shall be untrue in any material respect on the date as of which the facts set forth are stated or certified or become untrue in any material respect anytime thereafter, provided that the Company shall be given an opportunity to cure such default for a period of thirty (30) days after its occurrence; or   (g)  Any judgments, writs, warrants of attachment, executions or similar process (not undisputedly covered by insurance) in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000) shall be issued or levied against the Company or any of its assets and shall not be released, vacated or fully bonded prior to any sale and in any event within thirty (30) days after its issue or levy.   7.2.  Remedies. If an Event of Default described in Sections 7.1(a) or (b) shall occur, the full unpaid balance of the Notes (outstanding balance plus accrued interest) and all other obligations owed to Lender by the Company, whether hereunder or pursuant to any other Agreement or instrument, shall automatically be due and payable without declaration, notice, presentment, protest or demand of any kind (all of which are hereby expressly waived). If any other Event of Default shall occur and be continuing, Lender may declare the outstanding balance of the Notes and all other obligations owed to Lender by the Company pursuant to any other Agreement or instrument, to be due and payable without further notice, presentment, protest or demand of any kind (all of which are hereby expressly waived), whereupon the full unpaid amount of the Notes and all other obligations of the Company to Lender shall become immediately due and payable. Upon any Event of Default hereunder, Lender shall be entitled to exercise any and all rights and remedies available at law or in equity for the collection of the amounts owed under the Notes and all other obligations of the Company to Lender.   SECTION 8. MISCELLANEOUS   8.1.  Waivers, Amendments. The provisions of the Transaction Documents may from time to time be amended, modified, or waived, if such amendment, modification or waiver is in writing and signed by the parties hereto. No failure or delay on the part of Lender or the holder of the Notes in exercising any power or right under any Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances.   8.2.  Termination. In the event that the Company fails to satisfy the conditions set forth in Section 4 herein (and the non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date; provided, however, that if this Agreement is terminated by Lender pursuant to this Section 8.2, the Company shall remain obligated to pay any and all amounts due under the Notes as of such date.   15 --------------------------------------------------------------------------------   8.3.  Brokerage. The Company represents that no broker, agent, finder or other party has been retained by it in connection with the transactions contemplated hereby and that no other fee or commission has been agreed by the Company to be paid for or on account of the transactions contemplated hereby.   8.4.  Notices. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (a) upon receipt, when delivered personally; (b) upon confirmation of receipt, when sent by facsimile; (c) three (3) days after being sent by U.S. certified mail, return receipt requested, or (d) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:   If to the Company, to: GWIN, Inc.   5052 South Jones Boulevard   Suite 100   Las Vegas, Nevada 89118   Attention:  Douglas R. Miller   Telephone: (702) 967-6000   Facsimile: (702) 967-6002     With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP   201 South Biscayne Boulevard - Suite 2000   Miami, Florida 33131-2399   Attention: Clayton E. Parker, Esq.   Telephone: (305) 539-3300   Facsimile: (305) 358-7095     If to Lender, to: CSI Business Finance, Inc.   109 North Post Oak Lane, Suite 422   Houston, Texas 77024   Attention: Timothy J. Connolly   Telephone: (713) 621-2737   Facsimile: (713) 586-6678     Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.   8.5.  Costs and Expenses. The Company agrees to pay all expenses for the preparation of this Agreement, including exhibits, and any amendments to this Agreement as may from time to time hereafter be required, and the reasonable attorneys’ fees and legal expenses of counsel for Lender, from time to time incurred in connection therewith and the related Transaction Documents. The Company agrees to reimburse Lender upon demand for, all reasonable out-of-pocket expenses (including attorney’ fees and legal expenses) in connection with Lender’s enforcement of the obligations of the Company hereunder or any other Transaction Documents, whether or not suit is commenced including, without limitation, attorneys’ fees and legal expenses in connection with any appeal of a lower court’s order or judgment. The obligations of the Company under this Section 8.5 shall survive any termination of this Agreement.   16 --------------------------------------------------------------------------------   8.6.  Severability. Any provision of this Agreement or any Transaction Document executed pursuant hereto which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such portion or unenforceability without invalidating the remaining provisions of this Agreement or such Transaction Document or affecting the validity or enforceability of such provisions in any other jurisdiction.   8.7.  Cross-References. References in this Agreement or in any other Transaction Document executed pursuant hereto to any Section are, unless otherwise specified, to such Section of this Agreement or such Transaction Document, as the case may be.   8.8.  Headings. The various headings of this Agreement and of any other Transaction Document executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such Transaction Document or any provisions hereof or thereof.   8.9.  Governing Law; Venue. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of laws thereof. Each of the parties hereto consents to the jurisdiction of the federal and state courts of the State of Texas in any such action or proceeding and waives any objection to venue laid therein.   8.10.  Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer its rights hereunder without the prior written consent of Lender.   8.11.  Recitals. The recitals to this Agreement are incorporated into and constitute an integral part of this Agreement.   8.12.  Multiple Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument.   8.13.  Prior Agreement Superceded. This Agreement supercedes in its entirety any prior oral agreements by and between the Company and Lender, with respect to the Loan and related Transaction Documents.   8.14.  Inspection of Collateral and Records. Lender may at its option upon reasonable notice inspect the collateral and records of the Company, at its premises.   8.15.  Waiver of Jury Trial. THE COMPANY AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, AND ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER AGREEING TO THE TERMS OF THIS AGREEMENT.   17 --------------------------------------------------------------------------------   8.16.  Time of the Essence. Time is of the essence as to each requirement under the Agreement.   8.17.  Opportunity to Hire Counsel; Role of Kirkpatrick & Lockhart Nicholson Graham LLP. Lender acknowledges that they have been advised and have been given an opportunity to hire counsel with respect to this Agreement and the transactions contemplated hereby. Lender further acknowledges that the law firm of Kirkpatrick & Lockhart Nicholson Graham LLP has solely represented the Company in connection with this Agreement and the transactions contemplated hereby and no other person.       [SIGNATURE PAGE TO FOLLOW]   18 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written.         THE COMPANY:            GWIN, INC.            By: /s/ Wayne Allyn Root                Name: Wayne Allyn Root     Title: Chief Executive Officer           LENDER:            CSI BUSINESS FINANCE, INC.            By: /s/ Timothy J. Connolly              Name: Timothy J. Connolly     Title: Chief Executive Officer     19 --------------------------------------------------------------------------------    EXHIBIT A [FORM OF NOTE]         20 -------------------------------------------------------------------------------- EXHIBIT B [DISBURSEMENT INSTRUCTIONS]         21 -------------------------------------------------------------------------------- DISCLOSURE SCHEDULE   Item 3.3:   On December 1, 2004, the Company closed on a transaction with Laurus Master Fund Ltd. (“Laurus”) in which the Company borrowed $600,000 from Laurus pursuant to a Convertible Term Note (“Term Note”) for $600,000 and the Company issued a seven (7) year warrant to purchase 2,666,667 shares of Common Stock at an exercise price of $0.09 per share. The Term Note is due in three (3) years, bears interest at thirteen percent (13%), with the interest being payable monthly; and principal payments are amortized over the term of the loan with the first payment due February 1, 2005; and the payments of principal and interest may be paid using shares of Common Stock at a price of $0.073, subject to adjustment, if certain conditions are met.   The Term Note is secured by (a) a personal guaranty of Wayne Allyn Root; (b) a pledge by Mr. Root of all of his shares of the Company; (c) an assignment of all of the funds which are released from certain credit card security accounts; and (d) a master security agreement covering all of the assets of the Company.   The loan and sale of the warrant were made pursuant to a Securities Purchase Agreement with Laurus. Laurus has no relationship with the Company or any of its affiliates other than the fact that Laurus entered into a somewhat similar transaction with the Company in 2002, and the Company still owed to Laurus approximately $119,000 as of November 30, 2004 on the original loan transaction. The Company paid to Laurus Capital Management, LLC, the manager of Laurus, a fee of $21,000 plus $10,000 for its expenses. The funds from this loan are being used for general working capital purposes.   The Securities Purchase Agreement required that the Company file a registration statement with the SEC registering the shares to be issued as payments on the Term Note and the shares issuable upon exercise of the warrant (collectively, the “Securities”). As of March 25, 2005, the Company has an effective Registration Statement on Form SB-2 which covers the Securities.   The Company filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission on December 2, 2004 disclosing this transaction and copies of the Securities Purchase Agreement and the Term Note are attached as Exhibits 10.27 and 10.28 thereto.   Item 3.4:   In September 2002 the Company entered into an unsecured short term facility (the “New Market Note”) with Newmarket plc (“Newmarket”), a company organized under the laws of the United Kingdom. Pursuant to the New Market Note, Newmarket loaned to the Company $250,000. The Company has paid to Newmarket approximately $100,000 leaving a balance equal to $150,000 plus approximately $18,000 in accrued interest as of the date of this Agreement. The New Market Note has matured. The Company never received any demand or notice of default from Newmarket, and the Company has, since the date of maturity on the New Market Note, made several attempts to contact Newmarket to resolve the debt to no avail. The Company has no evidence of the New Market Note other than email confirmations, which such confirmations are over two (2) years old. Furthermore, the principals of Newmarket were, at the time of the New Market Note, Board members of the Company and thus the New Market Note has been shown as a related party debt.   22 --------------------------------------------------------------------------------

  Exhibit 10.2   PAC-WEST TELECOMM, INC. PAC-WEST TELECOM OF VIRGINIA, INC. PWT SERVICES, INC. PWT OF NEW YORK, INC. AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT     --------------------------------------------------------------------------------        This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of November ___, 2006, by and between PAC-WEST FUNDING COMPANY LLC, a Washington limited liability company ( “LENDER”) and PAC-WEST TELECOMM, INC., PAC-WEST TELECOM OF VIRGINIA, INC., PWT SERVICES, INC., and PWT OF NEW YORK, INC. (each a “Borrower” and collectively, “Borrowers”). RECITALS      Borrowers and Comerica Bank (“Comerica”) entered into the Loan and Security Agreement dated as of November 9, 2005 as amended, supplemented or otherwise modified to date (the “Original Loan Agreement”) which is being amended and restated in its entirety herein. PAC-WEST FUNDING COMPANY LLC, a Washington limited liability company has purchased all of Comerica’s right, title and interest in and to the Original Loan Agreement and all Loan Documents (as defined herein) and amendments to the Original Loan Agreement and Borrowers and Lender desire to amend and restate the Original Loan Agreement in its entirety as set forth herein. In case of any discrepancy between the Original Loan Agreement and this Agreement, this Agreement shall control. AGREEMENT      The parties agree as follows:      1. DEFINITIONS AND CONSTRUCTION.           1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions:                “Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to a Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services (including, without limitation, amounts owed to a Borrower pursuant to intercarrier and interconnection arrangements and inter-carrier reciprocal compensation payment obligations) by a 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 a Borrower and each Borrower’s Books relating to any of the foregoing.                “Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.                “Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.                “Borrower State” means (a) California, the state under whose laws Parent is organized and, if Parent is converted, merged or consolidated into a Permitted Successor Corporation, Delaware, the state under whose laws the Permitted Successor Corporation shall be organized; (b) Delaware, the state under whose laws Borrowers PWT of New York, Inc. and PWT Services, Inc. are organized; and (c) Virginia, the state under whose laws Pac-West Telecom of Virginia, Inc. is organized.                “Borrower’s Books” means all of a Borrower’s books and records including: ledgers; records concerning such Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.                “Borrowing Base” means an amount equal to eighty-five percent (85%) of Eligible Accounts, as determined by Lender with reference to the most recent Borrowing Base Certificate delivered by Parent.                “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. 1 --------------------------------------------------------------------------------                  “Business Plan” means Borrower’s Business Plan dated November 13, 2006 attached hereto as Exhibit Y.                “Business Plan Revenue” means Revenue as set forth in the Business Plan.                “Capital Expenditures” means current period cash expenditures that are amortized over a period of time in accordance with GAAP.                “Cash” means unrestricted cash and cash equivalents.                “Cash Position” means the aggregate amount of Cash of the Borrowers at any time of measurement.                “Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of a Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of such Borrower, who did not have such power before such transaction.                “Chief Executive Office State” means California, where Borrowers’ chief executive office is located.                “Closing Date” means the effective date of this Agreement to amend and restate the Original Loan Agreement.                “Code” means the California Uniform Commercial Code, as amended or supplemented from time to time.                “Collateral” means the property described on Exhibit A attached hereto and all Negotiable Collateral and Intellectual Property Collateral to the extent not described on Exhibit A; except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral; provided that in no case shall the definition of “Collateral” exclude any Accounts, proceeds of the disposition of any property, or general intangibles consisting of rights to payment. Notwithstanding the foregoing, Collateral shall not include Pac-West’s Alcatel 600E switch, located in the Phoenix Arizona Local Access and Transport Area at V&H coordinates 09125/06749, and identified in the Local Exchange Routing Guide by the switch ID of PHNAAZIADS1 and Pac-West’s operating company number of 2821 so long as it is located and in use in Arizona.                “Collateral State” means the state or states where the Collateral currently is located, which are Arizona, California, Nevada, Oregon, New York, and Washington, and every other state or states where the Collateral may be located in the future pursuant to Section 7.10.                “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.                “Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of 2 --------------------------------------------------------------------------------   interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.                “Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include (a) any direct or indirect liability for obligations (including representations and warranties) arising under contracts entered into in the ordinary course of a Borrower’s business, or (b) endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.                “Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.                “Credit Extension” means each Advance, Term Loan, or any other extension of credit by Lender to or for the benefit of Borrowers hereunder.                “DIDOD Release 1.1” means a suite of services which provide interoperability and interconnection of IP and TDM telephony services, at minimum inclusive of the availability of the following service elements: (a) telephone number inventory including number reservation; (b) interconnection with Local Exchange Carriers and other Carriers as necessary to effectuate both local call in-bound and local and long distance outbound call termination; (c) customer order and query submission via GUI or API; (d) number and service activation on customer request; (e) order provisioning as necessary with other entities; (f) Network Routing Directory updates; (g) Line Database (LIDB) updates; (h) Calling Name (CNAM) database updates; (i) CNAM delivery on outbound calls; (j) local number portability; (k) directory listing; (l) mandated e911 services via customer provided solution; (m) enhanced billing and reporting functions; and (n) customer support. For purposes of this definition API means Application Programming Interface; GUI means Graphical User Interface; and TDM means Time Division Multiplexing.                “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrowers and their Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrowers’ Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options and restricted stock, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits but specifically excluding from the phrase “extraordinary and non-recurring revenue and gains” revenue and expense settlements with Borrowers’ customers and other telecomm carrier(s); each, occurring in the ordinary course of Borrowers business) for such period, all as determined in accordance with GAAP.                “Eligible Accounts” means those Accounts receivable that arise in the ordinary course of Borrowers’ business that comply with all of Borrowers’ representations and warranties to Lender set forth in Section 5.3; provided, that Lender may change the standards of eligibility prospectively by giving Parent thirty (30) days prior written notice. Unless otherwise agreed to by Lender, Eligible Accounts shall not include Accounts that the account debtor has failed to pay in full within ninety (90) days of invoice date. 3 --------------------------------------------------------------------------------                  “Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.                “Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower has any interest.                “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.                “Event of Default” has the meaning assigned in Article 8.                “GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time.                “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.                “Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.                “Intellectual Property Collateral” means all of a Borrower’s right, title, and interest in and to the following:                (a) Copyrights, Trademarks and Patents;                (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;                (c) Any and all design rights which may be available to a Borrower now or hereafter existing, created, acquired or held;                (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;                (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;                (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and                (g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.                “Inventory” means all present and future inventory in which a Borrower has any interest.                “Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest other securities) any Person, or any loan, advance or capital contribution to any Person. 4 --------------------------------------------------------------------------------                  “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.                “Lender Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Sale Agreement and the Loan Documents; reasonable Collateral audit fees; and Lender’s reasonable attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.                “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.                “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other amendment, letter agreement, document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time including without limitation all those listed on Exhibit X hereto.                “Loan Sale Agreement” means that certain Loan Sale Agreement between Lender and Comerica dated contemporaneously herewith.                “Material Adverse Effect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of Borrowers and their Subsidiaries taken as a whole, (ii) the ability of Borrowers to repay the Obligations or otherwise perform their obligations under the Loan Documents, (iii) Borrowers’ interest in, or the value, perfection or priority of Lender’s security interest in the Collateral.                “Negotiable Collateral” means all of a Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and such Borrower’s Books relating to any of the foregoing.                “New Equity” means cash proceeds received after the Closing Date from the sale or issuance of Parent’s equity securities.                “Obligations” means all debt, principal, interest, Lender Expenses and other amounts owed to Lender by a Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from a Borrower to others that Lender may have obtained by assignment or otherwise.                “Original Loan Agreement” has the meaning assigned in the preamble.                “Parent” means PAC-WEST TELECOMM, INC., a California corporation.                “Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.                “Periodic Payments” means all installments or similar recurring payments that a Borrower may now or hereafter become obligated to pay to Lender pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between a Borrower and Lender.                “Permitted Indebtedness” means:                (a) Indebtedness of Borrowers in favor of Lender arising under this Agreement or any other Loan Document; 5 --------------------------------------------------------------------------------                  (b) Indebtedness permitted under subsection (e) of the defined term “Permitted Investment;”                (c) Indebtedness existing on the Closing Date and disclosed in the Schedule;                (d) Indebtedness not to exceed Fifteen Million Dollars ($15,000,000) in the aggregate in any fiscal year of Borrowers, secured by a lien described in clause (c) of the defined term “Permitted Liens;” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;                (e) Subordinated Debt;                (f) Indebtedness to trade creditors incurred in the ordinary course of business; and                (g) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrowers or their Subsidiaries, as the case may be.                “Permitted Investment” means:                (a) Investments existing on the Closing Date disclosed in the Schedule;                (b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Lender’s certificates of deposit maturing no more than one year from the date of investment therein, (iv) Lender’s money market accounts, and (v) Corporate bonds, including Eurodollar issues of U.S. corporations, and U.S. denominated issues of foreign corporations, with a rating of A2 or better by Moody’s Investor Services or a rating of A or better by Standard and Poor’s Corporation, at the time of purchase;                (c) Repurchases of stock from former employees or directors of Borrowers under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to a Borrower regardless of whether an Event of Default exists;                (d) Investments accepted in connection with Permitted Transfers;                (e) Investments of one Borrower in or to other Borrowers;                (f) Investments not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrowers or their Subsidiaries pursuant to employee stock purchase plan agreements approved by such Borrower’s Board of Directors;                (g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of a Borrower’s business;                (h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of a Borrower in any Subsidiary; and 6 --------------------------------------------------------------------------------                  (i) Joint ventures or strategic alliances in the ordinary course of a Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrowers do not exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year.                “Permitted Liens” means the following:                (a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances) or arising under this Agreement or the other Loan Documents;                (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrowers maintain adequate reserves, provided the same have no priority over any of Lender’s security interests;                (c) Liens not to exceed Fifteen Million Dollars ($15,000,000) in the aggregate (i) upon or in any Equipment acquired or held by a Borrower or any of their Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;                (d) Leases or subleases and licenses or sublicenses granted to others in the ordinary course of Borrowers’ business not interfering in any material respect with the business of Borrowers and their Subsidiaries taken as a whole;                (e) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;                (f) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 or 8.9;                (g) Inchoate Liens arising in the ordinary course of Borrowers’ business and securing obligations which are not delinquent; and                (h) Liens in favor of other financial institutions arising in connection with Borrowers’ deposit accounts held at such institutions to secured standard fees for deposit services charged by, but not financing made available by such institutions, provided that Lender has a perfected security interest in the amounts held in such deposit accounts.                “Permitted Successor Corporation” means any Delaware corporation into which a Borrower is converted, merged or consolidated (it being understood that Parent may create a Delaware corporation into which Parent is merged, with such corporation surviving such merger and Parent merging out of existence), so long as:                (a) Parent shall request Lender’s prior written consent to such conversion, merger or consolidation at least thirty (30) days prior thereto, which consent shall not be unreasonably withheld or delayed;                (b) Such surviving corporation shall be a corporation organized and existing under the laws of the state of Delaware, shall expressly assume all of Parent’s Obligations and shall expressly affirm all of Parent’s Representations and Warranties made herein, as if such surviving corporation were the “Parent” for all purposes; 7 --------------------------------------------------------------------------------                  (c) Parent shall cause such surviving corporation to authorize Lender to file, prior to the effective date of any such conversion, merger or consolidation, such financing statements, continuation statements, or amendments as Lender deems necessary or advisable to perfect and maintain the perfection of Lender’s security interest in the Collateral;                (d) Such conversion, merger or consolidation shall contemplate the transfer to the surviving corporation of all of Parent’s right, title and interest in and to all of Parent’s assets, and Parent and such surviving corporation shall provide evidence of such transfer satisfactory to Lender;                (e) No Event of Default exists before or would result after giving effect to such conversion, merger or consolidation;                (f) No Change of Control, and no change in executive management of Parent, has occurred as a result of such conversion, merger or consolidation;                (g) Immediately after giving effect to such conversion, merger or consolidation, Parent and the surviving corporation shall have delivered to Lender a certificate signed by a Responsible Officer of each stating that such conversion, merger or consolidation complies with the requirements for a Permitted Successor Corporation and that all conditions precedent herein provided for relating to such conversion, merger or consolidation have been satisfied; and                (h) On or prior to the closing of any such conversion, merger or consolidation, such conversion, merger or consolidation shall have been approved by the Board of Directors of Parent and the surviving corporation.                “Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrowers or any Subsidiary of:                (a) Inventory in the ordinary course of business;                (b) (i) any assets of a Borrower to another Borrower; and (ii) all, but not less than all, assets of Parent to a Permitted Successor Corporation (but only in connection with the conversion, merger or consolidation of Parent into or with such Permitted Successor Corporation;                (c) licenses and similar arrangements for the use of the property of Borrowers or their Subsidiaries in the ordinary course of business;                (d) worn-out or obsolete Equipment not financed with the proceeds of Advances; or                (e) other assets of Borrowers or their Subsidiaries that do not in the aggregate exceed One Hundred Thousand Dollars ($100,000) during any fiscal year.                “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.                “Preferred Stock” has the meaning set forth in the Purchase Agreement.                “Purchase Agreement” means the Preferred Stock Purchase Agreement dated as of the Closing Date between Borrowers and PAC-WEST ACQUISITION COMPANY LLC, a Washington limited liability company.                “Purchaser” means Pac-West Acquisition Company LLC. 8 --------------------------------------------------------------------------------                  “Regulatory Agency” means the Public Utilities Commission, or comparable state agency, in a particular jurisdiction.                “Regulatory Approval” means approval, where required, by the Regulatory Agencies, of the states in which the Borrowers operate, for the incurrence of the Indebtedness evidenced by this Agreement and/or the encumbrance of the Collateral, including but not limited to the respective Regulatory Certificates.                “Regulatory Certificates” means the “certificates of convenience” (or comparable approval irrespective of its form) issued by the Regulatory Agencies, which permit the respective Borrowers to operate their business in the respective jurisdictions.                “Responsible Officer” means each of the Chief Executive Officer and the Chief Financial Officer of Parent.                “Revenue” means total revenue calculated in a manner consistent with past practices under GAAP.                “Revolving Line” means a Credit Extension of up to Eight Million Dollars ($8,000,000).                “Revolving Maturity Date” means December 31, 2008.                “Schedule” means the schedule of exceptions attached hereto and approved by Lender, if any.                “Shares” means (i) sixty-six and two-thirds percent (66-2/3%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by any Borrower in any Subsidiary of such Borrower which is not an entity organized under the laws of the United States or any territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by any Borrower in any Subsidiary of such Borrower which is an entity organized under the laws of the United States or any territory thereof.                “SOS Reports” means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.                “Subordinated Debt” means any debt incurred by a Borrower that is subordinated in writing to the debt owing by Borrowers to Lender on terms reasonably acceptable to Lender (and identified as being such by Borrowers and Lender), including but not limited to the Subordinated Notes.                “Subordinated Notes” means those Series A and Series B Senior Notes issued by Parent in the aggregate principal amount of Thirty Six Million One Hundred Two Thousand Dollars ($36,102,000) bearing interest at the rate of thirteen and one half percent (13.50%), all due and payable February 1, 2009, and any notes issued in exchange for such notes, whether secured or unsecured and on such terms as may be agreed pursuant to any exchange offer.                “Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than fifty percent (50%) of the stock, limited liability company interest or joint venture of which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by a Borrower, either directly or through an Affiliate.                “Term Loans” has the meaning set forth in Section 2.1(c).                “Term Loan Maturity Date” means December 31, 2008. 9 --------------------------------------------------------------------------------                  “Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of a Borrower connected with and symbolized by such trademarks.                “Tranche A” has the meaning assigned in Section 2.1(c)(i).                “Tranche A Availability End Date” means the Closing Date.                “Tranche A Term Loan” or “Tranche A Term Loans” means any Term Loan(s) made under Tranche A.                “Tranche B” has the meaning assigned in Section 2.1(c)(i).                “Tranche B Availability Date” means the latest to occur of (a) February 1, 2007, (b) the commercial availability of DIDOD Release 1.1, and (c) the effective date of long term binding agreements between Parent and VeriSign, Inc. acceptable to Lender.                “Tranche B End Date” means, (a) if the Tranche B Availability Date does not occur by April 15, 2007, the close of business on April 15, 2007, and (b) if the Tranche B Availability Date does occur by April 15, 2007, December 30, 2008.                “Tranche B Term Loan” or “Tranche B Term Loan” means any Term Loan (s) made under Tranche B.                “TSA” means that certain Transition Services Agreement dated December 17, 2004, by and between Parent and U.S. TelePacific Corp., a California corporation.           1.2 Accounting Terms. Any accounting term not specifically defined herein shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term “financial statements” shall include the accompanying notes and schedules.      2. LOAN AND TERMS OF PAYMENT.           2.1 Credit Extensions.                (a) Promise to Pay. Borrowers promise to pay to Lender, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Lender to Borrowers, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.                (b) Advances Under Revolving Line.                     (i) Amount. Subject to and upon the terms and conditions of this Agreement, on and after February 1, 2007, (1) Parent may request Advances in an aggregate outstanding amount of not less than $250,000 and not to exceed the least of (A) the Revolving Line, (B) the Borrowing Base, and (C) the amount necessary to replenish the Cash Position of Borrowers to $5,000,000 as of the close of business on the day the Advance is to be made and (2) amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable. Borrowers may prepay any Advances without penalty or premium.                     (ii) Form of Request. When Parent desires to obtain an Advance, Parent shall notify Lender (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Advance is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer. 10 --------------------------------------------------------------------------------                  (c) Term Loan.                     (i) Subject to and upon the terms and conditions of this Agreement, Parent may request and Lender shall make one (1) or more term loans (each, a “Term Loan” and collectively, the “Term Loans”) in two (2) tranches, Tranche A and Tranche B, in an aggregate amount not to exceed Sixteen Million Dollars ($16,000,000). On the Closing Date, upon satisfaction of the conditions set forth in subsection 3.1 hereof, $8,805,638.23 of the aggregate obligations outstanding under the Original Loan Agreement shall be reinstated as Term Loans under Tranche A hereunder. Tranche B will be in the amount of $7,194,361.77 and following the Tranche B Availability Date (if it occurs), the Tranche B Term Loans may be used to replenish the Cash Position of the Company to $5,000,000.                     (ii) Interest on the Term Loan shall accrue from the Closing Date at the rate specified in Section 2.2(a), and shall be payable on the Term Maturity Date. The Term Loans will be due and payable on the Term Loan Maturity Date. The Term Loans, once repaid, may not be reborrowed. Borrowers may prepay the Term Loans at any time without penalty or premium.                     (iii) When Parent desires to obtain a Term Loan under Tranche B, Parent shall notify Lender (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Term Loan is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer.                     (iv) Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the (A) Revolving Line, or (B) the Borrowing Base at any time, Borrowers shall immediately upon notice pay to Lender, in cash, the amount of such excess.           2.2 Interest Rates, Payments, and Calculations.                (a) Interest Rates.                     (i) Advances. The Advances shall bear interest, on the outstanding daily balance thereof at 12% per annum.                     (ii) Term Loan. The Term Loan shall bear interest, on the outstanding daily balance thereof at 12% per annum.                (b) Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrowers shall pay Lender Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default                (c) Payments. Interest on the Term Loan and the Advances hereunder shall be due and payable on the Term Loan Maturity Date and the Revolving Maturity Date, respectively. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.                (d) Computation. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.           2.3 Crediting Payments. Prior to the occurrence of an Event of Default, Lender shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Parent specifies. After the occurrence of an Event of Default, Lender shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Lender may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately 11 --------------------------------------------------------------------------------   available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Lender after 12:00 noon Pacific time shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day. Whenever any payment to Lender under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.           2.4 Fees. Borrowers shall pay to Lender on the Closing Date, all Lender Expenses incurred through the Closing Date, and, after the Closing Date, all Lender Expenses as and when they become due.           2.5 Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Lender has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Lender shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.      3. CONDITIONS OF LOANS.           3.1 Conditions Precedent to Amendment and Restatement. The obligation of Lender to amend and restate the Original Loan Agreement is subject to the condition precedent that Lender shall have received, in form and substance satisfactory to Lender, the following:                (a) Closing of Loan Sale Agreement with Comerica Bank and satisfaction of all terms thereof;                (b) this Agreement;                (c) an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;                (d) the assignment by Comerica of all the UCC National Form Financing Statements for each Borrower;                (e) the assignment by Comerica of the intellectual property security agreement from each Borrower;                (f) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;                (g) the assignment and delivery by Comerica of the original certificate(s) for the Shares, together with Assignment(s) Separate from Certificate, duly executed by Borrowers to Lender in blank;                (h) the Borrowers shall have obtained securities and/or deposit account control agreements with respect to any accounts permitted hereunder which will also permit Lender to have free access to all available information on any account other than payroll accounts held in trust for payment of employees;                (i) proof of insurance as required and policies or certificates of insurance;                (j) payment of the fees and Lender Expenses then due specified in Section 2.5 hereof;                (k) current financial statements, including audited statements for Parent’s most recently ended fiscal year, together with an unqualified opinion, company prepared consolidated and consolidating 12 --------------------------------------------------------------------------------   balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Lender may reasonably request;                (l) current Compliance Certificate in accordance with Section 6.2;                (m) such other documents or certificates, and completion of such other matters, as Lender may reasonably deem necessary or appropriate;                (n) execution of the Purchase Agreement and compliance with all conditions to effectiveness of same including all deliverables thereunder; and                (o) updated Schedules and Exhibits to this Agreement current as of Closing Date.           3.2 Conditions Precedent to all Credit Extensions. The obligation of Lender, if any, to make any further Credit Extensions, is further subject to the following conditions:                (a) timely receipt by Lender of the Payment/Advance Form as provided in Section 2.1; and                (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.      4. CREATION OF SECURITY INTEREST.           4.1 Grant of Security Interest. Each Borrower has granted and pledged to Lender a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by such Borrower of each of its covenants and duties under the Loan Documents. Except for Permitted Liens, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Notwithstanding any termination, Lender’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.           4.2 Perfection of Security Interest. Each Borrower authorizes Lender to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of such Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether such Borrower is an organization, the type of organization and any organizational identification number issued to such Borrower, if applicable. Any such financing statements may be signed by Lender on behalf of Borrowers, as provided in the Code, and may be filed at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Each Borrower shall from time to time endorse and deliver to Lender, at the request of Lender, all Negotiable Collateral and other documents that Lender may reasonably request, in form satisfactory to Lender, to perfect and continue perfected Lender’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Each Borrower shall have possession of the tangible Collateral, except where expressly otherwise provided in this Agreement or where Lender chooses to perfect its security interest by possession of non-tangible Collateral in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, each Borrower shall take such steps as Lender reasonably requests for Lender to (i) obtain an acknowledgment, in form and substance satisfactory to Lender, of the bailee that the bailee holds such Collateral for the benefit of Lender, (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in 13 --------------------------------------------------------------------------------   Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing Lender to execute a control agreement in form and substance satisfactory to Lender. No Borrower will create any chattel paper without placing a legend on the chattel paper acceptable to Lender indicating that Lender has a security interest in the chattel paper. Each Borrower from time to time may deposit with Lender specific cash collateral to secure specific Obligations; each Borrower authorizes Lender to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by a Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.           4.3 Right to Inspect. Lender (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers’ usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect each Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrowers’ financial condition or the amount, condition of, or any other matter relating to, the Collateral.           4.4 Pledge of Collateral. Each Borrower has pledged, assigned and granted to Lender a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. On the Closing Date, or as soon thereafter as Regulatory Approval is obtained, where required, the certificate or certificates for the Shares will be delivered to Lender, accompanied by an instrument of assignment duly executed in blank by the appropriate Borrower. To the extent required by the terms and conditions governing the Shares, the appropriate Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence of an Event of Default hereunder, Lender may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Lender and cause new certificates representing such securities to be issued in the name of Lender or its transferee. Each Borrower will execute and deliver such documents, and take or cause to be taken such actions, as Lender may reasonably request to perfect or continue the perfection of Lender’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Borrowers shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.      5. REPRESENTATIONS AND WARRANTIES.      Each Borrower represents and warrants as follows:           5.1 Due Organization and Qualification. Borrower and each Subsidiary is duly existing under the laws of the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect.           5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default could not reasonably be expected to cause a Material Adverse Effect.           5.3 Collateral. Subject to Section 6.11, Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States. The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. All Inventory is in 14 --------------------------------------------------------------------------------   all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the cash and investment Collateral is maintained or invested with a Person other than Comerica Bank or Bank of Stockton or such other Person as Lender approves and from whom Lender receives an account control agreement acceptable to Lender.           5.4 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses, granted by Borrower to its customers, or any other alliance or business relationship with regards to the development and marketing of products; each in the ordinary course of business. To the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Effect. Except as set forth in the Schedule and except for “shrink-wrap” and other “off-the-shelf” software, Borrower’s rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.           5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof.           5.6 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision could reasonably be expected to have a Material Adverse Effect.           5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Lender fairly present in all material respects Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Lender.           5.8 Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature.           5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in compliance with all environmental laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which could reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, or have been granted an extension to file, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes could not reasonably be expected to have a Material Adverse Effect.           5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. 15 --------------------------------------------------------------------------------             5.11 Government Consents. Subject to Section 6.11, Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect.           5.12 Inbound Licenses. Except as disclosed on the Schedule and except for “shrink-wrap” and other “off-the-shelf” software, Borrower is not a party to, nor is bound by, any license to which Borrower is a licensee or other agreement that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property where such prohibition and/or restriction could reasonably be expected to have a Material Adverse Effect.           5.13 Shares. Subject to Section 3.1(h) and Section 6.11, Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement. To Borrower’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To Borrower’s knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings.           5.14 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Lender hereunder taken together with all such certificates and written statements furnished to Lender hereunder contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Lender that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.           5.15 TSA. The TSA has expired and there are no outstanding or continuing obligations of any Borrower thereunder.      6. AFFIRMATIVE COVENANTS.      Each Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Lender may have any commitment to make a Credit Extension hereunder, such Borrower shall do all of the following:           6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in the respective states of organization, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify could have a Material Adverse Effect, and shall furnish to Lender the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so could have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which could reasonably be expected to have a Material Adverse Effect.           6.2 Financial Statements, Reports, Certificates. Borrower shall deliver the following to Lender: (i) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower’s operations during such period, in a form reasonably acceptable to Lender and certified by a Responsible Officer; (ii) within five (5) days of filing, all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against 16 --------------------------------------------------------------------------------   Borrower or any Subsidiary that are reasonably likely to result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (v) promptly upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; and (vi) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Lender may reasonably request from time to time, including Borrower’s annual projections within thirty (30) days prior to Borrower’s fiscal year end.                (a) Within thirty days after the last day of each month, Borrower shall deliver to Lender a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings by invoice date of accounts receivable and accounts payable.                (b) Within thirty (30) days after the last day of each month, Borrower shall deliver to Lender with the monthly financial statements, a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto.                (c) As soon as possible and in any event within five (5) calendar days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.                (d) Lender shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing.      Borrower may deliver to Lender on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Lender shall be entitled to rely on the information contained in the electronic files, provided that Lender in good faith believes that the files were delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall also deliver to Lender by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, the intellectual property report, the Borrowing Base Certificate and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.           6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances of Inventory, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Lender of all returns and recoveries of Inventory and of all disputes and claims involving Inventory in an amount more than One Hundred Thousand Dollars ($100,000).           6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Lender, on demand, proof satisfactory to Lender indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.           6.5 Insurance.                (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks (excluding earthquake and flood), and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower’s, naming Lender as additional insured. 17 --------------------------------------------------------------------------------                  (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Lender. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Lender, showing Lender as an additional loss payee, and all liability insurance policies shall show Lender as an additional insured and specify that the insurer must give at least 20 days notice to Lender before canceling its policy for any reason. At the Closing Date, Borrower shall deliver to Lender certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Lender has been granted a first priority security interest. If an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Lender’s option, be payable to Lender to be applied on account of the Obligations.           6.6 Accounts. Borrower shall cause all Cash in deposit accounts to be subject to control agreements in form and content reasonably acceptable to Lender. Borrower does not and shall not hold any Investment Property as defined in the Code in any securities accounts or other accounts unless it is subject to a control agreement acceptable to Lender.           6.7 Financial Covenants. Borrowers, on a consolidated basis, shall at all times maintain the following financial ratios and covenants:                (a) Trailing Three-month Revenue. Revenue for the preceding three months shall be at least 90% of the Business Plan Revenue for the same period, measured monthly, starting with the month ending March 31, 2007.                (b) EBITDA. EBITDA is positive, measured monthly, starting with the month ending November 30, 2007.           6.8 Intellectual Property Rights.                (a) Borrower 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 the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.                (b) Borrower shall promptly give Lender written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.                (c) Borrower shall (i) give Lender not less than thirty (30) days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed; (ii) prior to the filing of any such applications or registrations, execute such documents as Lender may reasonably request for Lender to maintain its perfection in such intellectual property rights to be registered by Borrower; (iii) upon the request of Lender, either deliver to Lender or file such documents simultaneously with the filing of any such applications or registrations; (iv) upon filing any such applications or registrations, promptly provide Lender with a copy of such applications or registrations together with any exhibits, evidence of the filing of any documents requested by Lender to be filed for Lender to maintain the perfection and priority of its security interest in such intellectual property rights, and the date of such filing.                (d) Borrower shall execute and deliver such additional instruments and documents from time to time as Lender shall reasonably request to perfect and maintain the perfection and priority of Lender’s security interest in the Intellectual Property Collateral. 18 --------------------------------------------------------------------------------                  (e) Borrower shall (i) protect, defend and maintain the validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Lender in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Lender, which shall not be unreasonably withheld.                (f) Lender may audit Borrower’s Intellectual Property Collateral to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Lender shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower is required under this Section to take but which Borrower fails to take, after fifteen (15) days’ notice to Borrower. Borrower shall reimburse and indemnify Lender for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section.           6.9 [Intentionally deleted]           6.10 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Lender of the creation or acquisition of such new Subsidiary and, if requested by Lender, take all such action as may be reasonably required by Lender to cause such Subsidiary to become a co-Borrower hereunder, and Borrower, if requested by Lender, shall grant and pledge to Lender a perfected security interest in the stock, units or other evidence of ownership of such Subsidiary.           6.11 Regulatory Approval. Each party hereto shall cooperate and use its reasonable best efforts to (i) promptly prepare and file with the appropriate governmental authorities all necessary reports, applications, petitions, forms, notices or other applicable documents required or advisable with respect to the transactions contemplated by this Agreement (except for necessary reports, applications, petitions, forms, notices or other applicable documents required or advisable solely with respect to the conversion of the Shares , described in the Purchase Agreement which shall be promptly prepared and filed upon the request of the Lender ) and (ii) comply, at the earliest practicable date following the date of receipt by the Lender or the Borrower, with any request for information or documents from a governmental authority related to, and appropriate in the light of, matters within the jurisdiction of such governmental authority, provided that (x) the parties shall use their reasonable best efforts to keep any such information confidential to the extent required by the party providing the information and (y) each party may take, in its reasonable discretion, appropriate legal action not to provide information relating to trade or business secrets, privileged information or other information which reasonably should be treated as confidential.           6.12 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lender to effect the purposes of this Agreement.      7. NEGATIVE COVENANTS.      Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Lender may have any commitment to make any Credit Extensions, such Borrower will not do any of the following without Lender’s prior written consent, which shall not be unreasonably withheld:           7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Lender to accounts opened at another financial institution, other than Permitted Transfers.           7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its chief executive office without thirty (30) days prior written notification to Lender; replace its chief executive officer or chief financial officer without prompt written notification to Lender thereafter; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses 19 --------------------------------------------------------------------------------   currently engaged in by Borrower; change its fiscal year end; suffer or permit a Change in Control other than transactions between the Parent and Pac-West Acquisition Company LLC dated contemporaneously herewith.           7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than (x) mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower, and (y) the conversion, merger or consolidation of Borrower with or into a Permitted Successor Corporation), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (i) such transactions do not in the aggregate exceed Five Million Dollars ($5,000,000) during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity.           7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Lender and except as permitted under Section 7.9 hereof.           7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts (except in connection with the conversion, merger or consolidation of Borrower with or into a Permitted Successor Corporation), or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property.           7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, (ii) repurchase the stock of former employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists, (iii) redeem the Subordinated Notes in an aggregate amount not to exceed (x) Five Million Dollars ($5,000,000) from other than the proceeds of New Equity, plus (y) an amount equal to the net proceeds of New Equity, from the proceeds of such New Equity, and (iv) complete the Exchange Offer described in Section 8.12 hereof; in each case provided no Event of Default has occurred, is continuing or would exist after giving effect to such redemption.           7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its property with a Person other than Lender or Lender’s Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Lender, in form and substance satisfactory to Lender, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.           7.8 Transactions with Affiliates. Except as otherwise expressly permitted hereunder, directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.           7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Lender’s rights contained in any documentation relating to the Subordinated Debt without Lender’s prior written consent. Notwithstanding the foregoing, Parent may repurchase the Subordinated Notes with the proceeds of the Term Loan and New Equity in accordance with the terms and conditions of this Agreement.           7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Lender’s security interest and 20 --------------------------------------------------------------------------------   Lender (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Lender’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and except for such other locations as Lender may approve in writing, and except as set forth in the Schedule, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Lender at least ten (10) days prior written notice and as to which Lender takes action, where needed, to perfect or continue the perfection of its security interest.           7.11 No Investment Company; Margin Regulation. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.           7.12 Capital Expenditures. Notwithstanding any other provision in this Agreement, incur Capital Expenditures in excess of (i) Sixteen Million Five Hundred Thousand Dollars ($16,500,000) for fiscal year 2005; (ii) Fifteen Million Five Hundred Thousand Dollars ($15,500,000) for fiscal year 2006; and (iii) Ten Million Dollars ($10,000,000) for fiscal year 2007; in each case, in the aggregate in the respective fiscal year of Borrowers.      8. EVENTS OF DEFAULT.      Any one or more of the following events shall constitute an Event of Default by Borrowers under this Agreement:           8.1 Payment Default. If a Borrower fails to pay any of the Obligations when due;           8.2 Covenant Default.                (a) If a Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, in each case, in any material respect; or                (b) If a Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between a Borrower and Lender and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after a Borrower receives notice thereof or any officer of a Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrowers be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrowers shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;           8.3 Defective Perfection. If Lender shall receive at any time following the Closing Date an SOS Report indicating that except for Permitted Liens, Lender’s security interest in the Collateral is not prior to all other security interests or Liens of record reflected in such SOS Report;           8.4 Material Adverse Effect. If there occurs any circumstance or circumstances that have or are reasonably likely to have a Material Adverse Effect;           8.5 Attachment. If any material portion of a Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if a Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of a Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of a Borrower’s assets by the United States Government, or any department, 21 --------------------------------------------------------------------------------   agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after such Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by such Borrower (provided that no Credit Extensions will be made during such cure period);           8.6 Insolvency Proceedings. If an Insolvency Proceeding is commenced by a Borrower, or if an Insolvency Proceeding is commenced against a Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);           8.7 Other Agreements. If there is a default or other failure to perform in any agreement to which a Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount that could have a Material Adverse Effect;           8.8 Subordinated Debt. If a Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed hereunder or under any subordination agreement entered into with Lender or pursuant to the Exchange Offer described in Section 8.12 below;           8.9 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) shall be rendered against a Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or           8.10 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Lender by any Responsible Officer pursuant to this Agreement or to induce Lender to enter into this Agreement or any other Loan Document.           8.11 Breach of Preferred Stock Purchase Agreement. Any material breach of provision of the Purchase Agreement.           8.12 Failure to Timely Complete Subordinated Note Exchange. Failure to consummate an “Exchange Offer” as such term is defined in that certain letter dated November 7, 2006, by Pac-West Telecomm, Inc. addressed to SMH Capital Advisors, Inc., wherein at least fifty-one percent (51%) of the notes outstanding under that certain Indenture dated as of January 29, 1999 (the Indenture), have been exchanged for Priority Notes (as defined in the above-referenced letter) and thereby reduced by at least fifty-one percent (51%) the semi-annual interest payment due under the Indenture on February 1, 2007 (after giving effect to any cure period thereunder), and thereafter.           8.13 Failure to Timely Complete Merrill Lynch Restructuring. Failure to consummate on or before March 1, 2007, the restructuring contemplated by the Agreement to Restructure between Parent and Merrill Lynch Capital, a division of Merrill Lynch Financial Services, Inc., dated as of November 15, 2006.           8.14 Failure to Timely Receive Requisite Regulatory Approvals. Failure to receive all regulatory approvals required in order to permit the conversion by the Purchaser of all outstanding shares of Preferred Stock, the failure of which would result in a Material Adverse Effect upon the conversion of all or part of such Preferred Stock, on or before one hundred eighty (180) calendar days from the date hereof; provided that Purchaser shall not have materially breached its obligations under Section 4.2 of the Purchase Agreement.      9. LENDER’S RIGHTS AND REMEDIES.           9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrowers: 22 --------------------------------------------------------------------------------                  (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.6, all Obligations shall become immediately due and payable without any action by Lender);                (b) Demand that Borrowers (i) deposit cash with Lender in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrowers shall promptly deposit and pay such amounts;                (c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between a Borrower and Lender;                (d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Lender reasonably considers advisable;                (e) Make such payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral. Each Borrower agrees to assemble the Collateral if Lender so requires, and to make the Collateral available to Lender as Lender may designate. Each Borrower authorizes Lender to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Lender’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of a Borrower’s owned premises, each Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender’s rights or remedies provided herein, at law, in equity, or otherwise;                (f) Set off and apply to the Obligations (or recoup against or administratively freeze) any and all (i) balances and deposits of Borrower held by Lender, and (ii) indebtedness at any time owing to or for the credit or the account of a Borrower held by Lender;                (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lender is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, each Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Lender’s exercise of its rights under this Section 9.1, each Borrower’s rights under all licenses and all franchise agreements shall inure to Lender’s benefit;                (h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers’ premises) as Lender determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Lender deems appropriate. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Borrowers will be credited only with payments actually made by the purchaser, received by Lender, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Lender may resell the Collateral and Borrowers shall be credited with the proceeds of the sale;                (i) Lender may credit bid and purchase at any public sale;                (j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of a Borrower, any guarantor or any other Person liable for any of the Obligations; and 23 --------------------------------------------------------------------------------                  (k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrowers.      Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.      Notwithstanding anything to the contrary contained in this Agreement, (i) Lender shall not take any action hereunder that would constitute or result in any transfer of control of the certificates of authority without obtaining all necessary approvals of the FCC and all other Regulatory Agencies, and (ii) Lender shall not foreclose on, sell, transfer or otherwise dispose of, or exercise any right to control the certificates of authority or other regulated assets as provided herein or take any other action that would affect the operational, voting, or other control of the Borrowers, unless such action is taken in accordance with the provisions of the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC and all other applicable laws.           9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Lender (and any of Lender’s designated officers, or employees) as such Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Lender’s security interest in the Accounts; (b) endorse such Borrower’s name on any checks or other forms of payment or security that may come into Lender’s possession; (c) sign such Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to such Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Lender determines to be reasonable; (g) to modify, in its sole discretion, any intellectual property security agreement entered into between such Borrower and Lender without first obtaining such Borrower’s approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by such Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which such Borrower no longer has or claims to have any right, title or interest; and (h) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Borrower where permitted by law; provided Lender may exercise such power of attorney to sign the name of such Borrower on any of the documents described in clauses (g) and (h) above, regardless of whether an Event of Default has occurred. The appointment of Lender as each Borrower’s attorney in fact, and each and every one of Lender’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Lender’s obligation to provide Credit Extensions hereunder is terminated.           9.3 Accounts Collection. At any time after the occurrence and during the continuance of an Event of Default, Lender may notify any Person owing funds to a Borrower of Lender’s security interest in such funds and verify the amount of such Account. Each Borrower shall collect all amounts owing to such Borrower for Lender, receive in trust all payments as Lender’s trustee, and immediately deliver such payments to Lender in their original form as received from the account debtor, with proper endorsements for deposit.           9.4 Lender Expenses. If a Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Lender may do any or all of the following after reasonable notice to Parent: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Lender deems necessary to protect Lender from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Lender deems prudent. Any amounts so paid or deposited by Lender shall constitute Lender Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Lender shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement.           9.5 Lender’s Liability for Collateral. Lender has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrowers. 24 --------------------------------------------------------------------------------             9.6 No Obligation to Pursue Others. Lender has no obligation to attempt to satisfy the Obligations by collecting them from any other Person liable for them and Lender may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Lender’s rights against Borrowers. Each Borrower waives any right it may have to require Lender to pursue any other Person for any of the Obligations.           9.7 Remedies Cumulative. Lender’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on a Borrower’s part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. No waiver by Lender shall be effective unless made in a written document signed on behalf of Lender and then shall be effective only in the specific instance and for the specific purpose for which it was given. Each Borrower expressly agrees that this Section may not be waived or modified by Lender by course of performance, conduct, estoppel or otherwise.           9.8 Demand; Protest. Except as otherwise provided in this Agreement, each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.      10. NOTICES.      Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Parent or to Lender, as the case may be, at its addresses set forth below:               If to a Borrower:   PAC-WEST TELECOMM, INC.         1776 W. March Lane, Ste. 250         Stockton, CA 95207         Attn: Chief Financial Officer         FAX: (209) 926-4444               If to:   PAC-WEST FUNDING COMPANY LLC         203 SE Park Plaza Drive, Suite 270         Vancouver, WA 98684         Attn: President         FAX: (360) 816-1841               with a copy to:                       FAX: (650) 213-1710      The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.      11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.      “This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, 25 --------------------------------------------------------------------------------   BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.”      12. REFERENCE PROVISION.      If and only if the jury trial waiver set forth in Section 11 of this Agreement is invalidated for any reason by a court of law, statute or otherwise, the reference provisions set forth below shall be substituted in place of the jury trial waiver. So long as the jury trial waiver remains valid, the reference provisions set forth in this Section shall be inapplicable.           12.1 Mechanics.                (a) Other than (i) nonjudicial foreclosure of security interests in real or personal property, (ii) the appointment of a receiver or (iii) the exercise of other provisional remedies (any of which may be initiated pursuant to applicable law), any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the Lender and the undersigned (collectively in this Section, the “Loan Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the Superior Court or Federal District Court in the County or District where venue is otherwise appropriate under applicable law (the “Court”).                (b) The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. The referee shall be appointed to sit with all the powers provided by law. Each party shall have one peremptory challenge pursuant to CCP §170.6. Pending appointment of the referee, the Court has power to issue temporary or provisional remedies.                (c) The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested to (a) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (b) if practicable, try all issues of law or fact within ninety (90) days after the date of the conference and (c) report a statement of decision within twenty (20) days after the matter has been submitted for decision. Any decision rendered by the referee will be final, binding and conclusive, and judgment shall be entered pursuant to CCP §644, except as provided in Section 12.3.                (d) The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.           12.2 Procedures. Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial. 26 --------------------------------------------------------------------------------             12.3 Application of Law. The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a trial, including without limitation motions for summary judgment or summary adjudication . The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. The referee’s decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee.           12.4 Repeal. If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.           12.5 THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.      13. CO-BORROWERS.           13.1 Co-Borrowers. Borrowers are jointly and severally liable for the Obligations and Lender may proceed against one Borrower to enforce the Obligations without waiving its right to proceed against the other Borrower. This Agreement and the Loan Documents are a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Lender and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of the Credit Extensions were advanced to such Borrower. Lender may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Advance Request Forms (delivered by a Responsible Officer), Borrowing Base Certificates and Compliance Certificates. Borrowers are jointly and severally liable for the Obligations and Lender may proceed against one or more of the Borrowers to enforce the Obligations without waiving its right to proceed against any of the other Borrowers. Each Borrower appoints each other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent for receipt of any Advances on behalf of each Borrower and to apply to Lender on behalf of each Borrower for Advances, any waivers and any consents. This authorization cannot be revoked, and Lender need not inquire as to one Borrower’s authority to act for or on behalf of another Borrower.           13.2 Subrogation and Similar Rights. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives, until all obligations are paid in full and Lender has no further obligation to make Credit Extensions to Borrower, all rights that it may have at law or in equity (including, without limitation, any law subrogating the Borrower to the rights of Lender under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by 27 --------------------------------------------------------------------------------   the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Lender and such payment shall be promptly delivered to Lender for application to the Obligations, whether matured or unmatured.           13.3 Waivers of Notice. Each Borrower waives, to the extent permitted by law, notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default except as set forth herein; notice of the amount of the Obligations outstanding at any time; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; and all other notices and demands to which the Borrower would otherwise be entitled by virtue of being a co-borrower or a surety. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Lender’s failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Each Borrower also waives any defense arising from any act or omission of Lender that changes the scope of the Borrower’s risks hereunder. Each Borrower hereby waives any right to assert against Lender any defense (legal or equitable), setoff, counterclaim, or claims that such Borrower individually may now or hereafter have against another Borrower or any other Person liable to Lender with respect to the Obligations in any manner or whatsoever.           13.4 Subrogation Defenses. Until all Obligations are paid in full and Lender has no further obligation to make Credit Extensions to Borrower, each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.           13.5 Right to Settle, Release.                13.5.1 The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Lender may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.                13.5.2 Without notice to any Borrower and without affecting the liability of any Borrower hereunder, Lender may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the Obligations with respect to a Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to a Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.           13.6 Subordination. All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Lender to effect, to enforce and to give notice of such subordination.      14. GENERAL PROVISIONS.           14.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all Persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by a Borrower without Lender’s prior written consent, which consent may be granted or withheld in Lender’s sole 28 --------------------------------------------------------------------------------   discretion. Lender shall have the right without the consent of or notice to a Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Lender’s obligations, rights and benefits hereunder.           14.2 Indemnification. Each Borrower shall defend, indemnify and hold harmless Lender and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Lender Expenses in any way suffered, incurred, or paid by Lender, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Lender and a Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Lender’s gross negligence or willful misconduct.           14.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.           14.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.           14.5 Amendments in Writing, Integration. All future amendments to or terminations of this Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents. This Agreement and its Exhibits and Schedules is the entire agreement between Borrowers and Lender with regard to the obligations and terms of any loans now or hereafter outstanding hereunder.           14.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.           14.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Lender has any obligation to make any Credit Extension to a Borrower. The obligations of Borrowers to indemnify Lender with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lender have run.           14.8 Confidentiality. In handling any confidential information, Lender and all employees and agents of Lender shall exercise the same degree of care that Lender exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Lender in connection with their present or prospective business relations with a Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrowers and have delivered a copy to Parent, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Lender and (v) as Lender may reasonably determine to be necessary in connection with the enforcement of any remedies hereunder (except as may be required to be maintained in confidence pursuant to SEC rule or other legal requirement binding upon Lender). Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Lender when disclosed to Lender, or becomes part of the public domain after disclosure to Lender through no fault of Lender; or (b) is disclosed to Lender by a third party, provided Lender does not have actual knowledge that such third party is prohibited from disclosing such information.      15. AMENDMENT AND RESTATEMENT.      On the Closing Date upon satisfaction of the conditions set forth in subsection 3.1 hereof, $8,805,638.23 of the aggregate obligations outstanding under the Original Loan Agreement shall be reinstated as Term Loans under 29 --------------------------------------------------------------------------------   Tranche A hereunder. The parties acknowledge and agree that this Agreement and the other Loan Documents do not constitute a novation, payment and reborrowing, or termination of the portion of the obligations of Parent or Borrowers under the Original Loan Agreement reinstated hereby and that all such obligations are in all respects continued and outstanding as obligations under this Agreement and the Loan Documents with only the terms being modified from and after the Closing Date as provided in this Agreement and the other Loan Documents. In addition, this Agreement shall not release, limit or impair in any way the priority of any security interests and Liens held by Lender against any assets of Parent, Borrowers or any of Borrowers’ Subsidiaries arising under the Original Loan Agreement. [Balance of Page Intentionally Left Blank] 30 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.                   PAC-WEST TELECOMM, INC.                       By:   /s/ Michael Sarina                                     Title:   Chief Financial Officer                                 PAC-WEST TELECOM OF VIRGINIA, INC.                       By:   /s/ Michael Sarina                                     Title:   Chief Financial Officer                                 PWT SERVICES, INC.                       By:   /s/ Michael Sarina                                     Title:   Chief Financial Officer                                 PWT OF NEW YORK, INC.                       By:   /s/ Michael Sarina                                     Title:   Chief Financial Officer                                 PAC-WEST FUNDING COMPANY LLC                       By:   /s/ Kenneth D Peterson, Jr                                     Title:   Manager                   [Signature Page to Loan and Security Agreement] 1

  Exhibit 10.1 EXECUTION COPY SETTLEMENT AGREEMENT      SETTLEMENT AGREEMENT, dated as of March 22, 2006 (“Agreement”), by and among Relational Holdings, LLC, a Delaware limited liability company (“Holdings”), Relational Group, LLC, a Delaware limited liability company (“Group”), Relational Investors LLC, a Delaware limited liability company (“Relational”), Ralph V. Whitworth (“Whitworth”), David H. Batchelder (“Batchelder”), and each of the investment partnerships controlled by Relational and identified on Annex A hereto (collectively, the “Funds” and, together with Holdings, Group, Relational, Whitworth and Batchelder, the “Relational Group”), on the one hand, and Sovereign Bancorp, Inc., a Pennsylvania corporation (“Sovereign” or the “Company”), on the other.      WHEREAS, Relational has submitted to the Company notices (the “Notices”) of its intention to (i) nominate Whitworth and Batchelder to stand for election to the Company’s Board of Directors (the “Board”) at the Company’s 2006 annual meeting of shareholders (the “2006 Annual Meeting”) and to solicit proxies in support of their election, and (ii) solicit proxies to seek the removal of Jay S. Sidhu, the Company’s Chairman, President and Chief Executive Officer, as a director of the Company at the 2006 Annual Meeting (collectively, the “Proxy Contest”);      WHEREAS, (i) Relational has made numerous complaints, submissions and filings (collectively, the “Relational Protests”) in opposition to the Transactions (as such term is hereinafter defined) and (ii) the Company has made numerous complaints, submissions and filings (collectively, the “Company Protests”, and together with the Relational Protests, the “Protests”) opposed to Relational, Whitworth, Batchelder and their affiliates, in each case with Governmental Authorities (as such term is hereinafter defined);      WHEREAS, the following lawsuits currently are pending involving the Company and certain members of the Relational Group: (i) Relational Investors LLC vs. Sovereign Bancorp, Inc., No. 05 CV 10394 (AKH) (S.D.N.Y.) (the “Southern District Lawsuit”); (ii) Sovereign Bancorp, Inc. vs. Relational Investors LLC, No. 05-15977 (including Relational’s third party complaint), and Relational Investors LLC vs. Sovereign Bancorp, Inc. et. al, No. 05-17011 (Court of Common Pleas, Berks County, Pa.) (the “Berks County Lawsuits”); (iii) Relational Investors LLC vs. Commonwealth of Pennsylvania, et. al (Commonwealth Court of Pennsylvania) (the “Commonwealth Court Lawsuit”) (collectively, the “Pending Litigation”); and      WHEREAS, the Company has determined that the interests of the Company, its shareholders and other constituencies would best be served by, and Relational has determined   --------------------------------------------------------------------------------   that the interests of the members of the Relational Group would best be served by, (i) avoiding the substantial expense and disruption that would be expected to result from the Proxy Contest and the Pending Litigation, (ii) avoiding the substantial expense and potential delays in consummating the Transactions that may result from the Protests, (iii) adding certain persons to the Board as provided herein and nominating the persons as set forth herein for election as directors of the Company as provided herein, (iv) terminating the Pending Litigation and (v) the receipt of other agreements, covenants, rights and benefits as provided herein.      NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and representations set forth herein, intending to be legally bound hereby, the parties hereby agree as follows:      1. Settlement of Pending Litigation; Shareholder List; Advance Notices; Books and Records Demands.           (a) Within three business days after the appointment of the Relational Designee (as such term is hereinafter defined) to the Board (the “Appointment Date”) the parties will take all measures reasonably necessary to dismiss, as against both Sovereign and Santander, in each case with prejudice (regardless of whether any such claims were previously dismissed without prejudice) and without costs or fees: (i) the Berks County Lawsuits; (ii) the Commonwealth Court Lawsuit; and (iii) all claims in the Southern District Lawsuit that were not resolved by the decision issued by the Court on March 2, 2006 and any related orders (collectively, the “Decision”). The Company shall irrevocably waive the award of expenses in the Berks County Lawsuits. In respect of the Decision, Relational agrees on behalf of itself and the other members of the Relational Group (x) not to oppose any motion or request by the Company made to such Court in the Southern District Lawsuit to vacate the Decision, and (y) not to oppose any effort by the Company to seek appellate review of the Decision in the event the Court determines not to vacate the Decision, provided, however, that in the event the Company seeks appellate review of the Decision, Relational shall be free to oppose the appeal on the merits and seek affirmance of the Decision.           (b) Relational shall within three business days following the Appointment Date (i) comply with the terms of paragraph 13 of the confidentiality order in effect in the Southern District Litigation, except for materials required to be submitted to third parties pursuant to outstanding subpoenas, (ii) deliver to the Company any and all lists of the Company’s shareholders and other information provided to Relational by the Company or the Company’s representatives or agents (in whatever form) in connection with Relational’s demands for the Company’s shareholder list and related information (collectively, the “Shareholder List Information”). In addition, within three business days following the Appointment Date, (x) Relational will destroy or cause to be destroyed all copies, including permanently erasing or deleting any electronic copies, of the Shareholder List Information and all information derived therefrom (e.g., e-mail addresses and phone numbers) or derived from communications with shareholders of the Company in the possession of any member of the Relational Group or any of their respective Affiliates (as such term is hereinafter defined), Associates (as such term is hereinafter defined), advisors, employees, agents or representatives, including, without limitation, any Person (as such term is hereinafter defined) soliciting proxies 2 --------------------------------------------------------------------------------   or otherwise communicating with the Company’s shareholders for or on behalf of Relational and (y) certify such destruction to the Company in writing.           (c) The Company shall, within three business days following the Appointment Date, comply with the terms of paragraph 13 of the confidentiality order in effect in the Southern District Lawsuit, except for materials required to be submitted to third parties pursuant to outstanding subpoenas.           (d) Relational shall, within three business days following the Appointment Date, withdraw in writing any and all of its books and records demands under Pennsylvania law or otherwise, its demand for Shareholder List Information, the Notices and any and all other advance notice submissions under the Company’s bylaws or otherwise with respect to director nominations and other business in connection with the 2006 Annual Meeting or otherwise.      2. Board Representation; Related Matters.           (a) The Relational Group agrees and acknowledges that (i) pursuant to the terms of the investment agreement (the “Investment Agreement”) between the Company and Banco Santander Central Hispano, S.A. (“Santander”), following consummation of the pending transactions contemplated by the Investment Agreement (the “Santander Transaction”), the Company shall appoint individuals designated by Santander to the Board (the “Santander Designees”) and (ii) pursuant to the terms of the merger agreement (the “Merger Agreement”) among the Company, a subsidiary of the Company and Independence Community Bank Corp. (“Independence”), following consummation of the pending transactions contemplated by the Merger Agreement (the “Independence Transaction”, and together with the Santander Transaction, the “Transactions”), the Company shall appoint one individual designated by Independence to the Board (the “ICBC Designee”, and together with the Santander Designees, the “Transaction Designees”).           (b) (i) The Company and the Relational Group agree that (A) immediately upon execution of this Agreement, the Board, at a duly convened meeting of directors, will take all necessary action to increase the size of the Board by one and contemporaneously fill such vacancy on the Board with Whitworth (the “Relational Designee”), and (B) within ten business days following the consummation of the Transactions, the Board, at a duly convened meeting of directors, will take all necessary action to increase the size of the Board as necessary to appoint the Transaction Designees and to contemporaneously fill such vacancies on the Board with the Transaction Designees.           (ii) (A) Within a reasonable period of time following the execution hereof, Relational shall supply the Nominating Committee of the Board with a list of not less than five persons for consideration by the Nominating Committee for appointment to the Board (the “Nominee List”). The Nominating Committee shall, within 20 business days after receipt of the Nominee List, either recommend a candidate for appointment by the Board or inform Relational by written notice that it has no such recommendation for the Board (a “No Recommendation Notice”). 3 --------------------------------------------------------------------------------             (B) Upon receipt of a No Recommendation Notice, Relational may, within a reasonable period of time following receipt of such No Recommendation Notice, supply the Nominating Committee with a second Nominee List. The Nominating Committee shall, within 20 business days after receipt of a second Nominee List, either recommend a candidate from such Nominee List for appointment by the Board or deliver to Relational a No Recommendation Notice.           (C) Upon receipt of a second No Recommendation Notice, Relational shall, within 20 business days following receipt of such No Recommendation Notice, supply the Nominating Committee with a third Nominee List. The Nominating Committee shall, within 20 business days after receipt of a third Nominee List, either recommend a candidate from such Nominee List for appointment by the Board or deliver to Relational a No Recommendation Notice.           (D) Upon receipt of a third No Recommendation Notice, Relational shall within 90 days following receipt of such No Recommendation Notice, supply the Nominating Committee with a new Nominee List. The obligation set forth in the preceding sentence shall continue every 90 days from receipt of a No Recommendation Notice until such time as the Nominating Committee recommends a candidate to the Board for appointment or the parties agree otherwise.           (E) The Board, at a duly convened meeting of directors, will take all necessary action to increase the size of the Board by one and contemporaneously fill such vacancy with the candidate recommended by the Nominating Committee (the “Independent Director Designee”) within five business days after recommendation thereof.           (F) Effective as of the date of delivery of the second No Recommendation Notice, the size of the Board shall be increased by one and such vacancy shall be contemporaneously filled with Batchelder, who shall serve on the Board until such time as an Independent Director Designee is appointed by the Board. While serving as a director in accordance with this clause (F), Batchelder shall be deemed to be the Independent Director Designee for all purposes of this Agreement. The second No Recommendation Notice shall be accompanied by a certified resolution of the Board taking the actions set forth in this clause (F). 4 --------------------------------------------------------------------------------             (G) In the event the Company fails, within 20 business days following receipt of a second Nomination List, either to (i) appoint an Independent Director Designee in accordance with this Section, or (ii) appoint Batchelder as the Independent Director Designee, Relational shall, without waiver of any other legal remedies, be released from any and all of its obligations and covenants under this Agreement until such time as the Board appoints an Independent Director Designee or Batchelder in accordance with the terms hereof.           (H) Relational shall not include any candidate (a “Candidate”) on any Nominee List furnished pursuant to Section 2(b)(ii) of this Agreement unless (i) such Candidate has business experience appropriate for service on the board of directors of a public company, (ii) such Candidate is an individual of high caliber and national reputation (to the extent reasonably available) and (iii) such Candidate has no previous material business or personal relationship with the Company, Relational or, to Relational’s knowledge, any of their respective Affiliates or Associates. No person shall be on any Nominee List if any member of the Relational Group has reason to believe that it is unlikely that such person would serve as a director if requested. In addition, all Candidates included on the first three Nominee Lists shall be individuals with whom no member of the Relational Group or any of their Affiliates, Associates or representatives has had any contact, directly or indirectly, since January 1, 2006.           (iii) The Relational Designee shall be appointed to the Board in the class of directors with a term expiring at the 2006 Annual Meeting and the Independent Director Designee (or Batchelder if appointed in accordance with Section 2(b)(ii)(F)) shall be appointed to the Board in the class of directors with the longest term expiring within two years from the date of such appointment. In the event that the Relational Designee is not elected to the Board at the 2006 Annual Meeting (other than as a consequence of a proxy contest to replace a majority of the Board), then the Company shall take all action necessary to appoint the Relational Designee to the Board in the class of directors with a term expiring at the Company’s 2009 annual meeting of shareholders (the “2009 Annual Meeting”). The composition of the Board’s classes of directors shall be modified to accomplish the appointment of the Relational Designee and the Independent Director Designee; provided that Jay S. Sidhu shall remain in his current class of directors (with a current term expiring in 2008) during the term of this Agreement.           (iv) The Nominating Committee of the Board will, with respect to the Relational Designee and the Independent Director Designee, waive the requirements of its policies requiring (A) prior service on the board of the Company’s bank subsidiary, Sovereign Bank (the “Bank Board”), (B) other 5 --------------------------------------------------------------------------------   banking experience prior to being appointed a member of the Board and (C) prior Board approval of service on the boards of other public companies. Both the Relational Designee and the Independent Director Designee shall agree in writing to comply with all other Board policies, procedures, processes, codes, rules, standards and guidelines applicable to directors as a condition to their appointment to the Board, copies of which shall have been delivered to Relational prior to the execution hereof. Whitworth’s execution of this Agreement shall constitute such an agreement in writing pursuant to the preceding sentence.           (v) During the term of this Agreement, the Board and Bank Board shall each meet at least eight times per calendar year. The Relational Designee and the Independent Director Designee will enjoy the same rights, privileges, powers and duties as all other directors, and receive the same compensation and benefits as all other directors, including indemnification rights, exculpation protections associated with service on the Board and Bank Board and directors’ and officers’ liability insurance to the extent set forth in existing or future policies for directors generally. The Relational Designee and Independent Director Designee will be reimbursed for expenses incurred in connection with Board service to the same extent and on the same basis as all other directors. For the avoidance of doubt, the Relational Designee and Independent Director Designee shall be entitled to separate counsel at the Company’s expense in the event that the counsel retained to represent other directors declines to represent them.           (c) The Board’s nominees to stand for election at the 2006 Annual Meeting are referred to herein as the “2006 Nominees”. The 2006 Nominees shall be (i) the Relational Designee, and (ii) three other candidates nominated in the sole discretion of the Board (and who, if the Board so determines, may be current members of the Board). The 2006 Nominees shall stand for election to serve on the Board for a term expiring at the Company’s 2009 Annual Meeting.           (d) In the Board’s sole discretion, it may, but shall not be required to, nominate the Relational Designee to stand for election to the Board at the 2009 Annual Meeting (which shall not be held before April 2009) for a term expiring at the Company’s 2012 annual meeting of shareholders (the “2012 Annual Meeting”). In the event that the Board determines, in its sole discretion, not to nominate the Relational Designee to stand for election at the 2009 Annual Meeting for a term expiring at the 2012 Annual Meeting, the Company shall provide written notice of such determination to the Relational Designee and to Relational not later than the twentieth business day prior to the last day on which shareholders are permitted, under the terms of the Company’s bylaws as then in effect, to nominate candidates to stand for election to the Board (the “2009 Nomination Deadline”).           (e) The members of the Relational Group and their Affiliates and Associates, and the Company, shall support and recommend that the Company’s shareholders vote for the election of each of the 2006 Nominees at the 2006 Annual Meeting, and the members of the Relational Group shall vote, and shall cause their Affiliates and Associates to vote, all Voting Securities (as such term is hereinafter defined) which they are entitled to vote at 6 --------------------------------------------------------------------------------   the 2006 Annual Meeting in favor of the election of each of the 2006 Nominees. The members of the Relational Group and their Affiliates and Associates shall not, directly or indirectly, sell, transfer or otherwise dispose of, or pledge, hypothecate or otherwise encumber, or transfer or convey in any manner any voting rights with respect to, any Voting Securities beneficially owned by any of them at the time of the execution of this Agreement until after the date which is the record date fixed by the Board for determining the Company’s shareholders entitled to vote at the 2006 Annual Meeting.           (f) If the Relational Designee is nominated by the Board to stand for election to the Board at the 2009 Annual Meeting for a term expiring at the 2012 Annual Meeting, the members of the Relational Group and their Affiliates and Associates, and the Company, shall support and recommend that the Company’s shareholders vote for the election of each of the Board’s nominees (including the Relational Designee) at the 2009 Annual Meeting, and the members of the Relational Group shall vote, and shall cause their Affiliates and Associates to vote, all Voting Securities which they are entitled to vote at the 2009 Annual Meeting in favor of the election of each such nominee.           (g) Until the Termination Date, the members of the Relational Group shall support and recommend that the Company’s shareholders vote for the election of each of the Board’s nominees at each meeting of the Company’s shareholders at which directors are to be elected, and the members of the Relational Group shall vote, and shall cause their Affiliates and Associates to vote, all Voting Securities which they are entitled to vote at each such shareholders’ meeting in favor of the election of each of the Board’s nominees.           (h) Except in the event that the Relational Designee resigns as a member of the Board in accordance with the provision of Section 2(i) below, (i) if the Relational Designee shall be unable or unwilling to serve as a nominee or a director for any reason prior to his appointment as a director in accordance with Section 2(b) above or, if nominated by the Board to stand for election as a director at the 2009 Annual Meeting, prior to his election as a director at the 2009 Annual Meeting, or, if after his appointment or election as a director, shall cease to be a member of the Board by reason of his death, disability or resignation, or (ii) Relational determines, in its sole discretion, to replace the Relational Designee, then Relational shall be entitled to designate another person reasonably acceptable to a majority of the members of the entire Board, and any such person shall become the “Relational Designee” for all purposes under this Agreement and shall be deemed to be a member of the Relational Group for all purposes under this Agreement. The parties agree that each of Batchelder, Jay Winship and any other person who is then a Member of Relational shall be deemed reasonably acceptable to a majority of the entire Board. Any such new Relational Designee shall be required to execute an instrument agreeing to be bound by all the provisions of this Agreement applicable to the Relational Designee and the Relational Group. If the Independent Director Designee shall be unable or unwilling to serve as a nominee or a director for any reason prior to his appointment as a director or prior to his election as a director, or, if after his appointment or election as a director, shall cease to be a member of the Board by reason of his death, disability or resignation, the Nominating Committee of the Board and Relational shall nominate and the Board shall appoint another person reasonably acceptable to Relational (it being agreed that any person on any Nominee List shall be reasonably acceptable to Relational), and any such person shall become the “Independent Director Designee” for all purposes under this Agreement; provided that, until 7 --------------------------------------------------------------------------------   such other person is appointed by the Board, Batchelder shall be appointed to fill such vacancy, effective within ten business days after the Independent Director Designee ceases to be a member of the Board, it being understood and agreed that under the foregoing circumstances Batchelder is intended to serve only until such time that another person is appointed as the Independent Director Designee pursuant to this sentence.           (i) Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to appoint the Relational Designee to the Board in accordance with Section 2(b) above unless at all times after the date hereof and prior to such appointment the members of the Relational Group shall have beneficially owned in the aggregate shares of the Company’s Common Stock (the “Common Stock”) equal to at least the Minimum Condition. The “Minimum Condition” shall equal 19,000,000 shares (unless Santander has acquired at least 19.8% of the outstanding shares of Common Stock pursuant to the Santander Transaction, in which case the Minimum Condition shall equal 23,000,000 shares), adjusted proportionally in all cases to reflect any stock dividend or distribution, split, reverse split, combination, recapitalization or similar transaction affecting the Common Stock after the date hereof (excluding the 5% stock dividend declared by the Company on March 15, 2006 (the “March 15 Stock Dividend”)). If, while the Relational Designee is a member of the Board, the Relational Group shall at any time fail to satisfy the Minimum Condition, the Relational Designee shall resign immediately as a member of the Board, and the Relational Designee, by his execution of an irrevocable resignation as a member of the Board upon failure of the Relational Group to satisfy the Minimum Condition, shall agree to do so. Such irrevocable resignation shall be delivered to the Company concurrently with the execution of this Agreement. Relational shall notify the Company promptly (and in any event within three business days) in the event that, at any time, the Relational Group shall fail to satisfy the Minimum Condition. At the request of the Company, the Relational Group shall certify to the Company in writing its compliance with the Minimum Condition prior to the time the Board formally nominates its director nominee for the 2009 Annual Meeting and prior to the 2009 Annual Meeting. The provisions in this Section 2(i) shall not in any way affect or limit the covenants and agreements of the parties set forth elsewhere in this Agreement (other than those agreements of the Company contained in this Section 2).           (j) Upon their appointment as directors (i) the Relational Designee shall be appointed to the following committees of the Board: the Executive Committee (so long as such committee shall continue in existence), the Audit Committee and the Compensation Committee, and (ii) the Independent Director Designee shall be appointed to the following committees of the Board: the Ethics and Corporate Governance Committee and the Compensation Committee; provided, however, that neither the Relational Designee nor the Independent Director Designee shall be appointed to any such committee of the Board if counsel to the Board (who shall not be counsel to the Company) advises the Board that the appointment of such director to any such committee of the Board would violate applicable law or applicable stock exchange rules or regulations (collectively, the “Applicable Rules”). Any additional committee assignments for the Relational Designee and the Independent Director Designee shall be in the discretion of the Board. The Company shall promptly following the execution of this Agreement seek all necessary approvals from all requisite Governmental Authorities in order to increase the size of the Bank Board and appoint the Relational Designee to the Bank Board, and, upon the earliest of the receipt of such necessary approvals, the date on which any director 8 --------------------------------------------------------------------------------   nominated by Santander is appointed to the Bank Board or the expiration of 90 days from the date hereof, the Company shall (x) if receipt of such approvals is the earliest to occur of the foregoing events, appoint the Relational Designee to the Bank Board or (y) if the earliest to occur is either the appointment to the Bank Board of a Santander nominee or the expiration of such 90 day period, cause one current director on the Bank Board to resign, and shall cause the Bank Board to appoint the Relational Designee to fill such vacancy on the Bank Board. The Bank Board shall not appoint any new directors until the Relational Designee has been first appointed (other than a Santander Designee appointed contemporaneously in accordance with the preceding sentence). Subject to compliance with the Applicable Rules, the Independent Director Designee and the Relational Designee shall be permitted to attend all meetings of the Bank Board and of any committee of the Board on which they do not serve. The Board and Bank Board members will receive at least three business days’ advance notice of all Board, Bank Board and committee meetings, except in circumstances requiring more immediate action. The Company shall use reasonable efforts (but shall not be required) to schedule all meetings of the Board, Board committees and Bank Board so as to accommodate the schedules of all directors, including the Relational Designee and Independent Director Designee. Upon appointment or election to the Bank Board, subject to requirements of law, the Relational Designee shall be entitled to serve as a member of the Executive Committee (so long as such committee shall continue in existence) and two other committees of his or her choice.           (k) Except to the extent otherwise expressly required by applicable law, until the Termination Date, the members of the Relational Group shall vote, and shall cause their Affiliates and Associates to vote, all Voting Securities which they are entitled to vote, in accordance with the Board’s recommendation with respect to any shareholder proposals, whether made pursuant to Rule 14a-8 or Rule 14a-4 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise.           (l) By their execution of this Agreement, each of Batchelder and Whitworth irrevocably agree to resign from the Board at such times and under such circumstances as may be required pursuant to this Agreement.      3. Support by Relational.           (a) During the term of this Agreement, the Relational Group, Whitworth and Batchelder shall not take any action, and shall not permit any of their respective Affiliates or any of the advisors, consultants, agents or other representatives of Relational, Whitworth, Batchelder or such Affiliates (collectively the “Relational Persons”) to take, any action that reasonably would be expected to be inconsistent with any of the terms or conditions of the Investment Agreement or the Merger Agreement, to interfere in any manner with the consummation of any of the transactions contemplated by the Investment Agreement or the Merger Agreement or to delay the timely closing of the Transactions. Without limiting the generality of the foregoing, each of the Relational Group, Whitworth, Batchelder and the Relational Designee agree not to, and not to permit any Relational Person to:           (i) challenge in any manner, or make any public statements or any public or other statements before any Governmental Authority against, (A) the authority of the Board, or any member thereof, to authorize and 9 --------------------------------------------------------------------------------   approve the Investment Agreement, the Merger Agreement or the Transactions, (B) any decision taken prior to the date hereof by the Board, the Company, Santander or Independence in connection with the Investment Agreement, the Merger Agreement or the Transactions, (C) the election of any individual who is a member of the Board as of the date hereof or who may become a member of the Board as a result of the terms or conditions of the Investment Agreement or the Merger Agreement, or (D) the Transactions;                (ii) advise or encourage the Company or any member of the Board, directly or indirectly, to rescind, repudiate, renounce, terminate or intentionally breach any of the agreements relating to the Transactions to which the Company is a party; or                (iii) advise or encourage, directly or indirectly, any Person to take any action that Relational, Whitworth, Batchelder, or any Relational Person would be prohibited from taking under the terms of this Section 3(a).           (b) If reasonably requested by the Company, Whitworth will clarify to Sovereign shareholders with whom Relational is in contact that (i) Relational is no longer taking steps to oppose the Transactions and (ii) Relational believes that, in view of the Company’s decision to take the actions contemplated by this Agreement, it is now in the interest of the Company to focus time and attention on the Company’s business without the diversion of resources that are implicit in a continuation of the Proxy Contest, the Pending Litigation, challenges to the Transactions, and protests, petitions and submissions to Governmental Authorities.           (c) After the Appointment Date, Relational shall promptly withdraw in writing each and all of the complaints, objections, protests, petitions, applications, submissions and filings which have been made by or on behalf of any member of the Relational Group or any Relational Person with Governmental Authorities (other than with respect to Pending Litigation, which shall be governed by Section 1(a)) seeking action or investigation with respect to the Company, the Company’s management, the Board, the Transactions or seeking to delay, restrain or prohibit the consummation of the Transactions. For purposes of this Agreement, “Governmental Authorities” means any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any domestic (federal, state or local), foreign or supranational governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory organization, including without limitation the New York Stock Exchange, the Securities and Exchange Commission (the “SEC”), the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, the Pennsylvania Department of Banking and the New York State Banking Department. Relational shall promptly provide copies of any documents to the Company submitted in order to effect any such withdrawal. 10 --------------------------------------------------------------------------------        4. Covenants of the Relational Group.           (a) Each of the members of the Relational Group agrees that, during the period commencing on the date of execution of this Agreement and ending on the Termination Date, without the prior written consent of the Board as specifically expressed in a resolution adopted by a majority of the entire membership of the Board (other than the Relational Designee), no member of the Relational Group, nor any of their Affiliates or Associates nor any Person acting at their direction or on their behalf, will, directly or indirectly:                (i) with respect to the Company or its Voting Securities, make, engage or in any way participate in, directly or indirectly, any “solicitation” (as such term is used in the proxy rules of the SEC) of proxies or consents (whether or not relating to the election or removal of directors); seek to advise, encourage or influence any Person with respect to the voting of any Voting Securities (other than Affiliates or Associates); initiate, propose or otherwise “solicit” (as such term is used in the proxy rules of the SEC) shareholders of the Company for the approval of shareholder proposals whether made pursuant to Rule 14a-8 or Rule 14a-4 under the Exchange Act, or otherwise, or cause or encourage or attempt to cause or encourage any other Person to initiate any such shareholder proposal; otherwise communicate with the Company’s shareholders or others pursuant to Rule 14a-1(l)(2)(iv) under the Exchange Act; or participate in, or take any action pursuant to, any “shareholder access” proposal which may be adopted by the SEC, whether in accordance with previously proposed Rule 14a-11 or otherwise;                (ii) seek, propose, or make any statement with respect to any merger, consolidation, business combination, tender or exchange offer, sale or purchase of assets, sale or purchase of securities, dissolution, liquidation, restructuring, recapitalization or similar transactions of or involving the Company or any of its Affiliates or Associates;                (iii) acquire, offer or propose to acquire, or agree to acquire (except by way of stock dividends, stock splits, reverse stock splits or other distributions or offerings made available to holders of any Voting Securities generally), directly or indirectly, whether by purchase, tender or exchange offer, through the acquisition of control of another Person, by joining a partnership, limited partnership, syndicate or other “group” (within the meaning of Section 13(d)(3) of the Exchange Act) or otherwise, any Voting Securities if as a result of such acquisition the members of the Relational Group and their respective Affiliates and Associates would beneficially own in the aggregate in excess of 9.9% of the Company’s Voting Securities; provided, however, that the Relational Designee may receive Voting Securities as compensation for his service on the Board in accordance with the Company’s policies applied to all directors;                (iv) form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any 11 --------------------------------------------------------------------------------   Voting Securities, other than a group composed solely of members of the Relational Group and its clients;                (v) deposit any Voting Securities in any voting trust or subject any Voting Securities to any arrangement or agreement with respect to the voting of any Voting Securities;                (vi) act alone or in concert with others to control or seek to control, or influence or seek to influence, the management, the Board or policies of the Company;                (vii) make any demand or request for any Shareholder List Information, or any related material, or for the books and records of the Company or its Affiliates;                (viii) except as specifically and expressly set forth in this Agreement, seek, alone or in concert with others, election or appointment to or representation on, or nominate or propose the nomination of any candidate to, the Board, or seek the removal of any member of the Board;                (ix) have any discussions or communications, or enter into any arrangements, understanding or agreements (whether written or oral) with, or advise, finance, assist or encourage, any other Person in connection with any of the foregoing (including by granting any waiver to any legal, financial, public relations, proxy solicitation or other firm that represented or was engaged by Relational, its Affiliates, Associates or any of their legal counsel with respect to the Company or the Transactions, which waiver would permit any such firm to represent any Person in connection with matters relating to the Company), or make any investment in or enter into any arrangement with any other Person that engages, or offers or proposes to engage, in any of the foregoing;                (x) make or disclose any statement regarding any intent, purpose, plan or proposal with respect to the Board, the Company, its management, policies or affairs or any of its securities or assets or this Agreement that is inconsistent with the provisions of this Agreement, including any intent, purpose, plan or proposal that is conditioned on, or would require waiver, amendment, nullification or invalidation of, any provision of this Agreement or take any action that could require the Company to make any public disclosure relating to any such intent, purpose, plan, proposal or condition; or                (xi) otherwise take, or solicit, cause or encourage others to take, any action inconsistent with any of the foregoing.           (b) Notwithstanding any other provision of this Agreement, the Relational Designee, during the term of his or her service as a director of the Company, shall not be prohibited from acting as a director and complying with his or her fiduciary duties as a director of the Company. 12 --------------------------------------------------------------------------------        5. Sale of Voting Securities. From and after the date following the record date for determining shareholders entitled to vote at the 2006 Annual Meeting and until the Termination Date, unless the Relational Group no longer beneficially owns shares equal to or greater than the Minimum Condition, each of the members of the Relational Group agrees that it and its Affiliates or Associates will not engage in any sale, transfer or other disposition of Voting Securities other than (i) open market sales not exceeding in any one trading day 20% of the Company’s average daily volume for the previous 30 trading days, (ii) privately negotiated sales, provided that the transferee immediately following any such transaction would not, together with such transferee’s Affiliates and Associates, beneficially own in the aggregate 2% or more of the Company’s outstanding Voting Securities or (iii) any other sales, transfers or dispositions with the prior approval of the majority of the entire Board (excluding the Relational Designee).      6. Company Covenants.           (a) The Company shall promptly after the Appointment Date withdraw in writing each and all of the complaints, objections, protests, petitions, applications, submissions and filings which have been made by or on behalf of the Company with Governmental Authorities seeking action or investigation with respect to any member of the Relational Group or any person supporting the position of the Relational Group and shall not support or encourage similar efforts by others. The Company shall promptly provide copies of any documents to Relational submitted in order to effect any such withdrawal.           (b) Promptly after the date hereof, the Ethics and Corporate Governance Committee shall engage a nationally recognized consulting or law firm with no relationship (current or previous) with the Company or any member of the Relational Group or any of their respective Affiliates to study the Company’s policies and practices regarding related-party transactions (i.e. transaction with directors, officers and similar insiders), disclosure, and corporate governance against the policies and practices of the financial industry’s largest 20 institutions by asset size. Such study shall be completed within 90 days after the retention of such firm. The Board shall, within 30 days thereafter, take action with respect to implementation of the findings or recommendations of such study as shall be determined by a majority of the Board (at a meeting at which the Relational Designee and the Independent Director Designee are present), to be in the best interests of the Company.           (c) The Company will hold its 2006 Annual Meeting at such time as is determined by the Board to be prudent; provided that in no event shall the meeting be held later than September 30, 2006.           (d) During the term of this Agreement (i) the Board shall not determine or declare any member of the Relational Group to be an “Adverse Person” under the Company’s Second Amended and Restated Rights Agreement, dated as of January 19, 2005, as amended (or any similar rights plan that becomes effective during the term of this Agreement) (the “Rights Plan”) and (ii) the Company shall not amend the Rights Plan to reduce the threshold percentage required to become an “Acquiring Person” to below 9.9% without the prior written consent of Relational. 13 --------------------------------------------------------------------------------             (e) If reasonably requested by Relational, the Company shall (i) clarify to Governmental Authorities that it is no longer seeking to have any such Governmental Authorities investigate or take any action against Relational or any Relational Person and (ii) inform Relational orally of the contents of non-written communications with such Governmental Authorities, which may be used by Relational for the sole purpose of addressing any inquiries from any such Governmental Authorities.      7. Representations and Warranties of the Relational Group.           (a) Each member of the Relational Group which is not a natural person represents and warrants on its own behalf that it has the corporate or other power and authority to execute, deliver and carry out the provisions of this Agreement and to consummate the transactions contemplated hereby.           (b) Each member of the Relational Group which is not a natural person represents and warrants on its own behalf that this Agreement has been duly and validly authorized, executed, and delivered by such member and constitutes a valid and binding obligation of such member, and is enforceable against it in accordance with its terms.           (c) Each member of the Relational Group who is a natural person represents and warrants on his own behalf that he has the power and authority to execute, deliver and carry out the provisions of this Agreement and to consummate the transactions contemplated hereby.           (d) Each member of the Relational Group who is a natural person represents and warrants on his own behalf that this Agreement has been duly executed and delivered, constitutes his valid and binding obligation, and is enforceable against him in accordance with its terms.           (e) The members of the Relational Group represent and warrant that, as of the date of this Agreement, they, together with their Affiliates and Associates, beneficially own an aggregate of 29,976,294 shares of Common Stock as set forth by beneficial owner and amount in its most recently filed Schedule 13D and such Common Stock constitutes all of the Voting Securities of the Company beneficially owned by the members of the Relational Group and their Affiliates and Associates.           (f) Relational represents and warrants that each of the Funds is controlled by it.      8. Representations and Warranties of the Company.           (a) The Company represents and warrants that it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions contemplated hereby.           (b) The Company represents and warrants that this Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against it in accordance with its terms. 14 --------------------------------------------------------------------------------        9. Non-Disparagement; Releases; No Litigation.           (a) Until the Termination Date, the Company (on its own behalf and on behalf of its and Sovereign Bank’s current directors, current executive officers, and representatives (insofar as they are acting for or on behalf of the Company), while they are serving as such, and on behalf of its Affiliates which it controls (individually, a “Company Party” and collectively, the “Company Parties”)) agrees that the Company and the Company Parties shall not directly or indirectly, individually or in concert with others, engage in any conduct or make, or cause to be made, any statement, observation or opinion, or communicate any information (whether oral or written) that is calculated to or is likely to have the effect of in any way (i) undermining, impugning, disparaging or otherwise in any way reflecting adversely or detrimentally upon any member of the Relational Group or its Affiliates or (ii) accusing or implying that any member of the Relational Group or its Affiliates engaged in any wrongful, unlawful or improper conduct; except, in each case, with respect to any Company Excluded Claim (as such term is hereinafter defined). The foregoing shall not apply to (x) non-public oral statements made by the Company or its executive officers or directors directly to any member of the Relational Group or to any of their directors, officers, members, employees or representatives, or (y) any compelled testimony, either by legal process, subpoena or otherwise or to any response to any request for information from any Governmental Authorities having jurisdiction over the Company.           (b) Until the Termination Date, each of the members of the Relational Group (on its own behalf and on behalf of its respective current directors, executive officers, members, partners, managers and representatives (insofar as they are acting for or on behalf of Relational), while they are serving as such, and on behalf of their Affiliates which any member of the Relational Group controls (individually, a “Relational Party” and collectively, the “Relational Parties”)) agrees that it shall not directly or indirectly, individually or in concert with others, engage in any conduct or make, or cause to be made, any statement, observation or opinion, or communicate any information (whether oral or written) that is calculated to or is likely to have the effect of in any way (i) undermining, impugning, disparaging or otherwise in any way reflecting adversely or detrimentally upon the Company, its Affiliates and their respective directors and officers (the “Company Group”) or (ii) accusing or implying that the Company or any member of the Company Group engaged in any wrongful, unlawful or improper conduct; except, in each case, with respect to any Relational Excluded Claim (as such term is hereinafter defined). The foregoing shall not apply to (x) non-public oral statements made by any member of the Relational Group directly to the Company or to its directors, officers, employees or representatives, (y) any compelled testimony, either by legal process, subpoena or otherwise or (z) to respond to any request for information from any Governmental Authorities having jurisdiction over any member of the Relational Group.           (c) Subject to the further provisions of this Section 9(c), the Company, on behalf of itself and the Company Parties, hereby irrevocably and unconditionally releases, acquits, and fully and forever discharges the members of each Relational Party and the members of the Relational Group, including Relational’s employees, agents, attorneys and other representatives, to the maximum extent permitted by applicable law, from and with respect to any and all disputes, complaints, claims, counterclaims, actions, causes of action, liabilities, suits or damages, whether at law or in equity, statutory or otherwise, whether known or unknown, 15 --------------------------------------------------------------------------------   asserted or unasserted, of every kind and nature whatsoever, that any Company Party ever had, now has, or hereafter can, will or may have against any Relational Party or any member of the Relational Group for, upon, or by reason of any matter, cause of action, or thing, whatsoever from the beginning of the world to the date hereof, but expressly excluding (i) any claim relating to the performance of obligations under this Agreement or for breach of or to enforce this Agreement and (ii) any claim arising out of banking or lending relationships with any member of the Relational Group (collectively, the “Company Excluded Claims”). The claims released pursuant to this Section 9(c) are referred to herein as “Company Claims”. The Company, on behalf of itself and the Company Parties, hereby irrevocably covenants to refrain from asserting any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any kind against any Relational Party or any member of the Relational Group based upon any Company Claim. The Company represents and warrants to the Relational Group that there has been no assignment or other transfer of any interest in any Company Claim.           (d) Subject to the further provisions of this Section 9(d), the members of the Relational Group, on their own behalf and on behalf of the Relational Parties, hereby irrevocably and unconditionally releases, acquits, and fully and forever discharges the Company, each member of the Company Group, and the Company’s employees, agents, attorneys and other representatives, to the maximum extent permitted by applicable law, from and with respect to any and all disputes, complaints, claims, counterclaims, actions, causes of action, liabilities, suits or damages, whether at law or in equity, statutory or otherwise, whether known or unknown, asserted or unasserted, of every kind and nature whatsoever, that any member of the Relational Group or any Relational Party ever had, now has, or hereafter can, will or may have against any member of the Company Group or any of the Company’s employees, agents, attorneys or other representatives for, upon, or by reason of any matter, cause of action, or thing, whatsoever from the beginning of the world to the date hereof, but expressly excluding (i) any claim relating to the performance of obligations under this Agreement or for breach of or to enforce this Agreement, (ii) any claim arising out of banking or lending relationships with any member of the Company Group and (iii) any rights to dividends or other incidents of their ownership of Common Stock (collectively, the “Relational Excluded Claims”). The claims released pursuant to this Section 9(d) are referred to herein as the “Relational Claims”. The members of the Relational Group on their own behalf and on behalf of the Relational Parties hereby irrevocably covenant to refrain from asserting any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any kind against any member of the Company Group or any of the Company’s employees, agents, attorneys or other representatives based upon any Relational Claim. Each member of the Relational Group represents and warrants to the Company that there has been no assignment or other transfer of any interest in any Relational Claim.           (e) Until the Termination Date, Relational agrees that neither Relational nor any Relational Party will (i) initiate any litigation or other legal proceedings against any member of the Company Group or any of the Company’s employees, agents, attorneys or other representatives, other than with respect to any Relational Excluded Claim and (ii) solicit, cause or encourage others to initiate or continue litigation or other legal proceedings against any member of the Company Group or any of the Company’s employees, agents, attorneys or other representatives. So long as Albert Boscov shall not, after the date hereof, make any derogatory statements about the Relational Group, or take any action adverse to the Relational Group, 16 --------------------------------------------------------------------------------   Relational covenants not to sue Albert Boscov based upon the publication by The Reading Eagle of a “Viewpoint” article on or about February 14, 2006 authored by Mr. Boscov.           (f) Until the Termination Date, the Company agrees that neither the Company nor any Company Party will (i) initiate any litigation or other legal proceedings against any member of the Relational Group, other than with respect to any Company Excluded Claim and (ii) will not solicit, cause or encourage others to initiate or continue litigation or other legal proceedings against any member of the Relational Group.           (g) The parties to this Agreement waive any and all rights (to the extent permitted by state law, federal law, principles of common law or any other law) which may have the effect of limiting the releases as set forth in this Section 9. In this regard, the parties waive their rights, to the extent permitted by law, to any benefits of the provisions of section 1542 of the California Civil Code or any other similar state law, federal law, principle of common law or to the law, which may have the effect of limiting the releases set forth above. Section 1542 of the California Civil Code provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.      10. Termination Date. The date on which this Agreement, including the covenants and agreements contained in Section 4 above, shall terminate is referred to herein as the “Termination Date”. The Termination Date shall be the earliest of (i) the date on which the Relational Designee (or his properly appointed replacement under the terms hereof) ceases to be a member of the Board and either (A) at Relational’s option following 10 business days’ prior written notice, the appointment of Batchelder to the Board pursuant to the terms hereof does not occur to the extent required hereby (unless cured within such 10 business day period), (B) not more than 60 days remain prior to the 2009 Nomination Deadline, or (C) the Board has notified Relational that the Relational Designee will not be nominated for reelection at an applicable meeting of the Company’s shareholders, (ii) the date of the certification of the results of the Company’s 2012 Annual Meeting, or (iii) Relational has beneficially owned shares less than the Minimum Condition for a period of at least 365 consecutive days; provided, however, that no Termination Date shall occur pursuant to this clause (iii) prior to the 60th day prior to the 2009 Nomination Deadline.      11. Press Release. Upon execution of this Agreement, the Company and Relational shall issue a joint press release substantially in the form attached hereto as Exhibit 1 with such changes as may be mutually agreed to by the Company and the Representative (as such term is hereinafter defined). None of the parties hereto will make any public statements other than as required by law and none of such statements shall be inconsistent with, or are otherwise contrary to, the statements in the press release. Nothing shall preclude or prevent either the Company or any member of the Relational Group from making public statements that are neither contrary to nor inconsistent with the statements in the press release, provided that all 17 --------------------------------------------------------------------------------   such public statements shall be in compliance with applicable securities laws and consistent with any such party’s fiduciary duties.      12. No Admission. This Agreement constitutes a compromise and settlement entered into by each party hereto without any admission of liability to the others, but solely for the purpose of avoiding litigation, uncertainty, controversy, and legal expense. Nothing contained herein shall constitute or be taken or construed to be an admission by any party or as evidencing or indicating the truth or correctness of any allegations, claims or defenses asserted by any party.      13. Specific Performance. The Company and each member of the Relational Group acknowledge and agree that the other party would be irreparably injured by a breach of this Agreement by such party and that money damages are an inadequate remedy for an actual or threatened breach of this Agreement because of the difficulty of ascertaining the amount of damage that will be suffered in the event that this Agreement is breached. Accordingly, the Company and each member of the Relational Group agree to the granting of specific performance of this Agreement and injunctive or other equitable relief as a remedy for any such breach, without proof of actual damages, and further agree to waive any requirement for the securing or posting of any bond in connection with any such remedy. Such remedy shall not be deemed to be the exclusive remedy for a breach of this Agreement, but shall be in addition to all other remedies available at law or equity. In the event of litigation relating to this Agreement, if a court of competent jurisdiction determines in a final, nonappealable order that this Agreement has been breached by either party, then the breaching party will reimburse the other party for its costs and expenses (including, without limitation, reasonable legal fees and expenses) incurred in connection with all such litigation.      14. No Waiver. Any waiver by any party hereto of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party hereto to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.      15. Certain Definitions. As used in this Agreement, (a) the term “Person” as used herein shall be interpreted broadly to include, among others, any individual, partnership, corporation, limited liability company, joint venture, group, syndicate, trust, government or agency thereof, or any other association or entity; (b) the terms “Affiliates” and “Associates” shall have the meanings set forth in Rule 12b-2 under the Exchange Act and shall include persons who become Affiliates or Associates of any Person subsequent to the date hereof; provided that a client of Relational that is not controlled by Relational shall not be deemed an “Associate” based upon its ownership of membership or partnership interests in any Fund; (c) the term “Voting Securities” shall mean the shares of Common Stock and any other securities of the Company entitled to vote in the election of directors, or securities convertible into, or exercisable or exchangeable for, such Common Stock or other securities, whether or not subject to the passage of time or other contingencies; (d) the Company and the Relational Group will be referred to herein individually as a “party” and collectively as “parties”; and (e) the term “business day” means any day other than a Saturday, Sunday or a day on which banks in New 18 --------------------------------------------------------------------------------   York City are authorized or obligated by applicable law or executive order to close or are otherwise generally closed.      16. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.      17. Successors and Assigns. All the terms and provisions of this Agreement shall inure to the benefit of and shall be enforceable by the successor and assigns of the parties hereto.      18. Third Party Beneficiaries. Except for the provisions of Section 9 which are intended for the benefit of, and to be enforceable by, the Persons described therein, nothing contained in this Agreement shall create any rights in, or be deemed to have been executed for the benefit of, any Person or entity that is not a party hereto or a successor or permitted assign of such a party.      19. Survival of Representations. All representations, warranties and agreements made by the parties in this Agreement or pursuant hereto shall survive the date hereof.      20. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. This Agreement may be amended only by a written instrument duly executed by the parties hereto or their respective successors or assigns.      21. Headings. The section headings contained in this Agreement are for reference purposes only and shall not effect in any way the meaning or interpretation of this Agreement.      22. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given if so given) by hand delivery, cable, telecopy (confirmed in writing) or telex, or by mail (registered or certified, postage prepaid, return receipt requested) to the respective parties hereto as follows: 19 --------------------------------------------------------------------------------   If to the Company: Sovereign Bancorp, Inc. 1130 Berkshire Boulevard Wyomissing, Pennsylvania 19610 Attention: Mr. Jay S. Sidhu, Chairman, President and Chief Executive Officer Telecopier: (610) 208-6143 with copies to: Sovereign Bancorp, Inc. 1130 Berkshire Boulevard Wyomissing, Pennsylvania 19610 Attention: General Counsel Telecopier: (610) 320-8448 and Stevens & Lee 111 North Sixth Street P.O. Box 679 Reading, Pennsylvania 19603 Attention: Joseph M. Harenza, Esq. Telecopier: (610) 376-5610 and Skadden, Arps, Slate, Meagher & Flom, LLP Four Times Square New York, New York 10036 Attention: William S. Rubenstein, Esq. Telecopier: (212) 735-2000 If to the Relational Group: c/o Relational Investors, LLC 12400 High Bluff Drive, Suite 600 San Diego, California 92130 Attention: Mr. Ralph V. Whitworth Telecopier: (858) 704-3345 20 --------------------------------------------------------------------------------   with a copy to: Sullivan & Cromwell LLP 125 Broad Street New York, New York 10004 Attention: H. Rodgin Cohen, Esq. and Mitchell S. Eitel, Esq. Telecopier: (212) 558-3588 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above.      23. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and performed in such State, without giving effect to choice of law principles thereof, that would cause the application of the laws of any other jurisdiction, provided, however, that any issue related to the duties (and compliance therewith) of any member of the Board as such shall be governed by the laws of Pennsylvania, including the Pennsylvania Business Corporation Law. Nothing in this Agreement shall affect the obligation of any party to testify truthfully if called to testify under oath.      24. Submission to Jurisdiction. Each of the parties irrevocably submits to the exclusive jurisdiction and service and venue in any federal or state court sitting in the State of New York for the purposes of any action, suit or proceeding relating to this Agreement. Each of the parties irrevocably and unconditionally waives any objections to the laying of venue of any action, suit or proceeding relating to this Agreement in any federal or state court sitting in the State of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.      25. Counterparts; Facsimile. This Agreement may be executed in counterparts, including by facsimile, each of which shall be an original, but each of which together shall constitute one and the same Agreement.      26. Relational Group Representative. Each member of the Relational Group hereby irrevocably appoints Whitworth as such member’s attorney-in-fact and representative (the “Representative”), in such member’s place and stead, to do any and all things and to execute any and all documents and give and receive any and all notices or instructions in connection with this Agreement and the transactions contemplated hereby. The Company shall be entitled to rely, as being binding on each member of the Relational Group, upon any action taken by the Representative or upon any document, notice, instruction or other writing given or executed by the Representative. Each of the parties hereto acknowledges and agrees that the Representative shall have no liability to, and shall not be liable for any losses or liabilities of, any party hereto in connection with any obligations or actions of the Representative under this Agreement in his or her capacity as the Representative, except to the extent such losses or liabilities are proven to be the direct result of willful misconduct by the Representative in connection with the performance of his or her obligations hereunder. Each member of the Relational Group agrees that, until the Termination Date, in the event and at the time the Representative appointed hereby shall no 21 --------------------------------------------------------------------------------   longer be the Representative for any reason, he, she or it will execute a power of attorney appointing a successor Representative as his, her or its attorney-in-fact with the same authority and power as granted under this Section 26.      27. Further Actions. Upon and subject to the terms of this Agreement, each of the parties hereto agrees to use its or his reasonable best efforts to cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate or make effective, in the most expeditious manner practicable, the matters contemplated by this Agreement.      28. Investment Agreement. The parties agree and acknowledge that nothing in this Agreement shall be construed to limit the Company’s ability to perform the Investment Agreement (including entry into an amendment in order to make adjustments required by the March 15 Stock Dividend) in accordance with its terms and no action taken by the Company pursuant to the terms of the Investment Agreement shall result in or be deemed to be a breach of this Agreement. [Next page is a signature page.] 22 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, each of the parties to this Agreement have caused this Agreement to be duly executed as of the day and year first above written.               SOVEREIGN BANCORP, INC.               By:   /s/ Jay S. Sidhu               Name:   Jay S. Sidhu     Title:   Chairman, President and Chief Executive Officer               RELATIONAL HOLDINGS, LLC               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL GROUP, LLC               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS LLC               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth     Title:   Managing Member               RELATIONAL INVESTORS, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL FUND PARTNERS, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL COAST PARTNERS, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth 23 --------------------------------------------------------------------------------                 RELATIONAL PARTNERS, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RH FUND 1, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RH FUND 2, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RH FUND 4, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RH FUND 6, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RH FUND 7, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS III, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS VIII, L.P.       By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth 24 --------------------------------------------------------------------------------                 RELATIONAL INVESTORS IX, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS X, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS XI, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS XII, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS XIV, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               RELATIONAL INVESTORS XV, L.P.               By:   /s/ Ralph V. Whitworth               Name:   Ralph V. Whitworth               /s/ Ralph V. Whitworth           RALPH V. WHITWORTH               /s/ David H. Batchelder           DAVID H. BATCHELDER 25 --------------------------------------------------------------------------------   ANNEX A INVESTMENT PARTNERSHIPS RELATIONAL INVESTORS, L.P. RELATIONAL FUND PARTNERS, L.P. RELATIONAL COAST PARTNERS, L.P. RELATIONAL PARTNERS, L.P. RH FUND 1, L.P. RH FUND 2, L.P. RH FUND 4, L.P. RH FUND 6, L.P. RH FUND 7, L.P. RELATIONAL INVESTORS III, L.P. RELATIONAL INVESTORS VIII, L.P. RELATIONAL INVESTORS IX, L.P. RELATIONAL INVESTORS X, L.P. RELATIONAL INVESTORS XI, L.P. RELATIONAL INVESTORS XII, L.P. RELATIONAL INVESTORS XIV, L.P. RELATIONAL INVESTORS XV, L.P. 26

Exhibit 10.3   EMPLOYMENT AGREEMENT   EMPLOYMENT AGREEMENT (this “Agreement"), dated March 1, 2006, between EVCI Career Colleges Holding Corp., a Delaware corporation ("EVCI"), and Joseph D. Alperin("Executive").   In consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:   1. Employment; Duties.   1.1  EVCI hereby employs Executive as its General Counsel and Vice President for Corporate Affairs. In such capacities, Executive shall report directly to EVCI's Chief Executive Officer (the “CEO") and, as is necessary and appropriate, to EVCI's chairman of the board of directors (the “Chairman”) and EVCI’s board of directors (“EVCI Board”).   1.2  As General Counsel of EVCI, Executive agrees to perform and discharge such duties and responsibilities as are appropriate for the general counsel of corporations with the financial, personnel and other resources that are similar to that of EVCI, including preparing and filing reports required to be filed with the Securities and Exchange Commission and other federal and state regulatory authorities and otherwise dealing with such authorities; negotiating, drafting and closing agreements relating to EVCI's internal operations and activities; helping to identify acquisition candidates and negotiating, drafting and closing acquisitions; and generally advising EVCI's management with respect to EVCI's compliance with applicable laws, rules and regulations. As Vice President for Corporate Affairs, Executive shall function in a business capacity by performing such duties and responsibilities as are assigned to him by the CEO relating to the business and affairs of EVCI and its subsidiaries, including assisting the CEO with strategies relating to operations and performing such other tasks and functions as the CEO deems reasonably necessary and appropriate under the circumstances. The general counsel of EVCI’s subsidiaries shall not report to Executive except as directed by the CEO but shall consult and collaborate with Executive as such counsel and Executive shall deem necessary and appropriate from time-to-time. Executive shall devote his full business time to, and shall use his best efforts in, the performance of such duties and responsibilities. --------------------------------------------------------------------------------     2. Compensation.   2.1 For his services pursuant to this Agreement, EVCI will pay Executive a salary at the annual rate of $260,000 ("Salary"). 2.2 EVCI will pay Executive each bonus, if any, that may be awarded to Executive by the Board, or the compensation committee of the Board, in its sole discretion. In this regard, during the last quarter of each calendar year, the CEO and Chairman will evaluate Executive’s performance during the immediately preceding year of the Employment Term and will make recommendations to the EVCI Board or such committee of bonuses, if any, to be granted to Executive by the payment of cash and/ or the grant of options and/ or restricted stock awards under EVCI’s incentive stock plans that are in effect and have been approved by EVCI’s stockholders in accordance with applicable regulatory requirements. For Executive’s performance during 2005, as generally described herein and in more detail pursuant to a separate agreement dated today, EVCI and Executive are confirming the terms of the award to Executive, under EVCI’s Amended and Restated 2004 Incentive Stock Plan, of a stock bonus of 100,000 shares of EVCI’s common stock, which shall vest and become non-forfeitable, on a cumulative basis as to 50 percent of the shares covered thereby on December 29, 2006 and as to 25 percent of the shares covered thereby on each February 28, 2008 and 2009 provided that on each such date Executive has remained continuously employed by EVCI from today through such dates, subject to accelerated vesting as provided in such separate agreement.   2.3 As an incentive for Executive to enter into this Agreement, EVCI agrees to pay Executive a cash bonus of $75,000 (the “Cash Bonus”) within ten days after EVCI shall have determined that its cash resources reasonably permit the payment of the Cash Bonus. The Cash Bonus shall be paid to Executive prior to, or simultaneously with, the payment of any cash bonus to any other officer of EVCI or any of its subsidiaries and even if the Employment Term has terminated for any reason.   3. Employment Term. The term of Executive's employment (the "Employment Term") will commence as of the date first written above and, unless sooner terminated as provided in Section 5, will end on February 28, 2009.   4. Benefits, Payments and Withholding.   4.1 Executive will be entitled to vacation of 25 days, 28 days and 30 days per year in 2006, 2007 and 2008, respectively, and holidays and sick days in accordance with EVCI's policy, during which Executive will be entitled to the full compensation and Benefits (as defined in Section 4.2) otherwise payable hereunder.   4.2 Executive may participate, on the same basis and subject to the same qualifications as other executive personnel (exclusive of the founders, Dr. Arol I. Buntzman and Dr. John J. McGrath) of EVCI, in any pension, profit sharing, life insurance, health insurance, hospitalization, dental, drug prescription, disability, accidental death or dismemberment and other benefit plans and policies EVCI provides with respect to its executive personnel (collectively, the "Benefits").   2 -------------------------------------------------------------------------------- 4.3 EVCI will pay or promptly reimburse Executive, in accordance with EVCI's normal policies and procedures for its executive personnel, for all allowances and expenses provided for hereunder and for all reasonable out-of-pocket business, entertainment and travel expenses incurred by Executive in the performance of his duties hereunder.   4.4 EVCI will pay the Salary at the biweekly rate of $10,000 and may withhold from the Salary, the Benefits and any other compensation provided to Executive hereunder, all Federal, state and local income, employment and other taxes, as and in such amounts as may be required to be withheld under applicable law.   4.5 EVCI shall pay for Executive's CLE courses, in accordance with its current policy and shall pay for such legal publications as Executive reasonably determines are necessary for Executive's performance of his duties as General Counsel. In addition, EVCI shall pay the costs and disbursements of outside legal counsel recommended by Executive and approved by the CEO and/ or EVCI’s Board or audit committee thereof, to perform such services as Executive and the CEO determine are necessary and appropriate.   4.6 Executive shall receive a car allowance of $600 per month.   5. Termination and Severance Benefits.   5.1 Termination by EVCI and Resignation by Executive. EVCI’s Board may terminate Executive's employment with EVCI, with or without Cause (as defined in Section 5.5). Termination with Cause shall be effective immediately and termination without Cause shall be effective upon 30 days prior written notice to Executive. Executive may voluntarily resign his employment with EVCI, with Good Reason (as defined in Section 5.5), upon 30 days prior written notice to EVCI.   5.2 Compensation Upon Termination Without Cause or Upon Resignation with Good Reason. If EVCI’s Board terminates Executive's employment hereunder for any reason other than Cause or Executive's death or Permanent Disability (as defined in Section 5.5), or if Executive voluntarily resigns his employment with EVCI with Good Reason (the effective date of the first to occur of such termination or his resignation being the "Termination Date"), then (a) Executive shall be entitled to receive (i) the Salary and Benefits accrued prior to the Termination Date and (ii) payment or reimbursement of any expenses, provided for under Section 4.3, that were incurred by Executive prior to the Termination Date and (b) after the Termination Date, EVCI will also continue (i) to pay the Salary, in equal biweekly payments, to Executive throughout the greater of 24 months or the unexpired portion of the Employment Term and (ii) continue for Executive and his spouse and dependent children, if any, the health insurance coverage and medical and dental reimbursement referred to in Section 4.2 for 24 months after the Termination Date. Executive shall be under no duty to seek other employment following termination but any amounts earned by him in connection with other full-time employment shall reduce and offset the amounts otherwise owing hereunder.   3 -------------------------------------------------------------------------------- 5.3 Compensation Upon Resignation Without Good Reason or Upon Termination for Cause. If Executive breaches this Agreement by voluntarily resigning his employment with EVCI without Good Reason or Executive's employment is terminated for Cause, then Executive shall only be entitled to receive, except as otherwise required by law, the Salary and Benefits accrued prior to the effective date of the first to occur of his resignation or such termination, and reimbursement of any expenses, provided for under Section 4.3, that were incurred by Executive prior to the effective date of his resignation or such termination of his employment. Nothing in this Section 5.3 shall create any implication that EVCI is waiving any remedy EVCI may have for breach by Executive of this Agreement.   5.4 Compensation Upon Death or Permanent Disability. If Executive dies or suffers a Permanent Disability, then EVCI will (i) promptly pay Executive or his estate, in one lump sum, four months' Salary and (ii) continue for Executive's spouse and dependent children (if Executive has died) and for Executive and his spouse and dependent children (if Executive suffers a Permanent Disability), all of the Benefits that they were receiving at the time of his death or Permanent Disability, for eight months after Executive's death or Permanent Disability.   5.5 Definitions.   "Cause" Shall be limited to (a) Executive’s failure to carry out a reasonable and lawful order of the Board of Directors or CEO that is within the scope of Executive’s duties, responsibilities and workload under this Agreement, which failure has a material adverse effect on EVCI and its subsidiaries taken as a whole, (b) a breach by Executive of this Agreement having a material adverse effect on EVCI and its subsidiaries taken as a whole or (c) Executive’s conviction of a felony; provided, however, that any action or failure to act by Executive shall not constitute “Cause” if, in good faith, Executive reasonably believed such action or failure to act to be in or not opposed to the best interest of EVCI and its subsidiaries taken as a whole, or if Executive shall be entitled, under applicable law or the charter or bylaws of or an indemnification agreement with, EVCI, to be indemnified by EVCI with respect to such action or failure to act. Termination of Executive for Cause shall be communicated by a Notice of Termination. For purposes of this Agreement, a “Notice of Termination” shall mean delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of not less than a two-thirds of the entire membership of EVCI’s Board at a meeting of the EVCI Board called and held for the purpose (after reasonable notice to Executive and reasonable opportunity for Executive, together with Executive’s counsel, to be heard before the EVCI Board prior to such vote), finding that in the good faith opinion of the EVCI Board, Executive was guilty of the conduct set forth in the first sentence of this definition of “Cause” and specifying the particulars thereof in detail. In the case of a purported termination pursuant to clauses (a) or (b) of this definition of Cause, Executive shall first be given written notice by EVCI of the alleged failure or breach and shall have twenty business days to cure such failure or breach and, if so cured within this twenty business day period, then Cause shall not be deemed to exist in respect of such failure or breach. For purposes of this Agreement, no such purported termination of Executive’s employment shall be effective without such Notice of Termination.   4 -------------------------------------------------------------------------------- "Good Reason" means a breach by EVCI of any of its material agreements contained herein, and the continuation of such breach for twenty business days after notice thereof is given to EVCI. Good reason shall also include the change of Executive’s place of employment to a location that, if not mid-town Manhattan, is more than 20 miles from EVCI’s executive offices on the date of this Agreement or to a location that is different than the place of employment of either EVCI’s Chairman or Chief Executive Officer. Good Reason does not include the death or Permanent Disability of Executive.   "Permanent Disability" means the inability of Executive to perform his duties hereunder, as a result of any physical or mental incapacity, for 30 consecutive days or 60 days during any twelve-month period, as determined by the Board.   6. Covenants Not to Compete.   6.1 Executive agrees that for 18 months following termination of his employment with EVCI he will not, without EVCI's prior written approval, engage in any business activities that are competitive with any of the business activities then being conducted by EVCI within 75 miles of any college, school or office operated by EVCI.   6.2 During the 18 months following termination of his employment with EVCI, Executive shall not without the permission of EVCI, directly or indirectly, hire any employee of EVCI, or solicit or induce, or authorize any other person to solicit or induce, any employee of EVCI to leave such employ during the period of such employee’s employment with EVCI or within six-months following such employee's termination of employment with EVCI.   6.3 Sections 6.1 and 6.2 shall not apply to a termination of Executive's employment pursuant to Section 5.2.   7. Covenant Regarding Confidentiality. All confidential information about the business and affairs of EVCI (including, without limitation, its secrets and information about its services, methods, business plans, technology and advertising programs and plans) constitutes "EVCI Confidential Information." Executive acknowledges that he will have access to, and knowledge of, EVCI Confidential Information, and that improper use or disclosure of EVCI Confidential Information by Executive, whether during or after the termination of his employment by EVCI, could cause serious injury to the business of EVCI. Accordingly, Executive agrees that he will forever keep secret and inviolate all EVCI Confidential Information which has or shall come into his possession and that he will not use the same for his own private benefit or directly or indirectly for the benefit of others, and that he will not discuss EVCI Confidential Information with any other person or organization, all for so long as EVCI Confidential Information is not generally known by, or accessible to, the public.   5 -------------------------------------------------------------------------------- 8. General.   8.1 This Agreement will be construed, interpreted and governed by the laws of the State of New York, without regard to the conflicts of law rules thereof.   8.2 The provisions set forth in Sections 2.3, 5.2, 5.3, 5.4, 6, 7 and 8 shall survive termination of this Agreement. All reference to EVCI in Sections 6 and 7 include EVCI's subsidiaries and other affiliates, if any.   8.3 This Agreement will extend to and be binding upon Executive, his legal representatives, heirs and distributees, and upon EVCI, its successors and assigns regardless of any change in the business structure of EVCI, be it through spin-offs merger, sale of stock, sale of assets or any other transaction. However, this Agreement is a personal services contract and, as such, Executive may not assign any of his duties or obligations hereunder.   8.4 This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. No waiver, modification or change of any of the provisions of this Agreement will be valid unless in writing and signed by both parties. Any and all prior agreements between the parties written or oral relating to Executive's employment by EVCI are of no further force or effect.   8.5 The waiver of any breach of any duty, term or condition of this Agreement shall not be deemed to constitute a waiver of any preceding or succeeding breach of the same or any other duty, term or condition of this Agreement. If any provision of this Agreement is unenforceable in any jurisdiction in accordance with its terms, the provision shall be enforceable to the fullest extent permitted in that jurisdiction and shall continue to be enforceable in accordance with its terms in any other jurisdiction.   8.6 All notices pursuant to this Agreement shall be in writing and delivered personally receipt acknowledged (which shall include Federal Express, Express Mail or similar service) or sent by certified mail, return receipt requested, addressed to the parties hereto and shall be deemed given upon receipt, if delivered personally, and three days after mailing, if mailed, unless received earlier. Notices shall be addressed and sent to EVCI at its principal executive office and to Executive at his home address as it appears in EVCI's personnel records.   8.7 The parties agree that, in the event of any breach or violation of this Agreement, such breach of violation will result in immediate and irreparable injury and harm to the innocent party, who shall be entitled to the remedies of injunction and specific performance or either of such remedies, if available, as well as all other legal or equitable remedies, if available, plus reasonable attorneys fees and costs incurred in obtaining any such relief.   6 -------------------------------------------------------------------------------- 8.8 The Section headings contained in this Agreement are for convenience of reference only and shall not be used in construing this Agreement.   8.9 This Agreement may be executed in counterparts, each of which will be deemed an original but all of which will together constitute one and the same agreement.   IN WITNESS HEREOF, the parties have executed this Agreement as of the date first above written.         EVCI CAREER COLLEGES HOLDING CORP.               By:   /s/ Dr. John J. McGrath   -------------------------------------------------------------------------------- Name: Dr. John J. McGrath   Title: Chief Executive Officer and President             By:   /s/ Joseph D. Alperin   -------------------------------------------------------------------------------- Joseph D. Alperin   7 --------------------------------------------------------------------------------

EXHIBIT 10   --------------------------------------------------------------------------------   AMENDED AND RESTATED CREDIT AGREEMENT   among   LEE ENTERPRISES, INCORPORATED,   VARIOUS LENDERS   and   DEUTSCHE BANK TRUST COMPANY AMERICAS,   as ADMINISTRATIVE AGENT   --------------------------------------------------------------------------------   Dated as of December 21, 2005   --------------------------------------------------------------------------------   DEUTSCHE BANK SECURITIES INC. and SUNTRUST CAPITAL MARKETS, INC., as JOINT LEAD ARRANGERS,   DEUTSCHE BANK SECURITIES INC., as BOOK RUNNING MANAGER,   SUNTRUST BANK, as SYNDICATION AGENT,   and   BANK OF AMERICA, N.A., THE BANK OF NEW YORK and THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH, as CO-DOCUMENTATION AGENTS   --------------------------------------------------------------------------------   US BANK NATIONAL ASSOCIATION and WELLS FARGO BANK, NATIONAL ASSOCIATION,   as SENIOR MANAGING AGENTS,   and   THE BANK OF NOVA SCOTIA, JPMORGAN CHASE BANK, N.A., CITIBANK, N.A., SUMITOMO MITSUI BANKING CORPORATION, and MORGAN STANLEY BANK,   as MANAGING AGENTS   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS                  Page -------------------------------------------------------------------------------- SECTION 1.    Definitions and Accounting Terms    1      1.01    Defined Terms    1 SECTION 2.    Amount and Terms of Credit    36      2.01    The Commitments    36      2.02    Minimum Amount of Each Borrowing    39      2.03    Notice of Borrowing    39      2.04    Disbursement of Funds    40      2.05    Notes    41      2.06    Conversions    43      2.07    Pro Rata Borrowings    44      2.08    Interest    44      2.09    Interest Periods    45      2.10    Increased Costs, Illegality, etc.    46      2.11    Compensation    47      2.12    Change of Lending Office    48      2.13    Replacement of Lenders    48      2.14    Incremental Term Loan Commitments    50      2.15    Incremental RL Commitments    52 SECTION 3.    Letters of Credit    54      3.01    Letters of Credit    54      3.02    Maximum Letter of Credit Outstandings; Final Maturities    55      3.03    Letter of Credit Requests; Minimum Stated Amount    55      3.04    Letter of Credit Participations    56      3.05    Agreement to Repay Letter of Credit Drawings    58      3.06    Increased Costs    59 SECTION 4.    Commitment Commission; Fees; Reductions of Commitment    59      4.01    Fees    59      4.02    Voluntary Termination of Unutilized Revolving Loan Commitments    60      4.03    Mandatory Reduction of Commitments    61 SECTION 5.    Prepayments; Payments; Taxes    62      5.01    Voluntary Prepayments    62      5.02    Mandatory Repayments    63      5.03    Method and Place of Payment    70      5.04    Net Payments    70 SECTION 6.    Conditions Precedent to the Restatement Effective Date    72      6.01    Execution of Agreement; Notes    72 --------------------------------------------------------------------------------                Page --------------------------------------------------------------------------------      6.02    Officer’s Certificate    72      6.03    Opinions of Counsel    72      6.04    Company Documents; Proceedings; etc.    73      6.05    Shareholders’ Agreements; Tax Sharing Agreements; Existing Indebtedness Agreements    73      6.06    The Original Credit Agreement    74      6.07    Adverse Change, Approvals    74      6.08    Litigation    75      6.09    Subsidiaries Guaranty; Intercompany Subordination Agreement    75      6.10    Pledge Agreement    75      6.11    Historical Financial Statements; Projections    75      6.12    Solvency Certificate; Insurance Certificates, etc.    76      6.13    Fees, etc.    76 SECTION 7.    Conditions Precedent to All Credit Events    76      7.01    No Default; Representations and Warranties    76      7.02    Notice of Borrowing; Letter of Credit Request    76 SECTION 8.    Representations, Warranties and Agreements    77      8.01    Company Status    77      8.02    Power and Authority    77      8.03    No Violation    77      8.04    Approvals    78      8.05    Financial Statements; Financial Condition; Undisclosed Liabilities; Projections    78      8.06    Litigation    79      8.07    True and Complete Disclosure    79      8.08    Use of Proceeds; Margin Regulations    80      8.09    Tax Returns and Payments    80      8.10    Compliance with ERISA    81      8.11    The Pledge Agreement    82      8.12    Properties    82      8.13    Capitalization    82      8.14    Subsidiaries    82      8.15    Compliance with Statutes, etc.    83      8.16    Investment Company Act    83      8.17    Public Utility Holdings Company Act    83      8.18    Environmental Matters    83      8.19    Employment and Labor Relations    84      8.20    Intellectual Property, etc.    84      8.21    Indebtedness    84      8.22    Insurance    84      8.23    Representations and Warranties in Other Documents    85 SECTION 9.    Affirmative Covenants    85      9.01    Information Covenants    85 --------------------------------------------------------------------------------                Page --------------------------------------------------------------------------------      9.02    Books, Records and Inspections; Annual Meetings    88      9.03    Maintenance of Property; Insurance    88      9.04    Existence; Franchises    89      9.05    Compliance with Statutes, etc.    89      9.06    Compliance with Environmental Laws    89      9.07    ERISA    90      9.08    End of Fiscal Years; Fiscal Quarters    91      9.09    Performance of Obligations    91      9.10    Payment of Taxes    92      9.11    Use of Proceeds    92      9.12    Excluded Domestic Subsidiaries; Further Assurances; etc.    92      9.13    Ownership of Subsidiaries; etc.    93      9.14    Interest Rate Protection    93      9.15    Permitted Acquisitions    93      9.16    Foreign Subsidiaries Security    94      9.17    Subsidiary Guaranty Obligations    95 SECTION 10.    Negative Covenants    95      10.01    Liens    96      10.02    Consolidation, Merger, Purchase or Sale of Assets, etc.    98      10.03    Dividends    100      10.04    Indebtedness    102      10.05    Advances, Investments and Loans    104      10.06    Transactions with Affiliates    106      10.07    Capital Expenditures    107      10.08    Interest Expense Coverage Ratio    108      10.09    Total Leverage Ratio    108      10.10    Modifications of Pulitzer Acquisition Documents, Certificate of Incorporation, By-Laws and Certain Other Agreements; Limitations on Voluntary Payments, etc.    109      10.11    Limitation on Certain Restrictions on Subsidiaries    110      10.12    Limitation on Issuance of Equity Interests    110      10.13    Business; etc.    111      10.14    Limitation on Creation of Subsidiaries    111 SECTION 11.    Events of Default    112      11.01    Payments    112      11.02    Representations, etc.    112      11.03    Covenants    112      11.04    Default Under Other Agreements    112      11.05    Bankruptcy, etc.    112      11.06    ERISA    113      11.07    Pledge Agreement    114      11.08    Subsidiaries Guaranty    114      11.09    Intercompany Subordination Agreement    114      11.10    Judgments    114 --------------------------------------------------------------------------------                Page --------------------------------------------------------------------------------      11.11    Change of Control    114 SECTION 12.    The Administrative Agent    115      12.01    Appointment    115      12.02    Nature of Duties    115      12.03    Lack of Reliance on the Administrative Agent    116      12.04    Certain Rights of the Administrative Agent    116      12.05    Reliance    117      12.06    Indemnification    117      12.07    The Administrative Agent in its Individual Capacity    117      12.08    Holders    117      12.09    Resignation by the Administrative Agent    118      12.10    Collateral Matters    118      12.11    Delivery of Information    119 SECTION 13.    Miscellaneous    120      13.01    Payment of Expenses, etc.    120      13.02    Right of Setoff    121      13.03    Notices    121      13.04    Benefit of Agreement; Assignments; Participations    121      13.05    No Waiver; Remedies Cumulative    123      13.06    Payments Pro Rata    124      13.07    Calculations; Computations    124      13.08    GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL    125      13.09    Counterparts    126      13.10    Effectiveness    126      13.11    Headings Descriptive    126      13.12    Amendment or Waiver; etc.    126      13.13    Survival    128      13.14    Domicile of Loans    128      13.15    Register    128      13.16    Confidentiality    129      13.17    Securities Release; Guaranty Release    130      13.18    The Patriot Act    130 -------------------------------------------------------------------------------- EXHIBIT A-1    Form of Notice of Borrowing EXHIBIT A-2    Form of Notice of Conversion/Continuation EXHIBIT B-1    Form of A Term Note EXHIBIT B-2    Form of B Term Note EXHIBIT B-3    Form of Revolving Note EXHIBIT B-3    Form of Incremental Term Note EXHIBIT B-4    Form of Swingline Note EXHIBIT C    Form of Letter of Credit Request EXHIBIT D    Form of Section 5.04(b)(ii) Certificate EXHIBIT E-1    Form of Opinion of Lane & Waterman LLP, special counsel to the Credit Parties EXHIBIT E-2    Form of Opinion of Gardner Carton & Douglas LLP, special counsel to the Credit Parties EXHIBIT F    Form of Officers’ Certificate EXHIBIT G    Form of Subsidiaries Guaranty EXHIBIT H    Form of Intercompany Subordination Agreement EXHIBIT I    Form of Pledge Agreement EXHIBIT J    Form of Solvency Certificate EXHIBIT K    Form of Compliance Certificate EXHIBIT L    Form of Assignment and Assumption Agreement EXHIBIT M    Form of Intercompany Note EXHIBIT N    Form of Incremental Term Loan Commitment Agreement EXHIBIT O    Form of Incremental RL Commitment Agreement -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 21, 2005, among LEE ENTERPRISES, INCORPORATED, a Delaware corporation (the “Borrower”), the Lenders party hereto from time to time, DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent, DEUTSCHE BANK SECURITIES INC. and SUNTRUST CAPITAL MARKETS, INC., as Joint Lead Arrangers, DEUTSCHE BANK SECURITIES INC., as Book Running Manager, SUNTRUST BANK, as Syndication Agent, and BANK OF AMERICA, N.A., THE BANK OF NEW YORK and THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH, as Co-Documentation Agents. All capitalized terms used herein and defined in Section 1 are used herein as therein defined.   W I T N E S S E T H:   WHEREAS, the Borrower, the Original Lenders, the Administrative Agent and the other Agents have entered into the Original Credit Agreement;   WHEREAS, subject to and upon the terms and conditions set forth herein, (x) the parties hereto wish to amend and restate the Original Credit Agreement in the form of this Agreement and (y) the Lenders are willing to make available to the Borrower the respective credit facilities provided for herein;   NOW, THEREFORE, IT IS AGREED that the Original Credit Agreement shall be and is hereby amended and restated in its entirety as follows:   SECTION 1. Definitions and Accounting Terms.   1.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):   “A Term Loan” shall have the meaning provided in Section 2.01(a).   “A Term Loan Commitment” shall mean, for each Lender, the amount set forth opposite such Lender’s name in Schedule I directly below the column entitled “A Term Loan Commitment,” as the same may be terminated pursuant to Section 4.03 or 11.   “A Term Loan Maturity Date” shall mean June 3, 2012.   “A Term Note” shall have the meaning provided in Section 2.05(a).   “Acquired EBITDA” shall mean, for any Acquired Entity or Business for any period, the Consolidated EBITDA as determined for such Acquired Entity or Business for such period on a basis substantially the same (with necessary reference changes) as provided in the definition of Consolidated EBITDA contained herein, except that (i) all references therein and in the component definitions used in determining Consolidated EBITDA to “the Borrower and its Subsidiaries” shall be deemed to be references to the respective Acquired Entity or Business and (ii) the adjustments contained in clauses (d), (e), (f) and (g) of the first sentence, and the adjustments contained in the last sentence, of the definition of “Consolidated EBITDA” herein shall not be made.   -1- -------------------------------------------------------------------------------- “Acquired Entity or Business” shall mean either (x) the assets constituting a business, division or product line of any Person not already a Subsidiary of the Borrower or (y) 100% (or, to the extent provided in the definition of “Permitted Acquisition” contained herein, at least 51%) of the Equity Interests of any such Person, which Person shall, as a result of the acquisition of such Equity Interests, become a Qualified Subsidiary (or shall be merged with and into the Borrower or a Qualified Subsidiary, with the Borrower or such Qualified Subsidiary being the surviving Person) all as, and to the extent (and subject to the limitations), provided in the definition of “Permitted Acquisition” contained herein.   “Acquisition Corp.” shall mean LP Acquisition Corp., a Delaware corporation and the Wholly-Owned Domestic Subsidiary of the Borrower that merged with and into Pulitzer as part of the Pulitzer Acquisition.   “Additional Permitted Indebtedness” shall have the meaning provided in Section 10.04(xiii).   “Adjusted Consolidated Net Income” shall mean, for any period, Consolidated Net Income for such period (A) plus the sum of (without duplication) (i) the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense and non-cash interest expense) and net non-cash losses which were included in arriving at Consolidated Net Income for such period and (ii) any extraordinary cash gains and any cash gains from the sale or other disposition of assets in each case to the extent not already included in arriving at Consolidated Net Income for such period and (B) less the sum of (without duplication) (i) the amount of all net non-cash gains and non-cash credits which were included in arriving at Consolidated Net Income for such period and (ii) any extraordinary cash losses and any cash losses from the sale or other disposition any assets in each case to the extent not already included in arriving at Consolidated Net Income for such period.   “Adjusted Consolidated Working Capital” shall mean, at any time, Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities at such time.   “Administrative Agent” shall mean DBTCA, in its capacity as Administrative Agent for the Lenders hereunder and under the other Credit Documents, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09.   “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (i) to vote 5% or more of the securities having ordinary voting power for the election of directors (or equivalent governing body) of such Person or (ii) to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, that neither any Agent (nor any Affiliate thereof) nor any Lender (nor any Affiliate thereof) shall be considered an Affiliate of the Borrower or any Subsidiary thereof.   -2- -------------------------------------------------------------------------------- “Agent” shall mean and include each of the Administrative Agent, the Syndication Agent, each of the Joint Lead Arrangers and the Book Running Manager.   “Aggregate Consideration” shall mean, with respect to any Permitted Acquisition, the sum (without duplication) of (i) the fair market value of any shares of the Borrower’s common stock (based on the average closing trading price of such shares of the Borrower’s common stock for the 20 trading days immediately prior to the date of such Permitted Acquisition on the stock exchange on which the Borrower’s common stock is listed or, if such shares of the Borrower’s common stock is not so listed, the good faith determination thereof by the board of directors of the Borrower) issued (or to be issued) as consideration in connection with such Permitted Acquisition (including, without limitation, any shares of the Borrower’s common stock which may be required to be issued as earn-out consideration upon the achievement of certain future performance goals), (ii) the aggregate amount of all cash paid (or to be paid) by the Borrower or any of its Subsidiaries in connection with such Permitted Acquisition (including, without limitation, payments of fees and costs and expenses in connection therewith) and all contingent cash purchase price, earn-out, non-compete and other similar obligations of the Borrower and its Subsidiaries incurred and reasonably expected to be incurred in connection therewith (as determined in good faith by the Borrower), (iii) the aggregate principal amount of all Indebtedness assumed, incurred, refinanced and/or issued in connection with such Permitted Acquisition to the extent permitted by Section 10.04, (iv) the aggregate liquidation preference of all shares of Qualified Preferred Stock of the Borrower issued (or to be issued) as consideration in connection with such Permitted Acquisition (including, without limitation, any shares of Qualified Preferred Stock of the Borrower which may be required to be issued as earn-out consideration upon the achievement of certain future performance goals) and (v) the Fair Market Value of all other consideration paid or payable in connection with such Permitted Acquisition. For purposes of determining the Aggregate Consideration for any Permitted Acquisition, to the extent that any portion of the assets being acquired pursuant to such Permitted Acquisition constitute cash on the balance sheet of the Acquired Entity or Business being acquired pursuant to such Permitted Acquisition, the amount of such cash shall be deducted from the Aggregate Consideration determined pursuant to this definition in connection with such Permitted Acquisition.   “Agreement” shall mean this Amended and Restated Credit Agreement, as modified, supplemented, amended, restated (including any amendment and restatement hereof), extended or renewed from time to time.   “Applicable Commitment Commission Percentage” and “Applicable Margin” shall mean: (A) from and after any Start Date to and including the corresponding End Date described below, (i) with respect to Commitment Commission, the respective per annum percentage set forth in the table below under the column “Applicable Commitment Commission Percentage”, and (ii) with respect to A Term Loans, Revolving Loans and Swingline Loans, the respective percentage per annum set forth in the table below under the respective Tranche and Type of Loans and (in the case of preceding sub-clauses (i) and (ii)) opposite the respective Level (i.e., Level 1, Level 2, Level 3 or Level 4, as the case may be) indicated to have been   -3- -------------------------------------------------------------------------------- achieved on the respective Start Date (as shown in any respective officer’s certificate delivered in accordance with the following sentences), (B) with respect to B Term Loans maintained as (i) Base Rate Loans, a percentage per annum equal to 0.50%, and (ii) Eurodollar Loans, a percentage per annum equal to 1.50%, and (C) with respect to any Type of Incremental Term Loan of a given Tranche that is neither an A Term Loan nor a B Term Loan, that percentage per annum set forth in, or calculated in accordance with, Section 2.14 and the relevant Incremental Term Loan Commitment Agreement:   Level --------------------------------------------------------------------------------   Total Leverage Ratio --------------------------------------------------------------------------------    A Term Loan, Revolving Loans and Swingline Loans Base Rate Margin --------------------------------------------------------------------------------   A Term Loan and Revolving Loans Eurodollar Margin --------------------------------------------------------------------------------   Applicable Commitment Commission Percentage -------------------------------------------------------------------------------- 4   Equal to or greater than 5.00 to 1.00    0.00%   1.00%   0.30% 3   Equal to or greater than 4.50 to 1.00 but less than 5.00 to 1.00    0.00%   .875%   0.25% 2   Equal to or greater than 4.00 to 1.00 but less than 4.50 to 1.00    0.00%   0.75%   0.25% 1   Less than 4.00 to 1.00    0.00%   0.625%   0.25%   The Total Leverage Ratio used in a determination of Applicable Commitment Commission Percentage and Applicable Margins shall be determined based on the delivery of a certificate of the Borrower (each, a “Quarterly Pricing Certificate”) by an Authorized Officer of the Borrower to the Administrative Agent (with a copy to be sent by the Administrative Agent to each Lender), within (i) 45 days after the last day of each of the first three fiscal quarters in each fiscal year of the Borrower and (ii) 90 days after the last day of the fourth fiscal quarter of each fiscal year of the Borrower, each of which Quarterly Pricing Certificates shall set forth the calculation of the Total Leverage Ratio as at the last day of the Test Period ended immediately prior to the relevant Start Date (but determined on a Pro Forma Basis solely to give effect to all Permitted Acquisitions (if any) and all Significant Asset Sales (if any) consummated on or after the first day of such Test Period and on or prior to the date of delivery of any such Quarterly Pricing Certificate and any Indebtedness incurred, assumed or permanently repaid in connection therewith) and the Applicable Commitment Commission Percentage and Applicable Margins which shall be thereafter applicable (until same are changed or cease to apply in accordance with the following provisions of this definition); provided that at the time of the consummation of any Permitted Acquisition or Significant Asset Sale, an Authorized Officer of the Borrower shall deliver to the Administrative Agent a certificate setting forth the calculation of the Total Leverage Ratio on a Pro Forma Basis (solely to give effect to all Permitted Acquisitions (if any) and all Significant Asset Sales (if any) consummated on or after the first day of such Test Period and on or prior to the date of the delivery of such certificate and any Indebtedness incurred or assumed in connection therewith) as of the last day of the last Calculation Period ended prior to the date on which such Permitted Acquisition or Significant Asset Sale is consummated for which financial statements have been made available (or were required to be made available) pursuant to Section 9.01(a) or (b), as the case may be, and the date of such consummation shall be deemed to be a Start Date and the Applicable Commitment Commission Percentage and   -4- -------------------------------------------------------------------------------- Applicable Margins which shall be thereafter applicable (until same are changed or cease to apply in accordance with the following sentences) shall be based upon the Total Leverage Ratio as so calculated. The Applicable Commitment Commission Percentage and Applicable Margins so determined shall apply, except as set forth in the immediately succeeding sentence, from the relevant Start Date to the earliest of (x) the date on which the next officer’s certificate is delivered to the Administrative Agent, (y) the date on which the next Permitted Acquisition or Significant Asset Sale is consummated or (z) the date which is 45 days following the last day of the Test Period (or 90 days following the last day of the Test Period in respect of the fourth fiscal quarter of the Borrower, in either case) in which the previous Start Date occurred (such earliest date, the “End Date”), at which time, if no officer’s certificate has been delivered to the Administrative Agent indicating an entitlement to new Applicable Commitment Commission Percentage and Applicable Margins (and thus commencing a new Start Date), the Applicable Commitment Commission Percentage and Applicable Margins shall be those applicable to a Total Leverage Ratio based on a Level 4 until such time as a new Start Date shall commence as provided above. Notwithstanding anything to the contrary contained above in this definition, (x) the Applicable Commitment Commission Percentage and Applicable Margins shall be those applicable to a Total Leverage Ratio based on a Level 4 at all times prior to the first Start Date after the Restatement Effective Date and (y) the Applicable Commitment Commission Percentage and Applicable Margins shall be those applicable to a Total Leverage Ratio based on a Level 4 at all times during which any Default or Event of Default shall occur and be continuing.   “Applicable Excess Cash Flow Recapture Percentage” shall mean, at any time, 50%; provided, however, so long as (i) no Default or Event of Default is then in existence and (ii) the Total Leverage Ratio as of the last day of the respective Excess Cash Flow Payment Period is less than 5.00:1.00, the Applicable Excess Cash Flow Recapture Percentage instead shall be 0.00%.   “Asset Sale” shall mean any sale, transfer or other disposition by the Borrower or any of its Subsidiaries to any Person (including by way of redemption by such Person) other than to the Borrower or a Wholly-Owned Subsidiary of the Borrower of any asset (including, without limitation, any capital stock or other securities of, or Equity Interests in, another Person), but excluding sales, transfers or other dispositions of assets pursuant to Sections 10.02(ii), (vi), (vii) (viii), (ix), (x) and (xii).   “Assignment and Assumption Agreement” shall mean an Assignment and Assumption Agreement substantially in the form of Exhibit L (appropriately completed).   “Authorized Officer” shall mean, with respect to (i) delivering Notices of Borrowing, Notices of Conversion/Continuation and similar notices, any person or persons that has or have been authorized by the board of directors of the Borrower to deliver such notices pursuant to this Agreement and that has or have appropriate signature cards on file with the Administrative Agent, the Swingline Lender or the respective Issuing Lender, as the case may be, (ii) delivering financial information and officer’s certificates pursuant to this Agreement, the chief financial officer, the treasurer or the principal accounting officer of the Borrower, and (iii) any other matter in connection with this Agreement or any other Credit Document, any officer (or a person or persons so designated by any two officers) of the Borrower.   -5- -------------------------------------------------------------------------------- “B Term Loan” shall have the meaning provided in Section 2.01(b).   “B Term Loan Commitment” shall mean, for each Lender, the amount set forth opposite such Lender’s name in Schedule I directly below the column entitled “B Term Loan Commitment,” as the same may be terminated pursuant to Section 4.03 or 11.   “B Term Loan Maturity Date” shall mean June 3, 2012.   “B Term Note” shall have the meaning provided in Section 2.05(a).   “Bankruptcy Code” shall have the meaning provided in Section 11.05.   “Base Rate” shall mean, at any time, the higher of (i) the Prime Lending Rate at such time and (ii) 1/2 of 1% in excess of the overnight Federal Funds Rate at such time.   “Base Rate Loan” shall mean (i) each Swingline Loan and (ii) each other Loan designated or deemed designated as such by the Borrower at the time of the incurrence thereof or conversion thereto.   “Book Running Manager” shall mean DBSI in its capacity as book running manager in respect of the credit facilities provided for herein.   “Borrower” shall have the meaning provided in the first paragraph of this Agreement.   “Borrowing” shall mean the borrowing of one Type of Loan of a single Tranche from all the Lenders having Commitments of the respective Tranche (or from the Swingline Lender in the case of Swingline Loans) on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 2.10(b) shall be considered part of the related Borrowing of Eurodollar Loans.   “Business Day” shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York, New York, a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in U.S. dollar deposits in the applicable interbank Eurodollar market.   “Calculation Period” shall mean, with respect to any Permitted Acquisition, any Significant Asset Sale, any incurrence of Additional Permitted Indebtedness or any other event expressly required to be calculated on a Pro Forma Basis pursuant to the terms of this Agreement, the Test Period most recently ended prior to the date of such Permitted Acquisition, Significant Asset Sale, incurrence of Additional Permitted Indebtedness or other event for which financial statements have been delivered to the Lenders pursuant to this Agreement.   -6- -------------------------------------------------------------------------------- “Capital Expenditures” shall mean, with respect to any Person, all expenditures by such Person which should be capitalized in accordance with GAAP and, without duplication, the amount of Capitalized Lease Obligations incurred by such Person.   “Capitalized Lease Obligations” shall mean, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles.   “Cash Equivalents” shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within twelve months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s, (iii) Dollar denominated time deposits, certificates of deposit and bankers acceptances of any Lender or any commercial bank having, or which is the principal banking subsidiary of a bank holding company having, a long-term unsecured debt rating of at least “A” or the equivalent thereof from S&P or “A2” or the equivalent thereof from Moody’s with maturities of not more than twelve months from the date of acquisition by such Person, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iii) above, (v) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s and in each case maturing not more than twelve months after the date of acquisition by such Person, (vi) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (v) above, and (vii) in the case of any Foreign Subsidiary of the Borrower only, direct obligations of the sovereign nation (or any agency thereof) in which such Foreign Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof) in each case having maturities of not more than twelve months from the date of acquisition thereof; provided that, notwithstanding anything to the contrary contained above in this definition, Restricted Cash Equivalents of PD LLC which are Restricted pursuant to the terms of the PD LLC Notes Documents or any Permitted PD LLC Notes Refinancing Indebtedness may consist of (x) securities or obligations of the types described in clauses (i) and (ii) of this definition that have maturities of up to, but not more than, sixty months from the date of acquisition thereof by PD LLC and (y) asset-backed securities, mortgaged-backed securities and collateralized mortgage obligations issued by any Person and rated at least Aa3 by Moody’s or AA- by S&P.   “CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same has been amended and may hereafter be amended from time to time, 42 U.S.C. § 9601 et seq.   “Change in Law” shall have the meaning provided in Section 11.06.   -7- -------------------------------------------------------------------------------- “Change of Control” shall mean (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act as in effect on the Restatement Effective Date) (A) is or shall become the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act as in effect on the Restatement Effective Date), directly or indirectly, of 30% or more on a fully diluted basis of the Voting Equity Interests of the Borrower or (B) shall have obtained the power (whether or not exercised) to elect a majority of the Borrower’s directors, (ii) the board of directors of the Borrower shall cease to consist of a majority of Continuing Directors or (iii) a “change of control” or similar event shall occur as provided in any PD LLC Notes Document, any Permitted PD LLC Notes Refinancing Indebtedness (or any documentation governing the same) or any Additional Permitted Indebtedness (or any documentation governing the same) with an aggregate outstanding principal amount of at least $25,000,000.   “Claims” shall have the meaning provided in the definition of “Environmental Claims” contained herein.   “Co-Documentation Agents” shall mean each of Bank of America, N.A., The Bank of New York and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch in their capacity as co-documentation agents in respect of the credit facilities provided herein.   “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.   “Collateral” shall mean and include all Pledge Agreement Collateral and all cash and Cash Equivalents delivered as collateral pursuant to Section 5.02 or 11.   “Collateral Agent” shall mean the Administrative Agent acting as collateral agent for the Secured Creditors pursuant to the Pledge Agreement.   “Commitment” shall mean any of the commitments of any Lender, i.e., an A Term Loan Commitment, a B Term Loan Commitment, an Incremental Loan Commitment or a Revolving Loan Commitment.   “Commitment Commission” shall have the meaning provided in Section 4.01(a).   “Company” shall mean any corporation, limited liability company, partnership or other business entity (or the adjectival form thereof, where appropriate).   “Consolidated Current Assets” shall mean, at any time, the consolidated current assets of the Borrower and its Subsidiaries at such time.   “Consolidated Current Liabilities” shall mean, at any time, the consolidated current liabilities of the Borrower and its Subsidiaries at such time, but excluding the current portion of any Indebtedness under this Agreement and the current portion of any other long-term Indebtedness which would otherwise be included therein.   -8- -------------------------------------------------------------------------------- “Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (without duplication) (a) Consolidated Interest Expense, (b) depreciation and amortization expense, (c) income and profits taxes, (d) in the case of any period including any fiscal quarter of the Borrower ending in the Borrower’s fiscal year 2005, up to $26,500,000 of fees and expenses (including redemption premiums) incurred in connection with the Original Transaction during such period, (e) in the case of any period including the six month period of the Borrower ending September 30, 2005, up to $15,000,000 of severance charges and success and retention bonuses incurred or paid during such period in connection with the Pulitzer Acquisition, (f) in the case of any period including the twelve month period of the Borrower ending on the first anniversary of the Original Effective Date, up to $5,000,000 of non-recurring transition costs incurred during such period in connection with the Pulitzer Acquisition, and (g) in the case of any period including the Borrower’s fiscal quarter ending December 31, 2005, up to $2,575,173.44 of fees and expenses incurred in connection with the refinancing of the Original Credit Agreement and the entering into of this Agreement. Notwithstanding anything to the contrary contained above, for purposes of determining Consolidated EBITDA for any Test Period which ends prior to the first anniversary of the Original Effective Date, Consolidated EBITDA for all portions of such period occurring prior to the Original Effective Date shall be calculated in accordance with the definition of Test Period contained herein.   “Consolidated Indebtedness” shall mean, at any time, the remainder of (A) the sum of (without duplication) (i) all Indebtedness of the Borrower and its Subsidiaries (on a consolidated basis) as would be required to be reflected as debt or Capitalized Lease Obligations on the liability side of a consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP (including, without limitation, all Indebtedness of PD LLC under the PD LLC Notes and the other PD LLC Notes Documents), (ii) all Indebtedness of the Borrower and its Subsidiaries of the type described in clauses (ii), (vii) and (viii) of the definition of Indebtedness and (iii) all Contingent Obligations of the Borrower and its Subsidiaries in respect of Indebtedness of any third Person of the type referred to in preceding clauses (i) and (ii) less (B) the sum of (without duplication) (i) the aggregate amount of all Unrestricted cash and Cash Equivalents of the Borrower, its Wholly-Owned Subsidiaries and PD LLC at such time and (ii) the aggregate amount of all Restricted cash and Cash Equivalents of Pulitzer and its Subsidiaries that is Restricted pursuant to the terms of the PD LLC Notes Documents or any Permitted PD LLC Notes Refinancing Indebtedness; provided that (x) the amount of Indebtedness in respect of the PD LLC Notes shall be the aggregate outstanding principal amount thereof (as opposed to its “fair value” determined in accordance with GAAP), (y) the amount of Indebtedness in respect of any Interest Rate Protection Agreements and Other Hedging Agreements shall be at any time (a) if any such Interest Rate Protection Agreements or Other Hedging Agreements have been closed out, the unamortized termination value thereof, and (b) in all other cases, the unrealized net loss position, if any, of the Borrower and/or its Subsidiaries thereunder on a marked-to-market basis determined no more than one month prior to such time, and (z) the amount of Cash Equivalents shall be at any time the amount thereof on a marked-to-market basis determined no more than one month prior to such time.   “Consolidated Interest Expense” shall mean, for any period, the sum for the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, of all amounts which would be deducted in computing Consolidated Net Income on   -9- -------------------------------------------------------------------------------- account of interest on Indebtedness (including (whether or not so deducted) (i) imputed interest in respect of Capitalized Lease Obligations, (ii) the “deemed interest expense” (i.e., the interest expense which would have been applicable if the respective obligations were structured as on-balance sheet financing arrangements) with respect to all Indebtedness of the Borrower and its Subsidiaries of the type described in clause (viii) of the definition of “Indebtedness” contained herein (to the extent same does not arise from a financing arrangement constituting an operating lease), (iii) amortization of debt discount and expense and (iv) all commissions, discounts and other regularly accruing commitment, letter of credit and other banking fees and charges (including all Commitment Commissions, Letter of Credit Fees and Facing Fees). Notwithstanding anything to the contrary contained above, for purposes of determining the Interest Expense Coverage Ratio, to the extent Consolidated Interest Expense is to be determined for any Test Period which ends prior to the first anniversary of the Original Effective Date, Consolidated Interest Expense for all portions of such period occurring prior to the Original Effective Date shall be calculated in accordance with the definition of Test Period contained herein; provided, however, for purposes of calculating that portion of Consolidated Interest Expense attributable to the PD LLC Notes, same shall be calculated based on the aggregate outstanding principal amount of the PD LLC Notes (as opposed to its “fair value” determined in accordance with GAAP).   “Consolidated Net Income” shall mean, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (after deduction for minority interests), excluding:   (a) any gains arising from (i) the sale or other disposition of any assets (other than current assets) to the extent that the aggregate amount of the gains during such period exceeds the aggregate amount of the losses during such period from the sale, abandonment or other disposition of assets (other than current assets), (ii) any write-up of assets or (iii) the acquisition of outstanding securities of the Borrower or any of its Subsidiaries;   (b) any losses arising from the sale or other disposition of any assets (other than current assets) to the extent the aggregate amount of losses during such period exceeds the aggregate amount of gains during such period from such sale;   (c) any amount representing any interest in the undistributed earnings of (i) any other Person that is not a Subsidiary of the Borrower, (ii) Madison Newspapers, Inc., (iii) Star Publishing Company and (iv) any other Subsidiary of the Borrower that is accounted for by the Borrower by the equity method of accounting;   (d) except for determinations expressly required to be made on a Pro Forma Basis, any earnings, prior to the date of acquisition, of any Person acquired in any manner, and any earnings of any Subsidiary of the Borrower acquired prior to its becoming a Subsidiary of the Borrower;   (e) any earnings of a successor to or transferee of the assets of the Borrower prior to its becoming such successor or transferee;   -10- -------------------------------------------------------------------------------- (f) any deferred credit (or amortization of a deferred credit) arising from the acquisition of any Person;   (g) any extraordinary gains or extraordinary losses not covered by clause (a) or (b) above;   (h) any non-cash charges related to goodwill and asset write-offs and write-downs; and   (i) any non-cash income.   “Contingent Obligation” shall mean, as to any Person, any obligation of such Person as a result of such Person being a general partner of any other Person, unless the underlying obligation is expressly made non-recourse as to such general partner, and any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.   “Continuing Directors” shall mean the directors of the Borrower on the Restatement Effective Date and each other director if such director’s nomination for election to the board of directors of the Borrower is recommended by a majority of the then Continuing Directors.   “Continuing Lender” shall mean each Lender that was an Original Lender.   “Credit Documents” shall mean this Agreement, the Subsidiaries Guaranty, the Pledge Agreement, the Intercompany Subordination Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note.   “Credit Event” shall mean the making of any Loan or the issuance of any Letter of Credit.   “Credit Party” shall mean the Borrower and each Subsidiary Guarantor.   -11- -------------------------------------------------------------------------------- “DBSI” shall mean Deutsche Bank Securities Inc.   “DBTCA” shall mean Deutsche Bank Trust Company Americas, in its individual capacity, and any successor corporation thereto by merger, consolidation or otherwise.   “Default” shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.   “Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in effect.   “Dividend” shall mean, with respect to any Person, that such Person has declared or paid a dividend, distribution or returned any equity capital to its stockholders, partners or members or authorized or made any other distribution, payment or delivery of property (other than common Equity Interests of such Person) or cash to its stockholders, partners or members in their capacity as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock or any other Equity Interests outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock or other Equity Interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock or any other Equity Interests of such Person outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock or other Equity Interests). Without limiting the foregoing, “Dividends” with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes.   “Dollars” and the sign “$” shall each mean freely transferable lawful money of the United States.   “Domestic Subsidiary” of any Person shall mean any Subsidiary of such Person incorporated or organized in the United States or any State thereof or the District of Columbia.   “Drawing” shall have the meaning provided in Section 3.05(b).   “Eligible Transferee” shall mean and include a commercial bank, an insurance company, a finance company, a financial institution, any fund that invests in loans or any other “accredited investor” (as defined in Regulation D of the Securities Act), but in any event excluding the Borrower and its Subsidiaries.   “End Date” shall have the meaning provided in the definition of “Applicable Commitment Commission Percentage” and “Applicable Margin” contained herein.   “Environmental Claims” shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter,   -12- -------------------------------------------------------------------------------- “Claims”), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials.   “Environmental Law” shall mean any Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, guideline, policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. § 1801 et seq.; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.   “Equity Interests” of any Person shall mean any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interest in (however designated) equity of such Person, including any common stock, any preferred stock, any limited or general partnership interest and any limited liability company membership interest.   “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.   “ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the Borrower would be deemed to be a “single employer” (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary of the Borrower being or having been a general partner of such person.   “Eurodollar Loan” shall mean each Loan (other than a Swingline Loan) designated as such by the Borrower at the time of the incurrence thereof or conversion thereto.   “Eurodollar Rate” shall mean (a) with respect to each Interest Period for a Eurodollar Loan, (i) the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen (or any successor page) as of 11:00 A.M. (London time), on the applicable Interest Determination Date, provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this clause (a), the rate above instead shall be the offered quotation to first-class banks in the New York interbank Eurodollar   -13- -------------------------------------------------------------------------------- market by the Administrative Agent for Dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the Eurodollar Loan of the Administrative Agent (in its capacity as a Lender (or, if the Administrative Agent is not a Lender with respect thereto, taking the average principal amount of the Eurodollar Loan then being made by the various Lenders pursuant thereto)) with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two Business Days thereafter as of 10:00 A.M. (New York time) on the applicable Interest Determination Date, in either case divided (and rounded upward to the nearest 1/100 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D).   “Event of Default” shall have the meaning provided in Section 11.   “Excess Cash Flow” shall mean, for any period, the remainder of (a) the sum of, without duplication, (i) Adjusted Consolidated Net Income for such period and (ii) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, minus (b) the sum of, without duplication, (i) the aggregate amount of all Capital Expenditures made by the Borrower and its Subsidiaries during such period (other than Capital Expenditures to the extent financed with equity proceeds, Equity Interests, asset sale proceeds (other than current assets), insurance proceeds or Indebtedness (other than Revolving Loans and Swingline Loans)), (ii) the aggregate amount of all permanent principal payments of Indebtedness for borrowed money of the Borrower and its Subsidiaries and the amount of all permanent repayments of the principal component of Capitalized Lease Obligations of the Borrower and its Subsidiaries during such period (other than (1) repayments made with the proceeds of asset sales (other than current assets), equity proceeds, Equity Interests, insurance or Indebtedness, (2) repayments of Loans, provided that repayments of Loans shall be deducted in determining Excess Cash Flow to the extent such repayments were (x) required as a result of a Scheduled Term Loan Repayment pursuant to Section 5.02(b) or (y) made as a voluntary prepayment pursuant to Section 5.01 with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans or Swingline Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment in an amount equal to such prepayment) and (3) repayments of Original Loans, provided that repayments of Original Term Loans shall be deducted in determining Excess Cash Flow to the extent that such repayments were made prior to the Restatement Effective Date (x) as a result of a scheduled amortization payment pursuant to Section 5.02(b)(ii) of the Original Credit Agreement or (y) as a voluntary prepayment pursuant to Section 5.01 of the Original Credit Agreement with internally generated funds), and (iii) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period.   “Excess Cash Flow Payment Date” shall mean the date occurring 90 days after the last day of each fiscal year of the Borrower (commencing with the fiscal year of the Borrower ending September 30, 2006).   -14- -------------------------------------------------------------------------------- “Excess Cash Flow Payment Period” shall mean, with respect to the repayment required on each Excess Cash Flow Payment Date, the immediately preceding fiscal year of the Borrower.   “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.   “Excluded Domestic Subsidiary” shall mean Pulitzer and each Domestic Subsidiary of Pulitzer, but only so long as Pulitzer and its Domestic Subsidiaries have not become Subsidiary Guarantors by virtue of the restrictions set forth in the applicable PD LLC Notes Documents or Permitted PD LLC Notes Refinancing Indebtedness, as the case may be.   “Existing Indebtedness” shall have the meaning provided in Section 8.21.   “Existing Indebtedness Agreements” shall have the meaning provided in Section 6.05.   “Existing Letter of Credit” shall have the meaning provided in Section 3.01(c).   “Facing Fee” shall have the meaning provided in Section 4.01(c).   “Fair Market Value” shall mean, with respect to any asset (including Equity Interests of any Person), the price at which a willing buyer, not an Affiliate of the seller, and a willing seller who does not have to sell, would agree to purchase and sell such asset, as determined in good faith by the board of directors or other governing body or, pursuant to a specific delegation of authority by such board of directors or governing body, a designated senior executive officer, of the Borrower, or the Subsidiary of the Borrower selling such asset.   “Federal Funds Rate” shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.   “Fees” shall mean all amounts payable pursuant to or referred to in Section 4.01.   “Foreign Pension Plan” shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.   -15- -------------------------------------------------------------------------------- “Foreign Subsidiary” of any Person shall mean any Subsidiary of such Person that is not a Domestic Subsidiary.   “GAAP” shall mean generally accepted accounting principles in the United States as in effect from time to time; provided that determinations in accordance with GAAP for purposes of the Applicable Commitment Commission Percentage, the Applicable Margins and Sections 5.02, 9.15 and 10, including defined terms as used therein, and for all purposes of determining the Total Leverage Ratio, are subject (to the extent provided therein) to Section 13.07(a).   “Guaranty Release Date” shall have the meaning provided in Section 13.17(b).   “Hazardous Materials” shall mean (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous waste,” “hazardous materials,” “extremely hazardous substances,” “restricted hazardous waste,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or Release of which is prohibited, limited or regulated by any governmental authority.   “Herald” shall mean The Herald Company, Inc., a New York corporation.   “Incremental Loan Commitment” shall mean any Incremental Term Loan Commitment and/or any Incremental RL Commitment, as the context may require.   “Incremental Loan Commitment Agreement” shall mean any Incremental Term Loan Commitment Agreement and/or any Incremental RL Commitment Agreement, as the context may require.   “Incremental Loan Commitment Date” shall mean any Incremental Term Loan Borrowing Date or any Incremental RL Commitment Date, as the context may require.   “Incremental Loan Commitment Request Requirements” shall mean, with respect to any request for an Incremental Loan Commitment made pursuant to Section 2.14 or 2.15, the satisfaction of each of the following conditions on the date of such request: (x) no Default or Event of Default then exists or would result therefrom (for purposes of such determination, assuming the relevant Loans in an aggregate principal amount equal to the full amount of Incremental Loan Commitments then requested had been incurred, and the proposed Permitted Acquisition (if any) to be financed with the proceeds of such Loans had been consummated, on such date of request) and all of the representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects at such time (unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (y) the Borrower shall be in compliance with the covenants contained in Sections 10.08 and 10.09 for the Calculation Period most recently ended prior to the date of the request for Incremental Loan Commitments, on a Pro Forma Basis, as if the relevant Loans to be made pursuant to such Incremental Loan   -16- -------------------------------------------------------------------------------- Commitments (assuming the full utilization thereof) had been incurred, and the proposed Permitted Acquisition (if any) to be financed with the proceeds of such Loans (as well as other Permitted Acquisitions theretofore consummated after the first day of such Calculation Period) had occurred, on the first day of such Calculation Period, and (z) no Incremental Term Loan Commitments are then outstanding, unless the full amount such Incremental Term Loan Commitments will be utilized on the date of the effectiveness of the Incremental Term Loan Commitment Agreement to be entered into in connection with the Incremental Term Loan Commitments of the new Tranche then being requested.   “Incremental Loan Commitment Requirements” shall mean, with respect to any provision of an Incremental Loan Commitment on a given Incremental Loan Commitment Date, the satisfaction of each of the following conditions on or prior to the effective date of the respective Incremental Loan Commitment Agreement: (t) no Default or Event of Default then exists or would result therefrom (for purposes of such determination, assuming the relevant Loans in an aggregate principal amount equal to the full amount of Incremental Loan Commitments then provided had been incurred, and the proposed Permitted Acquisition (if any) to be financed with the proceeds of such Loans had been consummated, on such date of effectiveness) and all of the representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects at such time (unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (u) calculations are made by the Borrower demonstrating compliance with the covenants contained in Sections 10.08 and 10.09 for the Calculation Period most recently ended prior to such date of effectiveness, on a Pro Forma Basis, as if the relevant Loans to be made pursuant to such Incremental Loan Commitments (assuming the full utilization thereof) had been incurred, and the proposed Permitted Acquisition (if any) to be financed with the proceeds of such Loans (as well as other Permitted Acquisitions theretofore consummated after the first day of such Calculation Period) had occurred, on the first day of such Calculation Period; (v) the delivery by the Borrower to the Administrative Agent of an officer’s certificate executed by an Authorized Officer of the Borrower and certifying as to compliance with preceding clauses (t) and (u) and containing the calculations (in reasonable detail) required by preceding clause (u); (w) the delivery by the Borrower to the Administrative Agent of an acknowledgement in form and substance reasonably satisfactory to the Administrative Agent and executed by each Subsidiary Guarantor, acknowledging that such Incremental Loan Commitment and all Loans subsequently incurred pursuant to such Incremental Loan Commitment shall constitute (and be included in the definition of) “Guaranteed Obligations” under the Subsidiaries Guaranty; (x) the delivery by the Borrower to the Administrative Agent of an opinion or opinions, in form and substance reasonably satisfactory to the Administrative Agent, from counsel to the Credit Parties reasonably satisfactory to the Administrative Agent and dated such date, covering such of the matters set forth in the opinions of counsel delivered to the Administrative Agent on the Restatement Effective Date pursuant to Section 6.03 as may be reasonably requested by the Administrative Agent, and such other matters incident to the transactions contemplated thereby as the Administrative Agent may reasonably request, (y) the delivery by the Borrower and the other Credit Parties to the Administrative Agent of such other officers’ certificates, board of director resolutions and evidence of good standing as the Administrative Agent shall reasonably request and (z) the completion by the Borrower and the other Credit Parties of such other actions as the Administrative Agent may reasonably request in connection with such Incremental Loan Commitment.   -17- -------------------------------------------------------------------------------- “Incremental RL Commitment” shall mean, for any Lender, any commitment by such Lender to make Revolving Loans pursuant to Section 2.01(c) as agreed to by such Lender in the respective Incremental RL Commitment Agreement delivered pursuant to Section 2.15; it being understood, however, that on each date upon which an Incremental RL Commitment of any Lender becomes effective, such Incremental RL Commitment of such Lender shall be added to (and thereafter become a part of) the Revolving Loan Commitment of such Lender for all purposes of this Agreement as contemplated by Section 2.15.   “Incremental RL Commitment Agreement” shall mean each Incremental RL Commitment Agreement in the form of Exhibit O (appropriately completed) executed in accordance with Section 2.15.   “Incremental RL Commitment Date” shall mean each date upon which an Incremental RL Commitment under an Incremental RL Commitment Agreement becomes effective as provided in Section 2.15(b).   “Incremental RL Lender” shall have the meaning specified in Section 2.15(b).   “Incremental Term Loan” shall have the meaning provided in Section 2.01(d).   “Incremental Term Loan Borrowing Date” shall mean, with respect to each Tranche of Incremental Term Loans, each date on which Incremental Term Loans of such Tranche are incurred pursuant to Section 2.01(d) and as otherwise permitted by Section 2.14.   “Incremental Term Loan Commitment” shall mean, for each Lender, any commitment to make Incremental Term Loans provided by such Lender pursuant to Section 2.14, in such amount as agreed to by such Lender in the respective Incremental Term Loan Commitment Agreement and as set forth opposite such Lender’s name in Schedule I (as modified in accordance with Section 2.14) directly below the column entitled “Incremental Term Loan Commitment”, as the same may be terminated pursuant to Section 4.03 or 11.   “Incremental Term Loan Commitment Agreement” shall mean each Incremental Term Loan Commitment Agreement in the form of Exhibit N (appropriately completed) executed in accordance with Section 2.14.   “Incremental Term Loan Lender” shall have the meaning provided in Section 2.14(b).   “Incremental Term Loan Maturity Date” shall mean, for any Tranche of Incremental Term Loans, the final maturity date set forth for such Tranche of Incremental Term Loans in the respective Incremental Term Loan Commitment Agreement relating thereto, provided that the final maturity date for all Incremental Term Loans of a given Tranche shall be the same date.   “Incremental Term Note” shall have the meaning provided in Section 2.05(a).   “Indebtedness” shall mean, as to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property acquired   -18- -------------------------------------------------------------------------------- by such Person or services, (ii) the maximum amount available to be drawn or paid under all letters of credit, bankers’ acceptances, bank guaranties, surety and appeal bonds and similar obligations issued for the account of such Person and all unpaid drawings and unreimbursed payments in respect of such letters of credit, bankers’ acceptances, bank guaranties, surety and appeal bonds and similar obligations, (iii) all indebtedness of the types described in clause (i), (ii), (iv), (v), (vi), (vii) or (viii) of this definition secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person (provided that, if the Person has not assumed or otherwise become liable in respect of such indebtedness, such indebtedness shall be deemed to be in an amount equal to the Fair Market Value of the property to which such Lien relates), (iv) all Capitalized Lease Obligations of such Person, (v) all obligations of such Person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person, (vii) all obligations under any Interest Rate Protection Agreement, any Other Hedging Agreement or under any similar type of agreement and (viii) all Off-Balance Sheet Liabilities of such Person. Notwithstanding the foregoing, Indebtedness shall not include trade payables, accrued expenses and deferred tax and other credits incurred by any Person in accordance with customary practices and in the ordinary course of business of such Person.   “Intercompany Debt” shall mean any Indebtedness, payables or other obligations, whether now existing or hereafter incurred, owed by the Borrower or any Subsidiary Guarantor to the Borrower or any Subsidiary of the Borrower.   “Intercompany Loans” shall have the meaning provided in Section 10.05(viii).   “Intercompany Note” shall mean a promissory note evidencing Intercompany Loans, duly executed and delivered substantially in the form of Exhibit M (or such other form as shall be satisfactory to the Administrative Agent), with blanks completed in conformity herewith.   “Intercompany Subordination Agreement” shall have the meaning provided in Section 6.09(b).   “Interest Determination Date” shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan.   “Interest Expense Coverage Ratio” shall mean, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period.   “Interest Period” shall have the meaning provided in Section 2.09.   “Interest Rate Protection Agreement” shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement or other similar agreement or arrangement.   “Investments” shall have the meaning provided in Section 10.05.   “Issuing Lender” shall mean (i) each of DBTCA (except as otherwise provided in Section 12.09) and any other Lender reasonably acceptable to the Administrative Agent which   -19- -------------------------------------------------------------------------------- agrees to issue Letters of Credit hereunder and (ii) with respect to the Existing Letters of Credit, the Lender designated as the issuer thereof on Schedule III. Any Issuing Lender may, in its discretion, arrange for one or more Letters of Credit to be issued by one or more Affiliates of such Issuing Lender (and such Affiliate shall be deemed to be an “Issuing Lender” for all purposes of the Credit Documents). To the extent that any Affiliate of the Administrative Agent is an Issuing Lender hereunder, such Affiliate also shall cease to be an Issuing Lender hereunder as provided in Section 12.09 to the same extent as the Administrative Agent.   “Joint Lead Arrangers” shall mean each of DBSI and STCM in their capacity as joint lead arrangers in respect of the credit facilities provided for herein.   “L/C Supportable Obligations” shall mean (i) obligations of the Borrower or any of its Wholly-Owned Subsidiaries with respect to workers compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Borrower or any of its Wholly-Owned Subsidiaries as are reasonably acceptable to the respective Issuing Lender and otherwise permitted to exist pursuant to the terms of this Agreement (other than obligations in respect of (w) the PD LLC Notes Documents, (x) the Permitted PD LLC Notes Refinancing Indebtedness, (y) any Indebtedness or other obligations that are subordinated to the Obligations and (z) any Equity Interests).   “Leaseholds” of any Person shall mean all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures.   “Lender” shall mean each financial institution listed on Schedule I, as well as any Person that becomes a “Lender” hereunder pursuant to Section 2.13 or 13.04(b).   “Lender Default” shall mean (i) the wrongful refusal (which has not been retracted) or the failure of a Lender (in either case) to make available its portion of any Borrowing (including any Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 3.04(c) or (ii) a Lender having notified in writing the Borrower and/or the Administrative Agent that such Lender does not intend to comply with its obligations under Section 2.01(a), 2.01(b), 2.01(c), 2.01(d) or 3.   “Letter of Credit” shall have the meaning provided in Section 3.01(a).   “Letter of Credit Fee” shall have the meaning provided in Section 4.01(b).   “Letter of Credit Outstandings” shall mean, at any time, the sum of (i) the Stated Amount of all outstanding Letters of Credit at such time and (ii) the aggregate amount of all Unpaid Drawings in respect of all Letters of Credit at such time.   “Letter of Credit Request” shall have the meaning provided in Section 3.03(a).   “Lien” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing).   -20- -------------------------------------------------------------------------------- “Loan” shall mean each Term Loan, each Revolving Loan and each Swingline Loan.   “Majority Lenders” of any Tranche shall mean those Non-Defaulting Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations under the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated.   “Mandatory Borrowing” shall have the meaning provided in Section 2.01(f).   “Margin Stock” shall have the meaning provided in Regulation U.   “Material Adverse Effect” shall mean (x) a material adverse effect on the business, operations, property, assets, liabilities or condition (financial or otherwise) of the Borrower or of the Borrower and its Subsidiaries taken as a whole or (y) a material adverse effect (i) on the rights or remedies of the Lenders, the Administrative Agent or the Collateral Agent hereunder or under any other Credit Document or (ii) on the ability of any Credit Party to perform its obligations to the Lenders, the Administrative Agent or the Collateral Agent hereunder or under any other Credit Document.   “Maturity Date” shall mean, with respect to the relevant Tranche of Loans, the A Term Loan Maturity Date, the B Term Loan Maturity Date, each Incremental Term Loan Maturity Date, the Revolving Loan Maturity Date or the Swingline Expiry Date, as the case may be.   “Maximum Incremental Commitment Amount” shall mean $500,000,000.   “Maximum Swingline Amount” shall mean $20,000,000.   “Minimum Borrowing Amount” shall mean (i) for Term Loans, $5,000,000, (ii) for Revolving Loans maintained as (x) Eurodollar Loans, $2,000,000 and (y) Base Rate Loans, $1,000,000, and (iii) for Swingline Loans, $300,000.   “Moody’s” shall mean Moody’s Investors Service, Inc.   “NAIC” shall mean the National Association of Insurance Commissioners.   “Net Cash Proceeds” shall mean for any event requiring a reduction of the Total Revolving Loan Commitment and/or repayment of Term Loans pursuant to Section 5.02 (c), (d) or (g), as the case may be, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such event, net of reasonable transaction costs (including, as applicable, any underwriting, brokerage or other customary commissions and reasonable legal, advisory and other fees and expenses associated therewith) received from any such event.   -21- -------------------------------------------------------------------------------- “Net Sale Proceeds” shall mean for any sale or other disposition of assets pursuant to an Asset Sale, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such Asset Sale, net of (i) reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions, reasonable legal, advisory and other fees and expenses (including title and recording expenses), associated therewith and sales, VAT and transfer taxes arising therefrom), (ii) payments of unassumed liabilities relating to the assets sold or otherwise disposed of at the time of, or within 30 days after, the date of such Asset Sale, (iii) the amount of such gross cash proceeds required to be used to permanently repay any Indebtedness (other than Indebtedness of the Lenders pursuant to this Agreement) which is secured by the respective assets which were sold or otherwise disposed of, and (iv) the estimated net marginal increase in income taxes which will be payable by the Borrower’s consolidated group or any Subsidiary of the Borrower with respect to the fiscal year of the Borrower in which the sale or other disposition occurs as a result of such sale or other disposition; provided, however, that such gross proceeds shall not include any portion of such gross cash proceeds which the Borrower determines in good faith should be reserved for post-closing adjustments (to the extent the Borrower delivers to the Administrative Agent a certificate signed by an Authorized Officer of the Borrower as to such determination), it being understood and agreed that on the day that all such post-closing adjustments have been determined (which shall not be later than 360 days following the date of the respective asset sale), the amount (if any) by which the reserved amount in respect of such Asset Sale exceeds the actual post-closing adjustments payable by the Borrower or any of its Subsidiaries shall constitute Net Sale Proceeds on such date received by the Borrower and/or any of its Subsidiaries from such Asset Sale.   “Non-Defaulting Lender” and “Non-Defaulting RL Lender” shall mean and include each Lender or RL Lender, as the case may be, other than a Defaulting Lender.   “Non-Wholly Owned Subsidiary” shall mean, as to any Person, each Subsidiary of such Person which is not a Wholly-Owned Subsidiary of such Person.   “Note” shall mean each A Term Note, each B Term Note, each Revolving Note, each Incremental Term Note and the Swingline Note.   “Notice of Borrowing” shall have the meaning provided in Section 2.03(a).   “Notice of Conversion/Continuation” shall have the meaning provided in Section 2.06.   “Notice Office” shall mean (i) for credit notices, the office of the Administrative Agent located at 60 Wall Street, New York, New York 10005, Attention: Stephen Cayer, Telephone No. (212) 250-3536, and Telecopier No.: (212) 797-5904, and (ii) for operational notices, the office of the Administrative Agent located at 90 Hudson Street, 5th Floor, Jersey City, New Jersey 07302, Attention: John Quinn, Telephone No.: (201) 593-2177, and Telecopier No.: (201) 593-2308/2309, or such other office or person as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.   -22- -------------------------------------------------------------------------------- “Obligations” shall mean all amounts owing to the Administrative Agent, the Collateral Agent, any Issuing Lender, the Swingline Lender or any Lender pursuant to the terms of this Agreement or any other Credit Document.   “Off-Balance Sheet Liabilities” of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any obligation under a Synthetic Lease or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.   “Original Credit Agreement” shall mean the Credit Agreement, dated as of June 3, 2005, among the Borrower, the Original Lenders, DBSI, and STCM, as joint lead arrangers, DBSI, as book running manager, SunTrust, as syndication agent, Bank of America, N.A., The Bank of New York and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, as co-documentation agents, and DBTCA, as administrative agent.   “Original Effective Date” shall mean June 3, 2005 (i.e., the “Effective Date” under, and as defined in, the Original Credit Agreement).   “Original Lenders” shall mean the “Lenders” under, and as defined in, the Original Credit Agreement.   “Original Loans” shall mean the “Loans” under, and as defined in, the Original Credit Agreement.   “Original Revolving Loans” shall mean the “Revolving Loans” under, and as defined in, the Original Credit Agreement.   “Original Term Loans” shall mean the “Term Loans” under, and as defined in, the Original Credit Agreement.   “Original Transaction” shall mean the “Transaction” under, and as defined in, the Original Credit Agreement.   “Other Hedging Agreements” shall mean any foreign exchange contracts, currency swap agreements, commodity agreements or other similar arrangements, or arrangements designed to protect against fluctuations in currency values or commodity prices.   “Participant” shall have the meaning provided in Section 3.04(a).   “Patriot Act” shall have the meaning provided in Section 13.18.   “Payment Office” shall mean the office of the Administrative Agent located at 90 Hudson Street, Jersey City, New Jersey 07302 or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.   -23- -------------------------------------------------------------------------------- “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.   “PD LLC” shall mean St. Louis Post-Dispatch LLC, a Delaware limited liability company.   “PD LLC Indemnity Agreement” shall mean the Indemnity Agreement, dated as of May 1, 2000, between Herald and Pulitzer, as in effect on the Restatement Effective Date and as the same may be amended, modified and supplemented from time to time in accordance with the terms hereof and thereof.   “PD LLC Notes” shall mean PD LLC’s 8.05% Senior Notes due 2009 issued pursuant to the PD LLC Notes Agreement, as in effect on the Restatement Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.   “PD LLC Notes Agreement” shall mean the Note Agreement, dated as of May 1, 2000, entered into by and among PD LLC and the purchasers party thereto, as in effect on the Restatement Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.   “PD LLC Notes Documents” shall mean the PD LLC Notes, the PD LLC Notes Agreement, the PD LLC Notes Guaranty, the PD LLC Indemnity Agreement, the PD LLC Operating Agreement and all other documents executed and delivered with respect to the PD LLC Notes, the PD LLC Notes Agreement, the PD LLC Indemnity Agreement or the PD LLC Operating Agreement, each as in effect on the Restatement Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.   “PD LLC Notes Guaranty” shall mean the Guaranty Agreement, dated as of May 1, 2000, made by Pulitzer to the holders from time to time of the PD LLC Notes, as in effect on the Restatement Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof and hereof.   “PD LLC Operating Agreement” shall mean the Operating Agreement of PD LLC, dated as of May 1, 2000, among Herald, Pulitzer, Pulitzer Technologies, Inc. and the other members of PD LLC from time to time party thereto, as in effect on the Restatement Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof and hereof.   “Permitted Acquisition” shall mean the acquisition by the Borrower or a Qualified Wholly-Owned Subsidiary of 100% (or, to the extent provided below in this definition, at least 51%) of the Equity Interests of an Acquired Entity or Business (including by way of merger of such Acquired Entity or Business with and into the Borrower (so long as the Borrower is the surviving corporation) or a Qualified Wholly-Owned Subsidiary (so long as a Qualified Wholly-Owned Subsidiary is the surviving corporation and such merger is otherwise permitted by the applicable clauses of Section 10.02)), provided that (in each case) (A) the consideration paid or to be paid by the Borrower or such Qualified Wholly-Owned Subsidiary consists solely of cash   -24- -------------------------------------------------------------------------------- (including proceeds of Revolving Loans or Swingline Loans), common stock of the Borrower, Qualified Preferred Stock of the Borrower, the issuance or incurrence of Indebtedness otherwise permitted by Section 10.04 and the assumption/acquisition of any Indebtedness (calculated at face value) which is permitted to remain outstanding in accordance with the requirements of Section 10.04, (B) in the case of the acquisition of 100% of the Equity Interests of any Acquired Entity or Business (including by way of merger), such Acquired Entity or Business shall own no Equity Interests of any other Person (other than de minimis amounts) unless either (x) such Acquired Entity or Business owns 100% of the Equity Interests of such other Person or (y) if such Acquired Entity or Business owns Equity Interests in any other Person which is a Non-Wholly Owned Subsidiary of such Acquired Entity or Business, (1) such Acquired Entity or Business shall not have been created or established in contemplation of, or for purposes of, the respective Permitted Acquisition, (2) any such Non-Wholly Owned Subsidiary of the Acquired Entity or Business shall have been a Non-Wholly Owned Subsidiary of such Acquired Entity or Business prior to the date of the respective Permitted Acquisition and shall not have been created or established in contemplation thereof and (3) such Acquired Entity or Business and/or its Wholly-Owned Subsidiaries own at least 90% of the total value of all the assets owned by such Acquired Entity or Business and its Subsidiaries (for purposes of such determination, excluding the value of the Equity Interests of Non-Wholly Owned Subsidiaries held by such Acquired Entity or Business and its Wholly-Owned Subsidiaries), (C) except as provided below in this definition, substantially all of the business, division or product line acquired pursuant to the respective Permitted Acquisition, or the business of the Person acquired pursuant to the respective Permitted Acquisition and its Subsidiaries taken as a whole, is in the United States, (D) the Acquired Entity or Business acquired pursuant to the respective Permitted Acquisition is in a business permitted by Section 10.13 and (E) all requirements of Sections 9.15, 10.02 and 10.14 applicable to Permitted Acquisitions are satisfied. Notwithstanding anything to the contrary contained in the immediately preceding sentence, (i) the Borrower and its Qualified Wholly-Owned Subsidiaries may consummate Permitted Acquisitions in which less than 100% (but at least 51%) of the Equity Interests of an Acquired Entity or Business is acquired so long as the Aggregate Consideration paid or payable in respect of all such Permitted Acquisitions does not exceed $50,000,000, (ii) the Borrower and its Qualified Wholly-Owned Subsidiaries may consummate Permitted Acquisitions in which substantially all of the business, division or product line so acquired is not in the United States so long as the Aggregate Consideration paid or payable in respect of all such Permitted Acquisitions does not exceed $50,000,000, and (iii) an acquisition which does not otherwise meet the requirements set forth above in the definition of “Permitted Acquisition” shall constitute a Permitted Acquisition if, and to the extent, the Required Lenders agree in writing, prior to the consummation thereof, that such acquisition shall constitute a Permitted Acquisition for purposes of this Agreement.   “Permitted Liens” shall have the meaning provided in Section 10.01.   “Permitted PD LLC Notes Refinancing Indebtedness” shall mean Indebtedness solely of PD LLC so long as (i) the proceeds of such Indebtedness are used solely to refinance in full the PD LLC Notes and to pay any fees and expenses incurred in connection with obtaining such Indebtedness, (ii) such Indebtedness is non-amortizing that remains outstanding for an aggregate term expiring on or after April 30, 2015, (iii) the aggregate principal amount of such Indebtedness shall not be less than the aggregate principal amount of the PD LLC Notes then outstanding and not more than the sum of (I) the aggregate principal amount of the PD LLC   -25- -------------------------------------------------------------------------------- Notes outstanding at such time plus (II) the aggregate amount of expenses incurred in obtaining such Indebtedness, (iv) the terms such Indebtedness otherwise comply with the other provisions of the PD LLC Operating Agreement (as in effect on the Restatement Effective Date), and (v) all of the terms and conditions thereof (and the documentation with respect thereto) are in form and substance reasonably satisfactory to the Administrative Agent.   “Person” shall mean any individual, partnership, joint venture, firm, corporation, association, limited liability company, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof.   “Plan” shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which the Borrower, a Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan.   “Pledge Agreement” shall have the meaning provided in Section 6.10.   “Pledge Agreement Collateral” shall mean all “Collateral” as defined in the Pledge Agreement.   “Pledgee” shall have the meaning provided in the Pledge Agreement.   “Preferred Equity”, as applied to the Equity Interests of any Person, shall mean Equity Interests of such Person (other than common Equity Interests of such Person) of any class or classes (however designed) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Equity Interests of any other class of such Person, and shall include any Qualified Preferred Stock of the Borrower.   “Prime Lending Rate” shall mean the rate which the Administrative Agent announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer by the Administrative Agent, which may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.   “Pro Forma Basis” shall mean, in connection with any calculation of compliance with any financial covenant or financial term, the calculation thereof after giving effect on a pro forma basis to (x) the incurrence of any Indebtedness (other than revolving Indebtedness, except to the extent same is incurred to refinance other outstanding Indebtedness or to finance a Permitted Acquisition) after the first day of the relevant Calculation Period or Test Period, as the case may be, as if such Indebtedness had been incurred (and the proceeds thereof applied) on the first day of such Test Period or Calculation Period, as the case may be, (y) the permanent repayment of any Indebtedness (other than revolving Indebtedness, except to the extent accompanied by a corresponding permanent commitment reduction) after the first day of the relevant Test Period or Calculation Period, as the case may be, as if such Indebtedness had been retired or   -26- -------------------------------------------------------------------------------- repaid on the first day of such Test Period or Calculation Period, as the case may be, and (z) any Permitted Acquisition or any Significant Asset Sale then being consummated as well as any other Permitted Acquisition or any other Significant Asset Sale if consummated after the first day of the relevant Test Period or Calculation Period, as the case may be, and on or prior to the date of the respective Permitted Acquisition or Significant Asset Sale, as the case may be, then being effected, with the following rules to apply in connection therewith:   (i) all Indebtedness (x) (other than revolving Indebtedness, except to the extent same is incurred to refinance other outstanding Indebtedness or to finance Permitted Acquisitions) incurred or issued after the first day of the relevant Test Period or Calculation Period (whether incurred to finance a Permitted Acquisition, to refinance Indebtedness or otherwise) shall be deemed to have been incurred or issued (and the proceeds thereof applied) on the first day of such Test Period or Calculation Period, as the case may be, and remain outstanding through the date of determination and (y) (other than revolving Indebtedness, except to the extent accompanied by a corresponding permanent commitment reduction) permanently retired or redeemed after the first day of the relevant Test Period or Calculation Period shall be deemed to have been retired or redeemed on the first day of such Test Period or Calculation Period, as the case may be, and remain retired through the date of determination;   (ii) all Indebtedness assumed to be outstanding pursuant to preceding clause (i) shall be deemed to have borne interest at (x) the rate applicable thereto, in the case of fixed rate indebtedness, or (y) the rates which would have been applicable thereto during the respective period when same was deemed outstanding, in the case of floating rate Indebtedness (although interest expense with respect to any Indebtedness for periods while same was actually outstanding during the respective period shall be calculated using the actual rates applicable thereto while same was actually outstanding); provided that all Indebtedness (whether actually outstanding or deemed outstanding) bearing interest at a floating rate of interest shall be tested on the basis of the rates applicable at the time the determination is made pursuant to said provisions; and   (iii) in making any determination of Consolidated EBITDA on a Pro Forma Basis, pro forma effect shall be given to any Permitted Acquisition or any Significant Asset Sale if effected during the respective Calculation Period or Test Period (or thereafter, for purposes of determinations pursuant to Section 9.15 and the definition of “Applicable Commitment Commission Percentage” and “Applicable Margin” contained herein only) as if same had occurred on the first day of the respective Calculation Period or Test Period, as the case may be, and taking into account, in the case of any Permitted Acquisition, factually supportable and identifiable cost savings and expenses which would otherwise be accounted for as an adjustment pursuant to Article 11 of Regulation S-X under the Securities Act, as if such cost savings or expenses were realized on the first day of the respective period.   “Projections” shall mean the projections that are contained in the Confidential Information Memorandum dated November, 2005, and that were prepared by or on behalf of the Borrower in connection with this Agreement and delivered to the Administrative Agent and the Lenders prior to the Restatement Effective Date.   -27- -------------------------------------------------------------------------------- “Pulitzer” shall mean Pulitzer Inc., a Delaware corporation.   “Pulitzer Acquisition” shall mean the acquisition by the Borrower on the Original Effective Date of 100% of the outstanding Equity Interests of Pulitzer through the merger of Acquisition Corp. with and into Pulitzer, with Pulitzer being the surviving entity, in each case pursuant to, and in accordance with the terms and conditions of, the Pulitzer Acquisition Documents.   “Pulitzer Acquisition Agreement” shall mean the Agreement and Plan of Merger, dated as of January 29, 2005, among Pulitzer, the Borrower and Acquisition Corp., as the same may be amended, modified and/or supplemented from time to time in accordance with the terms hereof and thereof.   “Pulitzer Acquisition Documents” shall mean the Pulitzer Acquisition Agreement and all other agreements and documents relating to the Pulitzer Acquisition, as the same may be amended, modified and/or supplemented from time to time in accordance with the terms hereof and thereof.   “Qualified Preferred Stock” shall mean any Preferred Equity of the Borrower so long as the terms of any such Preferred Equity (v) do not contain any mandatory put, redemption, repayment, sinking fund or other similar provision prior to June 3, 2014 (other than as a result of the conversion of such Preferred Equity into common stock of the Borrower without any cash payment), (w) do not require the cash payment of dividends or distributions not otherwise permitted at such time pursuant to this Agreement, (x) do not contain any covenants (other than periodic reporting covenants), (y) do not grant the holders thereof any voting rights except for (I) voting rights required to be granted to such holders under applicable law and (II) limited customary voting rights on fundamental matters such as mergers, consolidations, sales of all or substantially all of the assets of the Borrower, or liquidations involving the Borrower, and (z) are otherwise reasonably satisfactory to the Administrative Agent.   “Qualified Subsidiary” shall mean (i) each Qualified Wholly-Owned Domestic Subsidiary and (ii) each other Subsidiary of the Borrower that is not subject to the restrictions set forth in any PD LLC Notes Documents or any Permitted PD LLC Notes Refinancing Indebtedness (or any guaranty thereof).   “Qualified Wholly-Owned Domestic Subsidiary” shall mean (i) prior to the Guaranty Release Date, each Qualified Wholly-Owned Domestic Subsidiary Guarantor, and (ii) from and after the Guaranty Release Date, each Wholly-Owned Domestic Subsidiary of the Borrower that is not subject to the restrictions set forth in any PD LLC Notes Document or any Permitted PD LLC Notes Refinancing Indebtedness (or any guaranty thereof).   “Qualified Wholly-Owned Domestic Subsidiary Guarantor” shall mean each Wholly-Owned Domestic Subsidiary of the Borrower that is a Subsidiary Guarantor and whose guaranty of the Obligations pursuant to the Subsidiaries Guaranty is not limited because of the restrictions set forth in any PD LLC Notes Document or by any restrictions set forth in the Permitted PD LLC Notes Refinancing Indebtedness (or any guaranty thereof).   -28- -------------------------------------------------------------------------------- “Qualified Wholly-Owned Foreign Subsidiary” shall mean each Wholly-Owned Foreign Subsidiary that is also a Qualified Subsidiary.   “Qualified Wholly-Owned Subsidiary” shall mean (i) each Qualified Wholly-Owned Domestic Subsidiary (ii) each other Qualified Subsidiary of the Borrower that is also a Wholly-Owned Subsidiary of the Borrower.   “Quarterly Payment Date” shall mean the last Business Day of each March, June, September and December occurring after the Restatement Effective Date.   “Quarterly Pricing Certificate” shall have the meaning provided in the definition of “Applicable Commitment Commission Percentage” and “Applicable Margin” contained herein.   “Real Property” of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds.   “Recovery Event” shall mean the receipt by the Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable (i) by reason of theft, loss, physical destruction, damage, taking or any other similar event with respect to any property or assets of the Borrower or any of its Subsidiaries and (ii) under any policy of insurance required to be maintained under Section 9.03 (other than business interruption insurance proceeds).   “Register” shall have the meaning provided in Section 13.15.   “Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.   “Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.   “Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.   “Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.   “Release” shall mean actively or passively disposing, discharging, injecting, spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying, pouring, seeping, migrating or the like, into or upon any land or water or air, or otherwise entering into the environment.   “Replaced Lender” shall have the meaning provided in Section 2.13.   -29- -------------------------------------------------------------------------------- “Replacement Lender” shall have the meaning provided in Section 2.13.   “Reportable Event” shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.   “Required Lenders” shall mean, at any time, Non-Defaulting Lenders the sum of whose outstanding Term Loans and Revolving Loan Commitments at such time (or, after the termination thereof, outstanding Revolving Loans and RL Percentages of (x) outstanding Swingline Loans at such time and (y) Letter of Credit Outstandings at such time) represents at least a majority of the sum of (i) all outstanding Term Loans of Non-Defaulting Lenders at such time and (ii) the Total Revolving Loan Commitment in effect at such time less the Revolving Loan Commitments of all Defaulting Lenders at such time (or, after the termination thereof, the sum of then total outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate RL Percentages of all Non-Defaulting Lenders of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time).   “Restatement Effective Date” shall have the meaning provided in Section 13.10.   “Restricted” shall mean, when referring to cash or Cash Equivalents of the Borrower or any of its Subsidiaries, that such cash or Cash Equivalents (i) appears (or would be required to appear) as “restricted” on a consolidated balance sheet of the Borrower or of any such Subsidiary (unless such appearance is related to the Credit Documents or Liens created thereunder), (ii) are subject to any Lien in favor of any Person other than the Collateral Agent for the benefit of the Secured Creditors or (iii) are not otherwise generally available for use by the Borrower or such Subsidiary.   “Returns” shall have the meaning provided in Section 8.09.   “Revolving Loan” shall have the meaning provided in Section 2.01(c).   “Revolving Loan Commitment” shall mean, for each Lender, the amount set forth opposite such Lender’s name in Schedule I directly below the column entitled “Revolving Loan Commitment,” as same may be (x) increased from time to time pursuant to Section 2.15, (y) reduced from time to time or terminated pursuant to Sections 4.02, 4.03 and/or 11, as applicable, or (z) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 2.13 or 13.04(b).   “Revolving Loan Maturity Date” shall mean June 3, 2012.   “Revolving Note” shall have the meaning provided in Section 2.05(a).   “RL Lender” shall mean each Lender with a Revolving Loan Commitment or with outstanding Revolving Loans.   “RL Percentage” of any RL Lender at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such RL Lender   -30- -------------------------------------------------------------------------------- at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the RL Percentage of any RL Lender is to be determined after the Total Revolving Loan Commitment has been terminated, then the RL Percentages of such RL Lender shall be determined immediately prior (and without giving effect) to such termination.   “S&P” shall mean Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc.   “Scheduled A Term Loan Repayment” shall have the meaning provided in Section 5.02(b)(i).   “Scheduled A Term Loan Repayment Date” shall have the meaning provided in Section 5.02(b)(i).   “Scheduled B Term Loan Repayment” shall have the meaning provided in Section 5.02(b)(ii).   “Scheduled B Term Loan Repayment Date” shall have the meaning provided in Section 5.02(b)(ii).   “Scheduled Incremental Term Loan Repayment” shall have the meaning provided in Section 5.02(b)(iii).   “Scheduled Incremental Term Loan Repayment Date” shall have the meaning provided in Section 5.02(b)(iii).   “Scheduled Term Loan Repayment” shall mean each Scheduled A Term Loan Repayment, each Scheduled B Term Loan Repayment and each Scheduled Incremental Term Loan Repayment of a given Tranche, as the context may require.   “Scheduled Term Loan Repayment Date” shall mean each Scheduled A Term Loan Repayment Date, each Scheduled B Term Loan Repayment Date and each Scheduled Incremental Term Loan Repayment Date of a given Tranche, as the context may require.   “SEC” shall have the meaning provided in Section 9.01(g).   “Section 5.04(b)(ii) Certificate” shall have the meaning provided in Section 5.04(b)(ii).   “Secured Creditors” shall have the meaning assigned that term in the Pledge Agreement.   “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.   “Security Release Date” shall have the meaning provided in Section 13.17(a).   “Shareholders’ Agreements” shall have the meaning provided in Section 6.05.   -31- -------------------------------------------------------------------------------- “Significant Asset Sale” shall mean each Asset Sale (or series of related Asset Sales) which generates Net Sale Proceeds of at least $5,000,000.   “Start Date” shall mean each date of delivery of a Quarterly Pricing Certificate or any other officer’s certificate of the Borrower pursuant to the definition of “Applicable Commitment Commission Percentage” and “Applicable Margin” contained herein, as the case may be.   “Stated Amount” of each Letter of Credit shall mean, at any time, the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met).   “STCM” shall mean SunTrust Capital Markets, Inc.   “Subsidiaries Guaranty” shall have the meaning provided in Section 6.09(a).   “Subsidiary” shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.   “Subsidiary Guarantor” shall mean each Domestic Subsidiary of the Borrower (other than an Excluded Domestic Subsidiary so long as it remains an Excluded Domestic Subsidiary) and, to the extent required by Section 9.16, each Foreign Subsidiary of the Borrower (in each case, whether existing on the Restatement Effective Date or established, created or acquired after the Restatement Effective Date), unless and until such time as the respective Subsidiary is released from all of its obligations under the Subsidiaries Guaranty in accordance with the terms and provisions thereof.   “SunTrust” shall mean SunTrust Bank.   “Swingline Expiry Date” shall mean that date which is five Business Days prior to the Revolving Loan Maturity Date.   “Swingline Lender” shall mean the Administrative Agent, in its capacity as Swingline Lender hereunder.   “Swingline Loan” shall have the meaning provided in Section 2.01(e).   “Swingline Note” shall have the meaning provided in Section 2.05(a).   -32- -------------------------------------------------------------------------------- “Syndication Agent” shall mean SunTrust in its capacity as syndication agent in respect of the credit facilities provided for herein.   “Syndication Date” shall mean that date upon which the Administrative Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication (and resultant addition of Persons as Lenders pursuant to Section 13.04(b)) has been completed.   “Synthetic Lease” shall mean a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.   “Tax Sharing Agreements” shall have the meaning provided in Section 6.05.   “Taxes” shall have the meaning provided in Section 5.04(a).   “Term Loan” shall mean each A Term Loan, each B Term Loan and each Incremental Term Loan.   “Term Loan Percentage” of a Tranche of Term Loans shall mean, at any time, a fraction (expressed as a percentage), the numerator of which is equal to the aggregate outstanding principal amount of all Term Loans of such Tranche at such time and the denominator of which is equal to the aggregate outstanding principal amount of all Term Loans of all Tranches at such time.   “Test Period” shall mean each period of four consecutive fiscal quarters of the Borrower then last ended, in each case taken as one accounting period. Notwithstanding anything to the contrary contained above in this definition or in Section 13.07, (A) for purposes of determining Consolidated EBITDA for compliance with Sections 10.08 and 10.09 for any period ending on or before the last day of the Borrower’s fiscal quarter ending closest to March 31, 2006, Consolidated EBITDA shall be the Consolidated EBITDA of the Borrower and its Subsidiaries (including Pulitzer and its Subsidiaries) for the then most recently ended Test Period determined on a pro forma basis as if the Original Transaction had occurred on the first day of the Borrower’s fiscal quarter that began closest to April 1, 2004, and (B) for purposes of determining Consolidated Interest Expense for compliance with Section 10.08 for any Test Period ending on or before the last day of the Borrower’s fiscal quarter ending closest to March 31, 2006, (i) in the case of the Test Period ending closest to September 30, 2005, Consolidated Interest Expense for such Test Period shall be Consolidated Interest Expense for the period from the first day of the Borrower’s fiscal quarter beginning closest to July 1, 2005 through the last day of the Borrower’s fiscal quarter ending closest to September 30, 2005 multiplied by 4, (ii) in the case of the Test Period ending closest to December 31, 2005, Consolidated Interest Expense for such Test Period shall be Consolidated Interest Expense for the period from the first day of the Borrower’s fiscal quarter beginning closest to July 1, 2005 through the last day of the Borrower’s fiscal quarter ending closest to December 31, 2005 multiplied by 2, and (iii) in the case of the Test Period ending closest to March 31, 2006, Consolidated Interest Expense for such Test Period shall be Consolidated Interest Expense for the period from the first day of the Borrower’s fiscal quarter beginning closest to July 1, 2005 through the last day of the Borrower’s   -33- -------------------------------------------------------------------------------- fiscal quarter ending closest to March 31, 2006 multiplied by 4/3; provided that in the case of determinations of the Total Leverage Ratio pursuant to this Agreement, such further adjustments (if any) as described in the proviso to the definition of “Total Leverage Ratio” contained herein shall be made to the extent applicable.   “Total A Term Loan Commitment” shall mean, at any time, the sum of the A Term Loan Commitments of each of the Lenders at such time.   “Total B Term Loan Commitment” shall mean, at any time, the sum of the B Term Loan Commitments of each of the Lenders at such time.   “Total Commitment” shall mean, at any time, the sum of the Commitments of each of the Lenders at such time.   “Total Incremental Term Loan Commitment” of any Tranche of Incremental Term Loans shall mean, at any time, the sum of the Incremental Term Loan Commitments of such Tranche of each of the Lenders at such time.   “Total Leverage Ratio” shall mean, on any date of determination, the ratio of (x) Consolidated Indebtedness on such date to (y) Consolidated EBITDA for the Test Period most recently ended on or prior to such date; provided that (i) for purposes of any calculation of the Total Leverage Ratio pursuant to this Agreement, Consolidated EBITDA shall be determined on a Pro Forma Basis in accordance with clause (iii) of the definition of “Pro Forma Basis” contained herein and (ii) for purposes of any calculation of the Total Leverage Ratio pursuant to Section 9.15 and the definition of “Applicable Commitment Commission Percentage” and “Applicable Margin” only, Consolidated Indebtedness shall be determined on a Pro Forma Basis in accordance with the requirements of the definition of “Pro Forma Basis” contained herein.   “Total Revolving Loan Commitment” shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Lenders at such time.   “Total Unutilized Revolving Loan Commitment” shall mean, at any time, an amount equal to the remainder of (x) the Total Revolving Loan Commitment in effect at such time less (y) the sum of (i) the aggregate principal amount of all Revolving Loans and Swingline Loans outstanding at such time plus (ii) the aggregate amount of all Letter of Credit Outstandings at such time.   “Tranche” shall mean the respective facility and commitments utilized in making Loans hereunder, with there being four separate Tranches on the Restatement Effective Date, i.e., A Term Loans, B Term Loans, Revolving Loans and Swingline Loans. In addition, and notwithstanding the foregoing, any Incremental Term Loans extended after the Restatement Effective Date shall, except to the extent provided in Section 2.14(c), be made pursuant to one or more additional Tranches of Term Loans which shall be designated pursuant to the respective Incremental Term Loan Commitment Agreements in accordance with the relevant requirements specified in Section 2.14.   “Type” shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan.   -34- -------------------------------------------------------------------------------- “UCC” shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction.   “Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the value of the accumulated plan benefits under the Plan determined on a plan termination basis in accordance with actuarial assumptions at such time consistent with those prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds the Fair Market Value of all plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions).   “United States” and “U.S.” shall each mean the United States of America.   “Unpaid Drawing” shall have the meaning provided in Section 3.05(a).   “Unrestricted” shall mean, when referring to cash or Cash Equivalents of the Borrower or any of its Subsidiaries, that such cash or Cash Equivalents are not Restricted.   “Unutilized Revolving Loan Commitment” shall mean, with respect to any Lender at any time, such Lender’s Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of all Revolving Loans made by such Lender at such time and (ii) such Lender’s RL Percentage of the Letter of Credit Outstandings at such time.   “Voting Equity Interests” shall mean, as to any Person, any class or classes of outstanding Equity Interests of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors of such Person.   “Weighted Average Life to Maturity” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the then outstanding principal amount of such Indebtedness into (ii) the product obtained by multiplying (x) the amount of each then remaining installment or other required scheduled payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment.   “Wholly-Owned Domestic Subsidiary” shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.   “Wholly-Owned Foreign Subsidiary” shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Foreign Subsidiary.   “Wholly-Owned Subsidiary” shall mean, as to any Person, (i) any corporation 100% of whose capital stock is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time (other than, in the case of a Foreign Subsidiary of the Borrower with respect to preceding clauses (i) and (ii), director’s qualifying shares and/or other nominal amount of shares required to be held by Persons other than the Borrower and its Subsidiaries under applicable law).   -35- -------------------------------------------------------------------------------- SECTION 2. Amount and Terms of Credit.   2.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Lender with an A Term Loan Commitment severally agrees to make a term loan or term loans (each, an “A Term Loan” and, collectively, the “A Term Loans”) to the Borrower, which A Term Loans (i) shall be incurred pursuant to a single drawing on the Restatement Effective Date, (ii) shall be denominated in Dollars, (iii) except as hereinafter provided, shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 2.10(b), all A Term Loans comprising the same Borrowing shall at all times be of the same Type, and (B) unless the Administrative Agent otherwise has agreed or has determined that the Syndication Date has occurred (at which time this clause (B) shall no longer be applicable), no more than three Borrowings of A Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 90th day after the Restatement Effective Date (or, if later, the last day of the Interest Period applicable to the third Borrowing of Eurodollar Loans referred to below), each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on, or within five Business Days after, the Restatement Effective Date, the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing and the third of which Borrowings may only be made on the last day of the Interest Period of the second such Borrowing, and (iv) shall be made by each such Lender in that aggregate principal amount which does not exceed the A Term Loan Commitment of such Lender on the Restatement Effective Date. Once repaid, A Term Loans incurred hereunder may not be reborrowed.   (b) Subject to and upon the terms and conditions set forth herein, each Lender with a B Term Loan Commitment severally agrees to make a term loan or term loans (each, a “B Term Loan” and, collectively, the “B Term Loans”) to the Borrower, which B Term Loans (i) shall be incurred pursuant to a single drawing on the Restatement Effective Date, (ii) shall be denominated in Dollars, (iii) except as hereinafter provided, shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 2.10(b), all B Term Loans comprising the same Borrowing shall at all times be of the same Type, and (B) unless the Administrative Agent otherwise has agreed or has determined that the Syndication Date has occurred (at which time this clause (B) shall no longer be applicable), no more than three Borrowings of B Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 90th day after the Restatement Effective Date (or, if later, the last day of the Interest Period applicable to the third Borrowing of Eurodollar Loans referred to below), each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of A Term Loans that are maintained as Eurodollar Loans, the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing and the third of which Borrowings may only be made on the last day of the Interest Period of the second such Borrowing, and (iv) shall be made by each such Lender in that aggregate principal amount which does not exceed the B Term Loan Commitment of such Lender on the Restatement Effective Date. Once repaid, B Term Loans incurred hereunder may not be reborrowed.   -36- -------------------------------------------------------------------------------- (c) Subject to and upon the terms and conditions set forth herein, each Lender with a Revolving Loan Commitment severally agrees to make, at any time and from time to time on or after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, a revolving loan or revolving loans (each, a “Revolving Loan” and, collectively, the “Revolving Loans”) to the Borrower, which Revolving Loans (i) shall be denominated in Dollars, (ii) shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 2.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type, and (B) unless the Administrative Agent otherwise has agreed or has determined that the Syndication Date has occurred (at which time this clause (B) shall no longer be applicable), no more than three Borrowings of Revolving Loans to be maintained as Eurodollar Loans may be incurred prior to the 90th day after the Restatement Effective Date (or, if later, the last day of the Interest Period applicable to the third Borrowing of Eurodollar Loans referred to below), each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of A Term Loans that are maintained as Eurodollar Loans, the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing and the third of which Borrowings may only be made on the last day of the Interest Period of the second such Borrowing, (iii) may be repaid and reborrowed in accordance with the provisions hereof, and (iv) shall not exceed for any such Lender at any time outstanding that aggregate principal amount which, when added to the product of (x) such Lender’s RL Percentage and (y) the sum of (I) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (II) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Revolving Loan Commitment of such Lender at such time.   (d) Subject to and upon the terms and conditions set forth herein, each Lender with an Incremental Term Loan Commitment for a given Tranche of Incremental Term Loans severally agrees to make a term loan or term loans (each, an “Incremental Term Loan” and, collectively, the “Incremental Term Loans”) to the Borrower, which Incremental Term Loans (i) shall be incurred pursuant to a single drawing on the respective Incremental Term Loan Borrowing Date, (ii) shall be denominated in Dollars, (iii) except as hereinafter provided, shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that, except as otherwise specifically provided in Section 2.10(b), all Incremental Term Loans of a given Tranche made as part of the same Borrowing shall at all times consist of Incremental Term Loans of the same Type, and (iv) shall not exceed for any such Incremental Term Loan Lender at any time of any incurrence thereof, the Incremental Term Loan Commitment of such Incremental Term Loan Lender for such Tranche on the respective Incremental Term Loan Borrowing Date. Once repaid, Incremental Term Loans may not be reborrowed.   (e) Subject to and upon the terms and conditions set forth herein, the Swingline Lender agrees to make, at any time and from time to time on or after the Restatement Effective Date and prior to the Swingline Expiry Date, a revolving loan or revolving loans (each, a “Swingline Loan” and, collectively, the “Swingline Loans”) to the Borrower, which Swingline   -37- -------------------------------------------------------------------------------- Loans (i) shall be incurred and maintained as Base Rate Loans, (ii) shall be denominated in Dollars, (iii) may be repaid and reborrowed in accordance with the provisions hereof, (iv) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans then outstanding and the aggregate amount of all Letter of Credit Outstandings at such time, an amount equal to the Total Revolving Loan Commitment at such time, and (v) shall not exceed in aggregate principal amount at any time outstanding the Maximum Swingline Amount. Notwithstanding anything to the contrary contained in this Section 2.01(e), (i) the Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists with respect to an RL Lender unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrower to eliminate the Swingline Lender’s risk with respect to the Defaulting Lender’s or Defaulting Lenders’ participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender’s or Defaulting Lenders’ RL Percentage of the outstanding Swingline Loans, and (ii) the Swingline Lender shall not make any Swingline Loan after it has received written notice from the Borrower, any other Credit Party or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice (A) of rescission of all such notices from the party or parties originally delivering such notice or notices or (B) of the waiver of such Default or Event of Default by the Required Lenders.   (f) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the RL Lenders that the Swingline Lender’s outstanding Swingline Loans shall be funded with one or more Borrowings of Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 11.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 11), in which case one or more Borrowings of Revolving Loans constituting Base Rate Loans (each such Borrowing, a “Mandatory Borrowing”) shall be made on the immediately succeeding Business Day by all RL Lenders pro rata based on each such RL Lender’s RL Percentage (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 11) and the proceeds thereof shall be applied directly by the Swingline Lender to repay the Swingline Lender for such outstanding Swingline Loans. Each RL Lender hereby irrevocably agrees to make Revolving Loans upon one Business Day’s notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding (i) the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 7 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the date of such Mandatory Borrowing, and (v) the amount of the Total Revolving Loan Commitment at such time. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each RL Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such participations in the outstanding Swingline Loans as shall be necessary to cause the RL Lenders to share in such Swingline Loans ratably based upon their respective RL Percentages (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to   -38- -------------------------------------------------------------------------------- the last paragraph of Section 11), provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable to the participant from and after such date, and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing RL Lender shall be required to pay the Swingline Lender interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Rate for the first three days and at the interest rate otherwise applicable to Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter.   2.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of Loans under a respective Tranche shall not be less than the Minimum Borrowing Amount applicable to such Tranche. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than fifteen Borrowings of Eurodollar Loans in the aggregate for all Tranches of Loans (or such greater number of Borrowings of Eurodollar Loans as may be acceptable to the Administrative Agent).   2.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur (x) Eurodollar Loans hereunder, the Borrower shall give the Administrative Agent at the Notice Office at least three Business Days’ prior notice of each Eurodollar Loan to be incurred hereunder, and (y) Base Rate Loans hereunder (excluding Swingline Loans and Revolving Loans made pursuant to a Mandatory Borrowing), the Borrower shall give the Administrative Agent at the Notice Office at least one Business Day’s prior notice of each Base Rate Loan to be incurred hereunder, provided that (in each case) any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) on such day. Each such notice (together with each notice delivered pursuant to Section 2.03(b)(i), a “Notice of Borrowing”), except as otherwise expressly provided in Section 2.10, shall be irrevocable and shall be in writing, or by telephone promptly confirmed in writing, in the form of Exhibit A-1, appropriately completed to specify: (i) the aggregate principal amount of the Loans to be incurred pursuant to such Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) whether the Loans being incurred pursuant to such Borrowing shall constitute A Term Loans, B Term Loans, Revolving Loans or Incremental Term Loans and, if Incremental Term Loans, the specific Tranche thereof; and (iv) whether the Loans being incurred pursuant to such Borrowing are to be initially maintained as Base Rate Loans or, to the extent permitted hereunder, Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Lender which is required to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Lender’s proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing.   (b) (i) Whenever the Borrower desires to incur Swingline Loans hereunder, the Borrower shall give the Swingline Lender no later than 1:00 P.M. (New York time) on the date that a Swingline Loan is to be incurred, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be incurred hereunder. Each such Notice of Borrowing shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day), and (B) the aggregate principal amount of the Swingline Loans to be incurred pursuant to such Borrowing.   -39- -------------------------------------------------------------------------------- (ii) Mandatory Borrowings shall be made upon the notice specified in Section 2.01(f), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 2.01(f).   (c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of any Borrowing or prepayment of Loans, the Administrative Agent or the Swingline Lender, as the case may be, may act without liability upon the basis of telephonic notice of such Borrowing or prepayment, as the case may be, believed by the Administrative Agent or the Swingline Lender, as the case may be, in good faith to be from an Authorized Officer of the Borrower, prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Administrative Agent’s or the Swingline Lender’s record of the terms of such telephonic notice of such Borrowing or prepayment of Loans, as the case may be, absent manifest error.   2.04 Disbursement of Funds. No later than 1:00 P.M. (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, no later than 4:00 P.M. (New York time) on the date specified pursuant to Section 2.03(b)(i) or (y) in the case of Mandatory Borrowings, no later than 1:00 P.M. (New York time) on the date specified in Section 2.01(f)), each Lender with a Commitment of the respective Tranche will make available its pro rata portion (determined in accordance with Section 2.07) of each such Borrowing requested to be made on such date (or in the case of Swingline Loans, the Swingline Lender will make available the full amount thereof). All such amounts will be made available in Dollars and in immediately available funds at the Payment Office, and the Administrative Agent will, except in the case of Revolving Loans made pursuant to a Mandatory Borrowing, make available to the Borrower at the Payment Office the aggregate of the amounts so made available by the Lenders. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent such Lender’s portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing and the Administrative Agent may (but shall not be obligated to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent also shall be entitled to recover on demand from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Lender, the overnight Federal Funds Rate for the first three days and at the interest rate otherwise applicable to such Loans for each day thereafter, and (ii) if recovered from the Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 2.08. Nothing in this   -40- -------------------------------------------------------------------------------- Section 2.04 shall be deemed to relieve any Lender from its obligation to make Loans hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any failure by such Lender to make Loans hereunder.   2.05 Notes. (a) The Borrower’s obligation to pay the principal of, and interest on, the Loans made by each Lender shall be evidenced in the Register maintained by the Administrative Agent pursuant to Section 13.15 and shall, if requested by such Lender, also be evidenced (i) in the case of A Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-1, with blanks appropriately completed in conformity herewith (each, an “A Term Note” and, collectively, the “A Term Notes”), (ii) in the case of B Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-2, with blanks appropriately completed in conformity herewith (each, a “B Term Note” and, collectively, the “B Term Notes”), (iii) in the case of Revolving Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-3, with blanks appropriately completed in conformity herewith (each, a “Revolving Note” and, collectively, the “Revolving Notes”), (iv) in the case of Incremental Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-4, with blanks appropriately completed in conformity herewith (each, an “Incremental Term Note” and, collectively, the “Incremental Term Notes”), and (v) in the case of Swingline Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-5, with blanks appropriately completed in conformity herewith (the “Swingline Note”).   (b) The A Term Note issued to each Lender that has an A Term Loan Commitment or outstanding A Term Loans shall (i) be executed by the Borrower, (ii) be payable to such Lender or its registered assigns and be dated the Restatement Effective Date (or, if issued after the Restatement Effective Date, be dated the date of issuance thereof), (iii) be in a stated principal amount equal to the A Term Loans made by such Lender on the Restatement Effective Date (or, if issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding A Term Loans of such Lender at such time) and be payable in the outstanding principal amount of A Term Loans evidenced thereby from time to time, (iv) mature on the A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 5.01, and mandatory repayment as provided in Section 5.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.   (c) The B Term Note issued to each Lender that has a B Term Loan Commitment or outstanding B Term Loans shall (i) be executed by the Borrower, (ii) be payable to such Lender or its registered assigns and be dated the Restatement Effective Date (or, if issued after the Restatement Effective Date, be dated the date of issuance thereof), (iii) be in a stated principal amount equal to the B Term Loans made by such Lender on the Restatement Effective Date (or, if issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding B Term Loans of such Lender at such time) and be payable in the outstanding principal amount of B Term Loans evidenced thereby from time to time, (iv) mature on the B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,   -41- -------------------------------------------------------------------------------- (vi) be subject to voluntary prepayment as provided in Section 5.01, and mandatory repayment as provided in Section 5.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.   (d) The Revolving Note issued to each Lender that has a Revolving Loan Commitment or outstanding Revolving Loans shall (i) be executed by the Borrower, (ii) be payable to such Lender or its registered assigns and be dated the Restatement Effective Date (or, if issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Lender (or, if issued after the termination thereof, be in a stated principal amount equal to the outstanding Revolving Loans of such Lender at such time) and be payable in the outstanding principal amount of the Revolving Loans evidenced thereby from time to time, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 5.01, and mandatory repayment as provided in Section 5.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.   (e) The Incremental Term Note issued to each Lender with an Incremental Term Loan Commitment or outstanding Incremental Term Loans under a given Tranche shall (i) be executed by the Borrower, (ii) be payable to such Lender or its registered assigns and be dated the date of the issuance thereof, (iii) be in a stated principal amount equal to the respective Incremental Term Loans made by such Lender on the effective date of the respective Incremental Term Loan Commitment Agreement for such Tranche of Incremental Term Loans (or, if issued thereafter, be in a stated principal amount equal to the outstanding principal amount of the Incremental Term Loans of such Lender at such time for such Tranche of Incremental Term Loans), (iv) mature on the Incremental Term Loan Maturity Date for such Tranche of Incremental Term Loans, (v) bear interest as provided in the appropriate clause of Section 2.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 5.01, and mandatory repayment as provided in Section 5.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.   (f) The Swingline Note issued to the Swingline Lender shall (i) be executed by the Borrower, (ii) be payable to the Swingline Lender or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the outstanding principal amount of the Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section 2.08 in respect of the Base Rate Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 5.01, and mandatory repayment as provided in Section 5.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.   (g) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and prior to any transfer of any of its Notes will endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in such notation shall not affect the Borrower’s obligations in respect of such Loans.   -42- -------------------------------------------------------------------------------- (h) Notwithstanding anything to the contrary contained above in this Section 2.05 or elsewhere in this Agreement, Notes shall only be delivered to Lenders which at any time specifically request the delivery of such Notes. No failure of any Lender to request or obtain a Note evidencing its Loans to the Borrower shall affect or in any manner impair the obligations of the Borrower to pay the Loans (and all related Obligations) incurred by the Borrower which would otherwise be evidenced thereby in accordance with the requirements of this Agreement, and shall not in any way affect the security or guaranties therefor provided pursuant to the various Credit Documents. Any Lender which does not have a Note evidencing its outstanding Loans shall in no event be required to make the notations otherwise described in preceding clause (g). At any time when any Lender requests the delivery of a Note to evidence any of its Loans, the Borrower shall promptly execute and deliver to the respective Lender the requested Note in the appropriate amount or amounts to evidence such Loans.   2.06 Conversions. The Borrower shall have the option to convert, on any Business Day, all or a portion equal to at least the Minimum Borrowing Amount of the outstanding principal amount of Loans (other than Swingline Loans which may not be converted pursuant to this Section 2.06) made pursuant to one or more Borrowings (so long as of the same Tranche) of one or more Types of Loans into a Borrowing (of the same Tranche) of another Type of Loan, provided that (i) except as otherwise provided in Section 2.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted and no such partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii) unless the Required Lenders otherwise agree, Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion, and (iii) unless the Administrative Agent has otherwise agreed or has determined that the Syndication Date has occurred (at which time this clause (iii) shall no longer be applicable), prior to the 90th day following the Restatement Effective Date, conversions of Base Rate Loans into Eurodollar Loans may only be made if any such conversion is effective on the first day of the first, second or third Interest Period referred to in clause (B) of each of Sections 2.01(a)(iii), 2.01(b)(iii) and 2.01(c)(ii) and so long as such conversion does not result in a greater number of Borrowings of Eurodollar Loans prior to the 90th day after the Restatement Effective Date than are permitted under Sections 2.01(a)(iii), 2.01(b)(iii) and 2.01(c)(ii), and (iv) no conversion pursuant to this Section 2.06 shall result in a greater number of Borrowings of Eurodollar Loans than is permitted under Section 2.02. Each such conversion shall be effected by the Borrower by giving the Administrative Agent at the Notice Office prior to 11:00 A.M. (New York time) at least (x) in the case of conversions of Base Rate Loans into Eurodollar Loans, three Business Days’ prior notice, and (y) in the case of conversions of Eurodollar Loans into Base Rate Loans, one Business Day’s prior notice (each, a “Notice of Conversion/Continuation”), in each case in the form of Exhibit A-2, appropriately completed to specify the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were incurred and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans.   -43- -------------------------------------------------------------------------------- 2.07 Pro Rata Borrowings. All Borrowings of A Term Loans, B Term Loans, Revolving Loans and Incremental Term Loans under this Agreement shall be incurred from the Lenders pro rata on the basis of their A Term Loan Commitments, B Term Loan Commitments, Revolving Loan Commitments and applicable Incremental Term Loan Commitments, as the case may be, provided that all Mandatory Borrowings shall be incurred from the RL Lenders pro rata on the basis of their RL Percentages. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.   2.08 Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date of Borrowing thereof until the earlier of (i) the maturity thereof (whether by acceleration or otherwise) and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 2.06 or 2.09, as applicable, at a rate per annum which shall be equal to the sum of the relevant Applicable Margin plus the Base Rate, each as in effect from time to time.   (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date of Borrowing thereof until the earlier of (i) the maturity thereof (whether by acceleration or otherwise) and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 2.06, 2.09 or 2.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the relevant Applicable Margin as in effect from time to time during such Interest Period plus the Eurodollar Rate for such Interest Period.   (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall, in each case, bear interest at a rate per annum equal to the greater of (x) the rate which is 2% in excess of the rate then borne by such Loans and (y) the rate which is 2% in excess of the rate otherwise applicable to Base Rate Loans of the respective Tranche from time to time, and all other overdue amounts payable hereunder and under any other Credit Document shall bear interest at a rate per annum equal to the rate which is 2% in excess of the rate applicable to Revolving Loans that are maintained at Base Rate Loans from time to time. Interest that accrues under this Section 2.08(c) shall be payable on demand.   (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, (x) quarterly in arrears on each Quarterly Payment Date, (y) on the date of any repayment or prepayment in full of all outstanding Base Rate Loans of the respective Tranche, and (z) at maturity (whether by acceleration or otherwise) and, after such maturity, on demand, and (ii) in respect of each Eurodollar Loan, (x) in arrears on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period, and (y) on the date of any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand.   (e) Upon each Interest Determination Date, the Administrative Agent shall determine the Eurodollar Rate for each Interest Period applicable to the respective Eurodollar Loans and shall promptly notify the Borrower and the Lenders thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto.   -44- -------------------------------------------------------------------------------- 2.09 Interest Periods. At the time the Borrower gives any Notice of Borrowing or Notice of Conversion/Continuation in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or prior to 11:00 A.M. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Borrower shall have the right to elect the interest period (each, an “Interest Period”) applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower (but otherwise subject to the provisions of clause (B) of the proviso in each of Sections 2.01(a)(iii), 2.01(b)(iii) and 2.01(c)(ii)), be a one, two, three or six month period, provided that (in each case):   (i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period;   (ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Base Rate Loan) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires;   (iii) if any Interest Period for a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;   (iv) if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;   (v) unless the Required Lenders otherwise agree, no Interest Period may be selected at any time when a Default or an Event of Default is then in existence; and   (vi) no Interest Period in respect of any Borrowing of any Tranche of Loans shall be selected which extends beyond the Maturity Date for such Tranche of Loans.   If by 11:00 A.M. (New York time) on the third Business Day prior to the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. Notwithstanding the foregoing, the Borrower may incur a Borrowing of Eurodollar Loans consisting of A Term Loans in an aggregate principal amount of $350,000,000 on the Restatement Effective Date with an Interest Period of 69 days.   -45- -------------------------------------------------------------------------------- 2.10 Increased Costs, Illegality, etc. (a) In the event that any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent):   (i) on any Interest Determination Date that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or   (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the Restatement Effective Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, but not limited to: (A) a change in the basis of taxation of payment to any Lender of the principal of or interest on the Loans or the Notes or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate and/or (y) other circumstances arising since the Restatement Effective Date affecting such Lender, the interbank Eurodollar market or the position of such Lender in such market; or   (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Restatement Effective Date which materially and adversely affects the interbank Eurodollar market;   then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone promptly confirmed in writing) to the Borrower and, except in the case of clause (i) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion/Continuation given by the Borrower with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower agrees to pay to such Lender, upon such Lender’s written request therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for   -46- -------------------------------------------------------------------------------- such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 2.10(b) as promptly as possible and, in any event, within the time period required by law.   (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 2.10(a)(ii), the Borrower may, and in the case of a Eurodollar Loan affected by the circumstances described in Section 2.10(a)(iii), the Borrower shall, either (x) if the affected Eurodollar Loan is then being made initially or pursuant to a conversion, cancel such Borrowing by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that the Borrower was notified by the affected Lender or the Administrative Agent pursuant to Section 2.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days’ written notice to the Administrative Agent, require the affected Lender to convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 2.10(b).   (c) If any Lender determines that after the Restatement Effective Date the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by the NAIC or any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender based on the existence of such Lender’s Commitments hereunder or its obligations hereunder, then the Borrower agrees to pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender’s determination of compensation owing under this Section 2.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 2.10(c), will give prompt written notice thereof to the Borrower, which notice shall show in reasonable detail the basis for calculation of such additional amounts.   2.11 Compensation. The Borrower agrees to compensate each Lender, upon its written request (which request shall set forth in reasonable detail the basis for requesting such compensation), for all losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn by the Borrower or deemed withdrawn   -47- -------------------------------------------------------------------------------- pursuant to Section 2.10(a)); (ii) if any prepayment or repayment (including any prepayment or repayment made pursuant to Section 5.01, Section 5.02 or as a result of an acceleration of the Loans pursuant to Section 11) or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay Eurodollar Loans when required by the terms of this Agreement or any Note held by such Lender or (y) any cancellation or conversion made pursuant to Section 2.10(b).   2.12 Change of Lending Office. Each Lender agrees that on the occurrence of any event giving rise to the operation of Section 2.10(a)(ii) or (iii), Section 2.10(c), Section 3.06 or Section 5.04 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 2.12 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Sections 2.10, 3.06 and 5.04.   2.13 Replacement of Lenders. (x) If any Lender becomes a Defaulting Lender, (y) upon the occurrence of any event giving rise to the operation of Section 2.10(a)(ii) or (iii), Section 2.10(c), Section 3.06 or Section 5.04 with respect to any Lender which results in such Lender charging to the Borrower increased costs in excess of those being generally charged by the other Lenders or (z) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders as (and to the extent) provided in Section 13.12(b), the Borrower shall have the right, in accordance with Section 13.04(b), if no Default or Event of Default then exists or would exist after giving effect to such replacement, to replace such Lender (the “Replaced Lender”) with one or more other Eligible Transferees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the “Replacement Lender”) and each of which shall be reasonably acceptable to the Administrative Agent or, in the case of a replacement as provided in Section 13.12(b) where the consent of the respective Lender is required with respect to less than all Tranches of its Loans or Commitments, to replace the Commitments and/or outstanding Loans of such Lender in respect of each Tranche where the consent of such Lender would otherwise be individually required, with identical Commitments and/or Loans of the respective Tranche provided by the Replacement Lender; provided that:   (a) at the time of any replacement pursuant to this Section 2.13, the Replacement Lender shall enter into one or more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans (or, in the case of the replacement of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment and outstanding Revolving Loans and participations in Letter of Credit Outstandings and/or (b) the outstanding Term Loans of any Tranche, the outstanding Term Loans of the respective Tranche or Tranches with respect to which such Replaced Lender is being replaced) of, and in each case (except for the replacement   -48- -------------------------------------------------------------------------------- of only the outstanding Term Loans of any or all Tranches of Term Loans of the respective Lender) all participations in Letters of Credit by, the respective Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the respective Replaced Lender under each Tranche with respect to which such Replaced Lender is being replaced, (B) an amount equal to all Unpaid Drawings (unless there are no Unpaid Drawings with respect to the Tranche being replaced) that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time, and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender (but only with respect to the relevant Tranche, in the case of the replacement of less than all Tranches of Loans then held by the respective Replaced Lender) pursuant to Section 4.01, (y) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Lender, each Issuing Lender an amount equal to such Replaced Lender’s RL Percentage of any Unpaid Drawing relating to Letters of Credit issued by such Issuing Lender (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender and (z) in the case of any replacement of Revolving Loan Commitments, the Swingline Lender an amount equal to such Replaced Lender’s RL Percentage of any Mandatory Borrowing to the extent such amount was not theretofore funded by such Replaced Lender to the Swingline Lender; and   (b) all obligations of the Borrower then owing to the Replaced Lender (other than those (i) specifically described in clause (a) above in respect of which the assignment purchase price has been, or is concurrently being, paid, but including all amounts, if any, owing under Section 2.11 or (ii) relating to any Tranche of Loans and/or Commitments of the respective Replaced Lender which will remain outstanding after giving effect to the respective replacement) shall be paid in full to such Replaced Lender concurrently with such replacement.   Upon receipt by the Replaced Lender of all amounts required to be paid to it pursuant to this Section 2.13, the Administrative Agent shall be entitled (but not obligated) and authorized to execute an Assignment and Assumption Agreement on behalf of such Replaced Lender, and any such Assignment and Assumption Agreement so executed by the Administrative Agent and the Replacement Lender shall be effective for purposes of this Section 2.13 and Section 13.04. Upon the execution of the respective Assignment and Assumption Agreement, the payment of amounts referred to in clauses (a) and (b) above, recordation of the assignment on the Register by the Administrative Agent pursuant to Section 13.15 and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the Borrower, (x) the Replacement Lender shall become a Lender hereunder and, unless the respective Replaced Lender continues to have outstanding Term Loans and/or a Revolving Loan Commitment hereunder, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 2.10, 2.11, 3.06, 5.04, 12.06, 13.01 and 13.06), which shall survive as to such Replaced Lender, and (y) except in the case of the replacement of only outstanding Term Loans pursuant to this Section 2.13, the RL Percentages of the Lenders shall be automatically adjusted at such time to give effect to such replacement.   -49- -------------------------------------------------------------------------------- 2.14 Incremental Term Loan Commitments. (a) So long as the Incremental Loan Commitment Request Requirements are satisfied at the time of the delivery of the request referred to below, the Borrower shall have the right, with the consent of, and in coordination with, the Administrative Agent as to all of the matters set forth below in this Section 2.14, but without requiring the consent of any of the Lenders, to request at any time and from time to time after the Restatement Effective Date and prior to the date which is 12 months prior to the B Term Loan Maturity Date, that one or more Lenders (and/or one or more other Persons which are Eligible Transferees and which will become Lenders) provide Incremental Term Loan Commitments to the Borrower and, subject to the terms and conditions contained in this Agreement and in the respective Incremental Term Loan Commitment Agreement, make Incremental Term Loans pursuant thereto; it being understood and agreed, however, that (i) no Lender shall be obligated to provide an Incremental Term Loan Commitment as a result of any such request by the Borrower, and until such time, if any, as such Lender has agreed in its sole discretion to provide an Incremental Term Loan Commitment and executed and delivered to the Administrative Agent and the Borrower an Incremental Term Loan Commitment Agreement as provided in clause (b) of this Section 2.14, such Lender shall not be obligated to fund any Incremental Term Loans, (ii) any Lender (including any Eligible Transferee who will become a Lender) may so provide an Incremental Term Loan Commitment without the consent of any other Lender, (iii) each Tranche of Incremental Term Loan Commitments shall be denominated in Dollars, (iv) the amount of each Tranche of Incremental Term Loan Commitments shall be in a minimum aggregate amount for all Lenders which provide an Incremental Term Loan Commitment under such Tranche of Incremental Term Loans (including Eligible Transferees who will become Lenders) of at least (I) $50,000,000 and in integral multiples of $5,000,000 in excess thereof, in the case of Incremental Term Loans to be made pursuant to a new Tranche of Incremental Term Loans, and (II) $25,000,000 and in integral multiples of $5,000,000 in excess thereof, in the case of Incremental Term Loans to be made pursuant to (and to constitute a part of) an existing Tranche of Incremental Term Loans or the outstanding Tranche of A Term Loans or B Term Loans as contemplated by the proviso in the first sentence of Section 2.14(c), (v) the aggregate amount of all Incremental Term Loan Commitments provided pursuant to this Section 2.14, when combined with the aggregate amount of all Incremental RL Commitments provided pursuant to Section 2.15, shall not exceed the Maximum Incremental Commitment Amount, (vi) the up-front fees and, if applicable, any unutilized commitment fees and/or other fees, payable to each Incremental Term Loan Lender in respect of each Incremental Term Loan Commitment shall be separately agreed to by the Borrower, the Administrative Agent and each such Incremental Term Loan Lender, (vii) each Tranche of Incremental Term Loans shall (I) have an Incremental Term Loan Maturity Date of no earlier than the A Term Loan Maturity Date, (II) have a Weighted Average Life to Maturity of no less than the Weighted Average Life to Maturity as then in effect for the A Term Loans and (III) be subject to the Applicable Margins as are set forth in the Incremental Term Loan Commitment Agreement governing such Tranche of Incremental Term Loans, provided that if there are B Term Loans outstanding on the date of the incurrence of such Tranche of Incremental Term Loans (immediately before giving effect thereto), the Applicable Margins for such Tranche of Incremental Term Loans (which, for such purposes only, shall be deemed to include all upfront or similar fees or original issue discount (amortized over the life of such Tranche of Incremental Term Loans) payable to all Incremental Term Loan Lenders providing such Tranche of Incremental Term Loans, but exclusive of any arrangement, structuring or other fees payable in connection therewith that are not shared with   -50- -------------------------------------------------------------------------------- all Incremental Term Loan Lenders providing such Tranche of Incremental Term Loans) determined as of the initial funding date for such Tranche of Incremental Term Loans may not exceed the Applicable Margins then applicable to B Term Loans (determined on the same basis as provided in the preceding parenthetical) by more than 0.50% per annum, (viii) the proceeds of all Incremental Term Loans shall be used only for the purposes permitted by Section 8.08(c), (ix) each Incremental Term Loan Commitment Agreement shall specifically designate the Tranche of the Incremental Term Loan Commitments being provided thereunder (which Tranche shall be a new Tranche (i.e., not the same as any existing Tranche of Incremental Term Loans or other Term Loans) unless the requirements of Section 2.14(c) are satisfied), (x) all Incremental Term Loans (and all interest, fees and other amounts payable thereon) shall be Obligations under this Agreement and the other applicable Credit Documents and shall be secured by the Pledge Agreement, and guaranteed under the Subsidiaries Guaranty, on a pari passu basis with all other Obligations secured by the Pledge Agreement and guaranteed under the Subsidiaries Guaranty, and (xi) each Lender (including any Eligible Transferee who will become a Lender) agreeing to provide an Incremental Term Loan Commitment pursuant to an Incremental Term Loan Commitment Agreement shall, subject to the satisfaction of the relevant conditions set forth in this Agreement, make Incremental Term Loans under the Tranche specified in such Incremental Term Loan Commitment Agreement as provided in Section 2.01(d) and such Loans shall thereafter be deemed to be Incremental Term Loans under such Tranche for all purposes of this Agreement and the other applicable Credit Documents.   (b) At the time of the provision of Incremental Term Loan Commitments pursuant to this Section 2.14, the Borrower, the Administrative Agent and each such Lender or other Eligible Transferee which agrees to provide an Incremental Term Loan Commitment (each, an “Incremental Term Loan Lender”) shall execute and deliver to the Administrative Agent an Incremental Term Loan Commitment Agreement, with the effectiveness of the Incremental Term Loan Commitment provided therein to occur on the date set forth in such Incremental Term Loan Commitment Agreement, which date in any event shall be no earlier than the date on which (w) all fees required to be paid in connection therewith at the time of such effectiveness shall have been paid (including, without limitation, any agreed upon up-front or arrangement fees owing to the Administrative Agent (or any affiliate thereof)), (x) all Incremental Loan Commitment Requirements are satisfied, (y) all other conditions set forth in this Section 2.14 shall have been satisfied, and (z) all other conditions precedent that may be set forth in such Incremental Term Loan Commitment Agreement shall have been satisfied. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental Term Loan Commitment Agreement, and at such time, (i) Schedule I shall be deemed modified to reflect the revised Incremental Term Loan Commitments of the affected Lenders and (ii) to the extent requested by any Incremental Term Loan Lender, Incremental Term Notes will be issued, at the Borrower’s expense, to such Incremental Term Loan Lender in conformity with the requirements of Section 2.05.   (c) Notwithstanding anything to the contrary contained above in this Section 2.14, the Incremental Term Loan Commitments provided by an Incremental Term Loan Lender or Incremental Term Loan Lenders, as the case may be, pursuant to each Incremental Term Loan Commitment Agreement shall constitute a new Tranche, which shall be separate and distinct from the existing Tranches pursuant to this Agreement (with a designation which may be made in letters (i.e., A, B, C, etc.), numbers (1, 2, 3, etc.) or a combination thereof (i.e., A-1, A-2, A-3,   -51- -------------------------------------------------------------------------------- B-1, B-2, B-3, C-1, C-2, C-3, etc.), provided that, with the consent of the Administrative Agent, the parties to a given Incremental Term Loan Commitment Agreement may specify therein that the respective Incremental Term Loans made pursuant thereto shall constitute part of, and be added to, an existing Tranche of Incremental Term Loans or the outstanding Tranche of A Term Loans or B Term Loans, in either case so long as the following requirements are satisfied:   (i) the Incremental Term Loans to be made pursuant to such Incremental Term Loan Commitment Agreement shall have the same Maturity Date and shall have the same Applicable Margins as the Tranche of Term Loans to which the new Incremental Term Loans are being added;   (ii) the new Incremental Term Loans shall have the same Scheduled Term Loan Repayment Dates as then remain with respect to the Tranche to which such new Incremental Term Loans are being added (with the amount of each Scheduled Term Loan Repayment applicable to such new Incremental Term Loans to be the same (on a proportionate basis) as is theretofore applicable to the Tranche to which such new Incremental Term Loans are being added, thereby increasing the amount of each then remaining Scheduled Term Loan Repayment of the respective Tranche proportionately; and   (iii) on the date of the making of such new Incremental Term Loans, and notwithstanding anything to the contrary set forth in Section 2.09, such new Incremental Term Loans shall be added to (and form part of) each Borrowing of outstanding Term Loans of the respective Tranche on a pro rata basis (based on the relative sizes of the various outstanding Borrowings), so that each Lender will participate proportionately in each then outstanding Borrowing of Term Loans of the respective Tranche.   To the extent the provisions of preceding clause (iii) require that Lenders making new Incremental Term Loans add such Incremental Term Loans to the then outstanding Borrowings of Eurodollar Loans of such Tranche, it is acknowledged that the effect thereof may result in such new Incremental Term Loans having short Interest Periods (i.e., an Interest Period that began during an Interest Period then applicable to outstanding Eurodollar Loans of such Tranche and which will end on the last day of such Interest Period). In connection therewith, the Borrower hereby agrees to compensate the Lenders making the new Incremental Term Loans of the respective Tranche for funding Eurodollar Loans during an existing Interest Period on such basis as may be agreed by the Borrower and the respective Lender or Lenders as may be provided in the respective Incremental Term Loan Commitment Agreement.   2.15 Incremental RL Commitments. (a) So long as the Incremental Loan Commitment Request Requirements are satisfied at the time of the delivery of the request referred to below, the Borrower shall have the right, with the consent of, and in coordination with, the Administrative Agent as to all of the matters set forth below in this Section 2.15, but without requiring the consent of any of the Lenders, to request at any time and from time to time after the Restatement Effective Date and prior to the date which is 12 months prior to the Revolving Loan Maturity Date, that one or more Lenders (and/or one or more other Persons which are Eligible Transferees and which will become Lenders as provided below) provide Incremental RL Commitments and, subject to the applicable terms and conditions contained in   -52- -------------------------------------------------------------------------------- this Agreement, make Revolving Loans pursuant thereto; it being understood and agreed, however, that (i) no Lender shall be obligated to provide an Incremental RL Commitment as a result of any such request by the Borrower, and until such time, if any, as such Lender has agreed in its sole discretion to provide an Incremental RL Commitment and executed and delivered to the Administrative Agent an Incremental RL Commitment Agreement in respect thereof as provided in clause (b) of this Section 2.15, such Lender shall not be obligated to fund any Revolving Loans in excess of its Revolving Loan Commitment as in effect prior to giving effect to such Incremental RL Commitment provided pursuant to this Section 2.15, (ii) any Lender (including any Eligible Transferee who will become a Lender) may so provide an Incremental RL Commitment without the consent of any other Lender, (iii) each provision of Incremental RL Commitments on a given date pursuant to this Section 2.15 shall be in a minimum aggregate amount (for all Lenders (including any Eligible Transferee who will become a Lender)) of at least $25,000,000 and in integral multiples of $5,000,000 in excess thereof, (iv) the aggregate amount of all Incremental RL Commitments provided pursuant to this Section 2.15, when combined with the aggregate amount of all Incremental Term Loan Commitments provided pursuant to Section 2.14, shall not exceed the Maximum Incremental Commitment Amount and (v) all Incremental Revolving Loans (and all interest, fees and other amounts payable thereon) shall be Obligations under this Agreement and the other applicable Credit Documents and shall be secured by the Pledge Agreement, and guaranteed under the Subsidiaries Guaranty, on a pari passu basis with all other Obligations secured by the Pledge Agreement and guaranteed under the Subsidiaries Guaranty.   (b) At the time of the provision of Incremental RL Commitments pursuant to this Section 2.15, the Borrower, the Administrative Agent and each such Lender or other Eligible Transferee which agrees to provide an Incremental RL Commitment (each, an “Incremental RL Lender”) shall execute and deliver to the Administrative Agent an Incremental RL Commitment Agreement, with the effectiveness of such Incremental RL Lender’s Incremental RL Commitment to occur on the date set forth in such Incremental RL Commitment Agreement, which date in any event shall be no earlier than the date on which (w) all fees required to be paid in connection therewith at the time of such effectiveness shall have been paid (including, without limitation, any agreed upon up-front or arrangement fees owing to the Administrative Agent (or any affiliate thereof)), (x) all Incremental Loan Commitment Requirements are satisfied, (y) all other conditions set forth in this Section 2.15 shall have been satisfied, and (z) all other conditions precedent that may be set forth in such Incremental RL Commitment Agreement shall have been satisfied. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental RL Commitment Agreement, and at such time, (i) the Total Revolving Loan Commitment under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Incremental RL Commitments, (ii) Schedule I shall be deemed modified to reflect the revised Revolving Loan Commitments of the affected Lenders and (iii) to the extent requested by any Incremental RL Lender, Revolving Notes will be issued, at the Borrowers’ expense, to such Incremental RL Lender in conformity with the requirements of Section 2.05.   (c) At the time of any provision of Incremental RL Commitments pursuant to this Section 2.15, the Borrower shall, in coordination with the Administrative Agent, repay outstanding Revolving Loans of certain of the RL Lenders, and incur additional Revolving Loans from certain other RL Lenders (including the Incremental RL Lenders), in each case to the extent   -53- -------------------------------------------------------------------------------- necessary so that all of the RL Lenders participate in each outstanding Borrowing of Revolving Loans pro rata on the basis of their respective Revolving Loan Commitments (after giving effect to any increase in the Total Revolving Loan Commitment pursuant to this Section 2.15) and with the Borrower being obligated to pay to the respective RL Lenders any costs of the type referred to in Section 2.11 in connection with any such repayment and/or Borrowing.   SECTION 3. Letters of Credit.   3.01 Letters of Credit. (a) Subject to and upon the terms and conditions set forth herein, the Borrower may request that an Issuing Lender issue, at any time and from time to time on and after the Restatement Effective Date and prior to the 30th day prior to the Revolving Loan Maturity Date, for the account of the Borrower and for the benefit of (x) any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Obligations, an irrevocable standby letter of credit, in a form customarily used by such Issuing Lender or in such other form as is reasonably acceptable to such Issuing Lender, and (y) sellers of goods to the Borrower or any of its Wholly-Owned Subsidiaries, an irrevocable trade letter of credit, in a form customarily used by such Issuing Lender or in such other form as has been approved by such Issuing Lender (which approval shall not be unreasonably withheld or delayed by such Issuing Lender) (each such letter of credit, a “Letter of Credit” and, collectively, the “Letters of Credit”). All Letters of Credit shall be denominated in Dollars and shall be issued on a sight basis only.   (b) Subject to and upon the terms and conditions set forth herein, each Issuing Lender agrees that it will, at any time and from time to time on and after the Restatement Effective Date and prior to the 30th day prior to the Revolving Loan Maturity Date, following its receipt of the respective Letter of Credit Request, issue for account of the Borrower, one or more Letters of Credit as are permitted to remain outstanding hereunder without giving rise to a Default or an Event of Default, provided that no Issuing Lender shall be under any obligation to issue any Letter of Credit of the types described above if at the time of such issuance:   (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Lender from issuing such Letter of Credit or any requirement of law applicable to such Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Lender shall prohibit, or request that such Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Lender with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Lender is not otherwise compensated hereunder) not in effect with respect to such Issuing Lender on the Restatement Effective Date, or any unreimbursed loss, cost or expense which was not applicable or in effect with respect to such Issuing Lender as of the Restatement Effective Date and which such Issuing Lender reasonably and in good faith deems material to it; or   (ii) such Issuing Lender shall have received from the Borrower, any other Credit Party or the Required Lenders prior to the issuance of such Letter of Credit notice of the type described in the second sentence of Section 3.03(b).   -54- -------------------------------------------------------------------------------- (c) Schedule III contains a description of letters of credit that were issued by an Issuing Lender for the account of the Borrower prior to the Restatement Effective Date and which remain outstanding on the Restatement Effective Date (and setting forth, with respect to each such letter of credit, (i) the name of the issuing lender, (ii) the letter of credit number, (iii) the name of the account party, (iv) the stated amount (which shall be in Dollars), (v) the name of the beneficiary, (vi) the expiry date and (vii) whether such letter of credit constitutes a standby letter of credit or a trade letter of credit). Each such letter of credit, including any extension or renewal thereof in accordance with the terms thereof and hereof (each, as amended from time to time in accordance with the terms thereof and hereof, an “Existing Letter of Credit”) shall constitute a “Letter of Credit” for all purposes of this Agreement and shall be deemed issued on the Restatement Effective Date.   3.02 Maximum Letter of Credit Outstandings; Final Maturities. Notwithstanding anything to the contrary contained in this Agreement, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time would exceed either (x) $50,000,000 or (y) when added to the sum of (I) the aggregate principal amount of all Revolving Loans then outstanding and (II) the aggregate principal amount of all Swingline Loans then outstanding, an amount equal to the Total Revolving Loan Commitment at such time, and (ii) each Letter of Credit shall by its terms terminate (x) in the case of standby Letters of Credit, on or before the earlier of (A) the date which occurs 12 months after the date of the issuance thereof (although any such standby Letter of Credit may be extendible for successive periods of up to 12 months, but, in each case, not beyond the tenth Business Day prior to the Revolving Loan Maturity Date, on terms acceptable to the respective Issuing Lender) and (B) ten Business Days prior to the Revolving Loan Maturity Date, and (y) in the case of trade Letters of Credit, on or before the earlier of (A) the date which occurs 180 days after the date of issuance thereof and (B) 30 days prior to the Revolving Loan Maturity Date.   3.03 Letter of Credit Requests; Minimum Stated Amount. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account, the Borrower shall give the Administrative Agent and the respective Issuing Lender at least five Business Days’ (or such shorter period as is acceptable to such Issuing Lender) written notice thereof (including by way of facsimile). Each notice shall be in the form of Exhibit C, appropriately completed (each, a “Letter of Credit Request”).   (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower to the Lenders that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 3.02. Unless the respective Issuing Lender has received notice from the Borrower, any other Credit Party or the Required Lenders before it issues a Letter of Credit that one or more of the conditions specified in Section 6 or 7 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 3.02, then such Issuing Lender shall, subject to the terms and conditions of this Agreement, issue the requested Letter of Credit for the account of the Borrower in accordance with such Issuing Lender’s usual and customary practices. Upon the issuance of or modification or amendment to any standby Letter of Credit, each Issuing Lender shall promptly notify the Borrower and the Administrative Agent, in writing of such issuance, modification or amendment   -55- -------------------------------------------------------------------------------- and such notice shall be accompanied by a copy of such Letter of Credit or the respective modification or amendment thereto, as the case may be. Promptly after receipt of such notice the Administrative Agent shall notify the Participants, in writing, of such issuance, modification or amendment. On the first Business Day of each week, each Issuing Lender shall furnish the Administrative Agent with a written (including via facsimile) report of the daily aggregate outstandings of trade Letters of Credit issued by such Issuing Lender for the immediately preceding week. Notwithstanding anything to the contrary contained in this Agreement, in the event that a Lender Default exists with respect to an RL Lender, no Issuing Lender shall be required to issue any Letter of Credit unless such Issuing Lender has entered into arrangements satisfactory to it and the Borrower to eliminate such Issuing Lender’s risk with respect to the participation in Letters of Credit by the Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender’s or Lenders’ RL Percentage of the Letter of Credit Outstandings.   (c) The initial Stated Amount of each Letter of Credit shall not be less than $100,000 or such lesser amount as is acceptable to the respective Issuing Lender.   3.04 Letter of Credit Participations. (a) Immediately upon the issuance by an Issuing Lender of any Letter of Credit, such Issuing Lender shall be deemed to have sold and transferred to each RL Lender, and each such RL Lender (in its capacity under this Section 3.04, a “Participant”) shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Lender, without recourse or warranty, an undivided interest and participation, to the extent of such Participant’s RL Percentage, in such Letter of Credit, each drawing or payment made thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments or RL Percentages of the Lenders pursuant to Section 2.13, 2.15, 4.02(b) or 13.04(b), it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings relating thereto, there shall be an automatic adjustment to the participations pursuant to this Section 3.04 to reflect the new RL Percentages of the assignor and assignee Lender, as the case may be.   (b) In determining whether to pay under any Letter of Credit, no Issuing Lender shall have any obligation relative to the other Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by an Issuing Lender under or in connection with any Letter of Credit issued by it shall not create for such Issuing Lender any resulting liability to the Borrower, any other Credit Party, any Lender or any other Person unless such action is taken or omitted to be taken with gross negligence or willful misconduct on the part of such Issuing Lender (as determined by a court of competent jurisdiction in a final and non-appealable decision).   (c) In the event that an Issuing Lender makes any payment under any Letter of Credit issued by it and the Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 3.05(a), such Issuing Lender shall promptly notify the Administrative Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Lender the amount of such Participant’s RL Percentage of such unreimbursed payment in Dollars and in same day funds. If   -56- -------------------------------------------------------------------------------- the Administrative Agent so notifies, prior to 12:00 Noon (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to the respective Issuing Lender in Dollars such Participant’s RL Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its RL Percentage of the amount of such payment available to respective Issuing Lender, such Participant agrees to pay to such Issuing Lender, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Lender at the overnight Federal Funds Rate for the first three days and at the interest rate applicable to Revolving Loans that are maintained as Base Rate Loans for each day thereafter. The failure of any Participant to make available to an Issuing Lender its RL Percentage of any payment under any Letter of Credit issued by such Issuing Lender shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Lender its RL Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Lender such other Participant’s RL Percentage of any such payment.   (d) Whenever an Issuing Lender receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Lender shall pay to each such Participant which has paid its RL Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant’s share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations.   (e) Upon the request of any Participant, each Issuing Lender shall furnish to such Participant copies of any standby Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant.   (f) The obligations of the Participants to make payments to each Issuing Lender with respect to Letters of Credit shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances:   (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents;   (ii) the existence of any claim, setoff, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any Subsidiary of the Borrower and the beneficiary named in any such Letter of Credit);   -57- -------------------------------------------------------------------------------- (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;   (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or   (v) the occurrence of any Default or Event of Default.   3.05 Agreement to Repay Letter of Credit Drawings. (a) The Borrower agrees to reimburse each Issuing Lender, by making payment to the Administrative Agent in immediately available funds at the Payment Office, for any payment or disbursement made by such Issuing Lender under any Letter of Credit issued by it (each such amount, so paid until reimbursed by the Borrower, an “Unpaid Drawing”), not later than one Business Day following receipt by the Borrower of notice of such payment or disbursement (provided that no such notice shall be required to be given if a Default or an Event of Default under Section 11.05 shall have occurred and be continuing, in which case the Unpaid Drawing shall be due and payable immediately without presentment, demand, protest or notice of any kind (all of which are hereby waived by the Borrower)), with interest on the amount so paid or disbursed by such Issuing Lender, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Lender was reimbursed by the Borrower therefor at a rate per annum equal to the Base Rate as in effect from time to time plus the Applicable Margin as in effect from time to time for Revolving Loans that are maintained as Base Rate Loans; provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the third Business Day following the receipt by the Borrower of notice of such payment or disbursement or following the occurrence of a Default or an Event of Default under Section 11.05, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Lender (and until reimbursed by the Borrower) at a rate per annum equal to the Base Rate as in effect from time to time plus the Applicable Margin for Revolving Loans that are maintained as Base Rate Loans as in effect from time to time plus 2%, with such interest to be payable on demand. Each Issuing Lender shall give the Borrower prompt written notice of each Drawing under any Letter of Credit issued by it, provided that the failure to give any such notice shall in no way affect, impair or diminish the Borrower’s obligations hereunder.   (b) The obligations of the Borrower under this Section 3.05 to reimburse each Issuing Lender with respect to drafts, demands and other presentations for payment under Letters of Credit issued by it (each, a “Drawing”) (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or any Subsidiary of the Borrower may have or have had against any Lender (including in its capacity as an Issuing Lender or as a Participant), including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to conform to the terms of the Letter of Credit or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing; provided, however, that the Borrower shall not be obligated to reimburse any Issuing Lender for any wrongful payment made by such Issuing Lender under a Letter of Credit issued by it as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Issuing Lender (as determined by a court of competent jurisdiction in a final and non-appealable decision).   -58- -------------------------------------------------------------------------------- 3.06 Increased Costs. If at any time after the Restatement Effective Date, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by the NAIC or any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Lender or any Participant with any request or directive by the NAIC or by any such governmental authority (whether or not having the force of law), shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Lender or participated in by any Participant, or (ii) impose on any Issuing Lender or any Participant any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Issuing Lender or any Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Lender or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Issuing Lender or such Participant pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), then, upon the delivery of the certificate referred to below to the Borrower by any Issuing Lender or any Participant (a copy of which certificate shall be sent by such Issuing Lender or such Participant to the Administrative Agent), the Borrower agrees to pay to such Issuing Lender or such Participant such additional amount or amounts as will compensate such Issuing Lender or such Participant for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Any Issuing Lender or any Participant, upon determining that any additional amounts will be payable to it pursuant to this Section 3.06, will give prompt written notice thereof to the Borrower, which notice shall include a certificate submitted to the Borrower by such Issuing Lender or such Participant (a copy of which certificate shall be sent by such Issuing Lender or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or amounts necessary to compensate such Issuing Lender or such Participant. The certificate required to be delivered pursuant to this Section 3.06 shall, absent manifest error, be final and conclusive and binding on the Borrower.   SECTION 4. Commitment Commission; Fees; Reductions of Commitment.   4.01 Fees. (a) The Borrower agrees to pay to the Administrative Agent for distribution to each Non-Defaulting RL Lender a commitment commission (the “Commitment Commission”) for the period from and including the Restatement Effective Date to and including the Revolving Loan Maturity Date (or such earlier date on which the Total Revolving Loan Commitment has been terminated) computed at a rate per annum equal to the Applicable Commitment Commission Percentage as in effect from time to time of the Unutilized Revolving Loan Commitment of such Non-Defaulting RL Lender as in effect from time to time. Accrued Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the date upon which the Total Revolving Loan Commitment is terminated.   (b) The Borrower agrees to pay to the Administrative Agent for distribution to each RL Lender (based on each such RL Lender’s respective RL Percentage) a fee in respect of   -59- -------------------------------------------------------------------------------- each Letter of Credit (the “Letter of Credit Fee”) for the period from and including the date of issuance of such Letter of Credit to and including the date of termination or expiration of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin as in effect from time to time during such period with respect to Revolving Loans that are maintained as Eurodollar Loans on the daily Stated Amount of each such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding.   (c) The Borrower agrees to pay to each Issuing Lender, for its own account, a facing fee in respect of each Letter of Credit issued by it (the “Facing Fee”) for the period from and including the date of issuance of such Letter of Credit to and including the date of termination or expiration of such Letter of Credit, computed at a rate per annum equal to 1/8 of 1% on the daily Stated Amount of such Letter of Credit, provided that in any event the minimum amount of Facing Fees payable in any twelve-month period for each Letter of Credit shall be not less than $500, it being agreed that, on the day of issuance of any Letter of Credit and on each anniversary thereof prior to the termination or expiration of such Letter of Credit, if $500 will exceed the amount of Facing Fees that will accrue with respect to such Letter of Credit for the immediately succeeding twelve-month period, the full $500 shall be payable on the date of issuance of such Letter of Credit and on each such anniversary thereof. Except as otherwise provided in the proviso to the immediately preceding sentence, accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding.   (d) The Borrower agrees to pay to each Issuing Lender, for its own account, upon each payment under, issuance of, or amendment to, any Letter of Credit issued by it, such amount as shall at the time of such event be the administrative charge and the reasonable expenses which such Issuing Lender is generally imposing in connection with such occurrence with respect to letters of credit.   (e) The Borrower agrees to pay to each Agent such fees as may be agreed to in writing from time to time by the Borrower or any of its Subsidiaries and the Administrative Agent.   4.02 Voluntary Termination of Unutilized Revolving Loan Commitments. (a) Upon at least three Business Day’s prior written notice to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, at any time or from time to time, without premium or penalty to terminate the Total Unutilized Revolving Loan Commitment in whole, or reduce it in part, pursuant to this Section 4.02(a), in an integral multiple of $5,000,000 in the case of partial reductions to the Total Unutilized Revolving Loan Commitment, provided that each such reduction shall apply proportionately to permanently reduce the Revolving Loan Commitment of each RL Lender.   (b) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been   -60- -------------------------------------------------------------------------------- approved by the Required Lenders as (and to the extent) provided in Section 13.12(b), the Borrower shall have the right, subject to obtaining the consents required by Section 13.12(b), upon five Business Days’ prior written notice to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), to terminate the entire Revolving Loan Commitment of such Lender, so long as all Loans, together with accrued and unpaid interest, Fees and all other amounts, owing to such Lender (including all amounts, if any, owing pursuant to Section 2.11 but excluding amounts owing in respect of Loans of any Tranche maintained by such Lender, if such Loans are not being repaid pursuant to Section 5.01(b)) are repaid concurrently with the effectiveness of such termination (at which time Schedule I shall be deemed modified to reflect such changed amounts) and such Lender’s RL Percentage of (x) all outstanding Letters of Credit is cash collateralized in a manner satisfactory to the Administrative Agent and the respective Issuing Lenders and (y) all Mandatory Borrowings not theretofore funded by such Lender are paid in full to the Swingline Lender, and at such time, unless the respective Lender continues to have outstanding Term Loans hereunder, such Lender shall no longer constitute a “Lender” for purposes of this Agreement with respect to the Revolving Loan Commitment of such Lender so terminated, except with respect to indemnifications under this Agreement (including, without limitation, Sections 2.10, 2.11, 3.06, 5.04, 12.06, 13.01 and 13.06), which shall survive as to such repaid Lender (but only in respect of the period of time during which such repaid Lender was a Lender hereunder).   4.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and the Commitment of each Lender) shall terminate in its entirety on December 30, 2005, unless the Restatement Effective Date has occurred on or prior to such date and in the event of such termination, this Agreement shall cease to be of any force or effect and the Original Credit Agreement shall continue to be effective, as the same may have been, or may thereafter be, amended, modified or supplemented from time to time.   (b) In addition to any other mandatory commitment reductions pursuant to this Section 4.03, the Total A Term Loan Commitment (and the A Term Loan Commitment of each Lender) shall terminate in its entirety on the Restatement Effective Date (after giving effect to the incurrence of A Term Loans on such date).   (c) In addition to any other mandatory commitment reductions pursuant to this Section 4.03, the Total B Term Loan Commitment (and the B Term Loan Commitment of each Lender) shall terminate in its entirety on the Restatement Effective Date (after giving effect to the incurrence of B Term Loans on such date).   (d) In addition to any other mandatory commitment reductions pursuant to this Section 4.03, the Total Incremental Term Loan Commitment under a given Tranche (and the Incremental Term Loan Commitment of each Lender in respect of such Tranche) shall terminate in its entirety on the Incremental Term Loan Borrowing Date for such Tranche of Incremental Term Loans (after giving effect to the incurrence of Incremental Term Loans of such Tranche on such date).   (e) In addition to any other mandatory commitment reductions pursuant to this Section 4.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each RL Lender) shall terminate in its entirety upon the earlier of (i) the Revolving Loan Maturity Date and (ii) unless the Required Lenders otherwise agree in writing, the date on which a Change of Control occurs.   -61- -------------------------------------------------------------------------------- SECTION 5. Prepayments; Payments; Taxes.   5.01 Voluntary Prepayments. (a) The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) the Borrower shall give the Administrative Agent prior to 12:00 Noon (New York time) at the Notice Office (x) at least one Business Day’s prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Base Rate Loans (or same day notice in the case of a prepayment of Swingline Loans) and (y) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Eurodollar Loans, which notice (in each case) shall specify whether A Term Loans, B Term Loans, Incremental Term Loans under a given Tranche, Revolving Loans or Swingline Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which such Eurodollar Loans were made, and which notice the Administrative Agent shall, except in the case of a prepayment of Swingline Loans, promptly transmit to each of the Lenders; (ii) (x) each partial prepayment of Term Loans pursuant to this Section 5.01(a) shall be in an aggregate principal amount of at least $5,000,000 (or such lesser amount as is acceptable to the Administrative Agent), (y) each partial prepayment of Revolving Loans pursuant to this Section 5.01(a) shall be in an aggregate principal amount of at least $1,000,000 (or such lesser amount as is acceptable to the Administrative Agent) and (z) each partial prepayment of Swingline Loans pursuant to this Section 5.01(a) shall be in an aggregate principal amount of at least $300,000 (or such lesser amount as is acceptable to the Administrative Agent), provided that if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding principal amount of Eurodollar Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar Loans (and same shall automatically be converted into a Borrowing of Base Rate Loans) and any election of an Interest Period with respect thereto given by the Borrower shall have no force or effect; (iii) each prepayment pursuant to this Section 5.01(a) in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans, provided that at the Borrower’s election in connection with any prepayment of Revolving Loans pursuant to this Section 5.01(a), such prepayment shall not, so long as no Default or Event of Default then exists, be applied to any Revolving Loan of a Defaulting Lender; (iv) each voluntary prepayment in respect of any Tranche of Term Loans made pursuant to this Section 5.01(a) shall be allocated among each of the outstanding Tranches of Term Loans on a pro rata basis, with each Tranche of Term Loans to be allocated its Term Loan Percentage of the amount of such prepayment, provided, however, so long as no Default or Event of Default then exists or would result therefrom, the Borrower may, at its option, direct that any voluntary prepayment of Term Loans pursuant to this Section 5.01(a) be applied (in which case it shall be applied) solely to the outstanding Term Loans of the Tranche or Tranches specified in such notice of prepayment (and in the respective amounts so specified) (although if the Borrower fails to specify how such amounts are to be applied, such amounts shall be applied as provided above in this sub-clause (iv) without regard to this proviso); and (v) each voluntary prepayment of any Tranche of Term Loans pursuant to this Section 5.01(a) shall be applied to reduce the then remaining Scheduled Term Loan Repayments of such Tranche of Term Loans on a pro rata basis   -62- -------------------------------------------------------------------------------- (based upon the then remaining principal amount of each such Scheduled Term Loan Repayment of the respective Tranche after giving effect to all prior reductions thereto), provided, however, the Borrower may, at its option, direct that any voluntary prepayment of any Tranche of Term Loans pursuant to this Section 5.01(a) be applied (in which case it shall be applied) (1) first, to reduce in direct order of maturity the Scheduled Term Loan Repayments of such Tranche of Term Loans which are due and payable within 12 months from the date of such prepayment, and (2) second, to the extent in excess of the amounts required to be applied in respect of such Tranche of Term Loans pursuant to preceding sub-clause (1), as otherwise provided above in this clause (v) with respect to such Tranche without regard to this proviso.   (b) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as (and to the extent) provided in Section 13.12(b), the Borrower may, upon five Business Days’ prior written notice to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), repay all Loans of such Lender (including all amounts, if any, owing pursuant to Section 2.11), together with accrued and unpaid interest, Fees and all other amounts then owing to such Lender (or owing to such Lender with respect to each Tranche which gave rise to the need to obtain such Lender’s individual consent) in accordance with, and subject to the requirements of, said Section 13.12(b), so long as (A) in the case of the repayment of Revolving Loans of any Lender pursuant to this clause (b), (x) the Revolving Loan Commitment of such Lender is terminated concurrently with such repayment pursuant to Section 4.02(b) (at which time Schedule I shall be deemed modified to reflect the changed Revolving Loan Commitments) and (y) such Lender’s RL Percentage of all outstanding Letters of Credit is cash collateralized in a manner satisfactory to the Administrative Agent and the respective Issuing Lenders and (B) the consents, if any, required by Section 13.12(b) in connection with the repayment pursuant to this clause (b) shall have been obtained. Each prepayment of any Tranche of Term Loans pursuant to this Section 5.01(b) shall be applied to reduce the then remaining Scheduled Term Loan Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amount of each such Scheduled Term Loan Repayment of such Tranche after giving effect to all prior reductions thereto).   5.02 Mandatory Repayments. (a) On any day on which the sum of (I) the aggregate outstanding principal amount of all Revolving Loans (after giving effect to all other repayments thereof on such date), (II) the aggregate outstanding principal amount of all Swingline Loans (after giving effect to all other repayments thereof on such date) and (III) the aggregate amount of all Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment at such time, the Borrower shall prepay on such day the principal of Swingline Loans and, after all Swingline Loans have been repaid in full or if no Swingline Loans are outstanding, Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans, the aggregate amount of the Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment at such time, the Borrower shall pay to the Administrative Agent at the Payment Office on such day an amount of cash and/or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash and/or Cash Equivalents to be held as security for all Obligations of the Borrower to the Issuing Lenders and the Lenders hereunder in a cash collateral account to be established by the Administrative Agent.   -63- -------------------------------------------------------------------------------- (b) (i) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date set forth below (each, a “Scheduled A Term Loan Repayment Date”), the Borrower shall be required to repay that principal amount of A Term Loans, to the extent then outstanding, as is set forth opposite each such date below (each such repayment, as the same may be (x) reduced as provided in Section 5.01(a), 5.01(b) or 5.02(g) or (y) increased as provided in Section 2.14(c), a “Scheduled A Term Loan Repayment”):   Scheduled A Term Loan Repayment Date --------------------------------------------------------------------------------    Amount -------------------------------------------------------------------------------- The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2006    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2006    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2007    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2007    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2007    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2007    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2008    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2008    $ 11,875,000 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2008    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2008    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2009    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2009    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2009    $ 35,625,000   -64- -------------------------------------------------------------------------------- Scheduled A Term Loan Repayment Date --------------------------------------------------------------------------------    Amount -------------------------------------------------------------------------------- The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2009    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2010    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2010    $ 35,625,000 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2010    $ 59,375,000 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2010    $ 59,375,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2011    $ 59,375,000 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2011    $ 59,375,000 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2011    $ 83,125,000 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2011    $ 83,125,000 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2012    $ 83,125,000 A Term Loan Maturity Date    $ 83,125,000   (ii) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date set forth below (each, a “Scheduled B Term Loan Repayment Date”), the Borrower shall be required to repay that principal amount of B Term Loans, to the extent then outstanding, as is set forth opposite each such date below (each such repayment, as the same may be (x) reduced as provided in Section 5.01(a), 5.01(b) or 5.02(g) or (y) increased as provided in Section 2.14(c), a “Scheduled B Term Loan Repayment”):   -65- -------------------------------------------------------------------------------- Scheduled B Term Loan Repayment Date --------------------------------------------------------------------------------    Amount -------------------------------------------------------------------------------- The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2006    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2006    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2006    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2006    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2007    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2007    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2007    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2007    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2008    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2008    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2008    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2008    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2009    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2009    $ 87,500   -66- -------------------------------------------------------------------------------- Scheduled B Term Loan Repayment Date --------------------------------------------------------------------------------    Amount -------------------------------------------------------------------------------- The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2009    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2009    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2010    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2010    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2010    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2010    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2011    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to June 30, 2011    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to September 30, 2011    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to December 31, 2011    $ 87,500 The last Business Day of the Borrower’s fiscal quarter ending closest to March 31, 2012    $ 87,500 B Term Loan Maturity Date    $ 32,812,500   (iii) In addition to any other mandatory repayments pursuant to this Section 5.02, the Borrower shall be required to make, with respect to each Tranche of Incremental Term Loans, to the extent then outstanding, scheduled amortization payments of such Tranche of Incremental Term Loans on the dates and in the principal amounts set forth in the respective Incremental Term Loan Commitment Agreement (each such date, a “Scheduled Incremental Term Loan Repayment Date”, and each such repayment, as the same may be (x) reduced as provided in Section 5.01(a), 5.01(b) or 5.02(g) or (y) increased as provided in Section 2.14(c), a “Scheduled Incremental Term Loan Repayment”).   -67- -------------------------------------------------------------------------------- (c) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date on or after the Restatement Effective Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any issuance or incurrence by the Borrower or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred pursuant to Section 10.04 as in effect on the Restatement Effective Date), an amount equal to 100% of the Net Cash Proceeds of the respective issuance or incurrence of Indebtedness shall be applied on such date as a mandatory repayment in accordance with the requirements of Sections 5.02(g) and (h).   (d) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date on or after the Restatement Effective Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any Asset Sale, an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied on such date as a mandatory repayment in accordance with the requirements of Sections 5.02(g) and (h); provided, however, such Net Sale Proceeds shall not be required to be so applied on such date so long as no Default or Event of Default then exists and such Net Sale Proceeds shall be used to purchase assets (other than inventory and working capital) used or to be used in the businesses permitted pursuant to Section 10.13 within 360 days following the date of such Asset Sale, and provided further, that if all or any portion of such Net Sale Proceeds are not so reinvested within such 360-day period (or such earlier date, if any, as the Borrower or the relevant Subsidiary determines not to reinvest the Net Sale Proceeds from such Asset Sale as set forth above), such remaining portion shall be applied on the last day of such period (or such earlier date, as the case may be) as provided above in this Section 5.02(d) without regard to the preceding proviso.   (e) In addition to any other mandatory repayments pursuant to this Section 5.02, on each Excess Cash Flow Payment Date, an amount equal to the Applicable Excess Cash Flow Recapture Percentage of the Excess Cash Flow for the related Excess Cash Flow Payment Period shall be applied as a mandatory repayment in accordance with the requirements of Sections 5.02(g) and (h).   (f) In addition to any other mandatory repayments pursuant to this Section 5.02, within 10 days following each date on or after the Restatement Effective Date and prior to the Security Release Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any Recovery Event (other than Recovery Events where the Net Cash Proceeds therefrom do not exceed $500,000), an amount equal to 100% of the Net Cash Proceeds from such Recovery Event shall be applied within such 10 day period as a mandatory repayment in accordance with the requirements of Sections 5.02(g) and (h); provided, however, that so long as no Default or Event of Default then exists, such Net Cash Proceeds shall not be required to be so applied within such 10 day period to the extent that such Net Cash Proceeds shall be used to replace or restore any properties or assets in respect of which such Net Cash Proceeds were paid within 360 days following the date of the receipt of such Net Cash Proceeds, and provided further, that (x) so long as no Default or Event of Default then exists and to the extent that the amount of such Net Cash Proceeds equals or exceeds $25,000,000, the amount of such Net Cash Proceeds, together with other cash available to the Borrower and its Subsidiaries and permitted to be spent by them on Capital Expenditures during the relevant period, equals at least 100% of the cost of replacement or restoration of the properties or assets in respect of which such Net Cash Proceeds were paid as determined by the Borrower and as supported by such information   -68- -------------------------------------------------------------------------------- as the Administrative Agent may reasonably request, then the entire amount of the Net Cash Proceeds from such Recovery Event (and not just the portion thereof in excess of $25,000,000) shall be deposited with the Administrative Agent pursuant to a cash collateral arrangement reasonably satisfactory to the Administrative Agent whereby such proceeds shall be disbursed to the Borrower from time to time as needed to pay or reimburse the Borrower or such Subsidiary for the actual costs incurred by it in connection with the replacement or restoration of the respective properties or assets (pursuant to such certification requirements as may be reasonably established by the Administrative Agent), although at any time while an Event of Default has occurred and is continuing, the Required Lenders may direct the Administrative Agent (in which case the Administrative Agent shall, and is hereby authorized by the Borrower to, follow said directions) to apply any or all proceeds then on deposit in such collateral account in accordance with the requirements of Sections 5.02(g) and (h) and (y) if all or any portion of such Net Cash Proceeds not required to be so applied pursuant to the preceding proviso are not so used within 360 days after the date of the receipt of such Net Cash Proceeds (or such earlier date, if any, as the Borrower or the relevant Subsidiary determines not to reinvest the Net Cash Proceeds relating to such Recovery Event as set forth above), such remaining portion shall be applied on the last day of such period (or such earlier date, as the case may be) as provided above in this Section 5.02(f) without regard to the preceding proviso.   (g) (I) Each amount required to be applied pursuant to Sections 5.02(c), (d), (e) and (f) in accordance with this Section 5.02(g) shall be applied to repay principal of outstanding Term Loans and shall be allocated among each Tranche of outstanding Term Loans on a pro rata basis, with each Tranche of Term Loans to be allocated its Term Loan Percentage of the amount of the respective repayment; provided, however, so long as no Default or Event of Default then exists or would result therefrom, the Borrower may apply each such amount (i) first, to repay outstanding B Term Loans and (ii) second, to the extent in excess thereof, as provided above in this Section 5.02(g)(I) without regard to this proviso.   (II) The amount of each principal repayment of each Tranche of Term Loans pursuant to this Section 5.02(g) shall be applied to reduce the then remaining Scheduled Term Loan Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amount of each such Scheduled Term Loan Repayment of the respective Tranche after giving effect to all prior reductions thereto), provided, however, (x) the Borrower may, at its option, direct that any such mandatory repayment of any Tranche of Term Loans pursuant to this Section 5.02(g) be applied (in which case it shall be applied) (i) first, to reduce in direct order of maturity the Scheduled Term Loan Repayments of such Tranche of Term Loans which are due and payable within 12 months from the date of such repayment, and (ii) second, to the extent in excess of the amounts required to be applied in respect of such Tranche of Term Loans pursuant to preceding sub-clause (i), as otherwise provided above in this clause (II) with respect to such Tranche without regard to this proviso, and (y) any mandatory repayment pursuant to this Section 5.02(g) at a time when an Event of Default exists shall be applied to reduce the then remaining Scheduled Term Loan Repayments of each Tranche of Term Loans in inverse order of maturity.   (h) With respect to each repayment of Loans required by this Section 5.02, the Borrower may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the respective   -69- -------------------------------------------------------------------------------- Tranche pursuant to which such Eurodollar Loans were made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 5.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto, such Borrowing shall be automatically converted into a Borrowing of Base Rate Loans; and (iii) each repayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion.   (i) In addition to any other mandatory repayments pursuant to this Section 5.02, (i) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date, (ii) all other then outstanding Loans shall be repaid in full on the respective Maturity Date for such Tranche of Loans and (iii) unless the Required Lenders otherwise agree in writing, all then outstanding Loans shall be repaid in full on the date on which a Change of Control occurs.   5.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement and under any Note shall be made to the Administrative Agent for the account of the Lender or Lenders entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension.   5.04 Net Payments. (a) All payments made by the Borrower hereunder and under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 5.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as “Taxes”). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the   -70- -------------------------------------------------------------------------------- principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by such Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender (other than for any interest or penalties directly attributable to any failure of a Lender to file any returns or pay any Taxes directly attributable to this Agreement, to the extent such Lender was legally required to file such returns and/or pay such Taxes and was reasonably informed by the Borrower about such requirements and had all information necessary to file such returns and/or pay such Taxes).   (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Borrower and the Administrative Agent on or prior to the Restatement Effective Date or, in the case of a Lender that is an assignee, transferee or acquiror of an interest under this Agreement pursuant to Section 2.13, 2.14, 2.15 or 13.04(b) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment, transfer or acquisition), on the date of such assignment, transfer or acquisition to or by such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or any successor forms) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a “Section 5.04(b)(ii) Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, such Lender will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 5.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or such Lender shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 5.04(b).   -71- -------------------------------------------------------------------------------- Notwithstanding anything to the contrary contained in Section 5.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 5.04(a) to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 5.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 5.04 and except as set forth in Section 13.04(b), the Borrower agrees to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 5.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes that are effective after the Restatement Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes.   SECTION 6. Conditions Precedent to the Restatement Effective Date.   The occurrence of the Restatement Effective Date pursuant to Section 13.10 and the obligation of each Lender to make Loans, and the obligation of each Issuing Lender to issue Letters of Credit, on the Restatement Effective Date, are subject at the time of the occurrence of the Restatement Effective Date to the satisfaction of the following conditions:   6.01 Execution of Agreement; Notes. On or prior to the Restatement Effective Date, (i) this Agreement shall have been executed and delivered as provided in Section 13.10 and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Lenders that has requested same the appropriate A Term Note, B Term Note and/or Revolving Note executed by the Borrower and, if requested by the Swingline Lender, the Swingline Note executed by the Borrower, in each case in the amount, maturity and as otherwise provided herein.   6.02 Officer’s Certificate. On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date and signed on behalf of the Borrower by the chairman of the board, the chief executive officer, the president or any vice president of the Borrower, certifying on behalf of the Borrower that all of the conditions in Sections 6.06 through 6.08, inclusive, and 7.01 have been satisfied on such date.   6.03 Opinions of Counsel. On the Restatement Effective Date, the Administrative Agent shall have received (i) from Lane & Waterman LLP, special counsel to the   -72- -------------------------------------------------------------------------------- Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Restatement Effective Date covering the matters set forth in Exhibit E-1 and such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request, (ii) from Gardner Carton & Douglas LLP, special counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Restatement Effective Date covering the matters set forth in Exhibit E-2 and such matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request, and (iii) from local counsel in each state in which a Subsidiary Guarantor (other than Target Marketing Systems, Inc. and K. Falls Basin Publishing, Inc., but only to the extent that such entities are non-operating entities and have no material assets or liabilities) is organized, an opinion in form and substance reasonably satisfactory to the Agents addressed to the Administrative Agent, the Collateral Agent and each of the Lenders, dated the Restatement Effective Date and covering such matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request.   6.04 Company Documents; Proceedings; etc. (a) On the Restatement Effective Date, the Administrative Agent shall have received a certificate from each Credit Party, dated the Restatement Effective Date, signed by the chairman of the board, the chief executive officer, the president or any vice president of such Credit Party, and attested to by the secretary or any assistant secretary of such Credit Party, in the form of Exhibit F with appropriate insertions, together with copies of the certificate or articles of incorporation and by-laws (or other equivalent organizational documents), as applicable, of such Credit Party and the resolutions of such Credit Party referred to in such certificate, and each of the foregoing shall be in form and substance reasonably acceptable to the Administrative Agent.   (b) On the Restatement Effective Date, all Company and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Agents, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of Company proceedings, governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper Company or governmental authorities.   6.05 Shareholders’ Agreements; Tax Sharing Agreements; Existing Indebtedness Agreements. On or prior to the Restatement Effective Date, there shall have been delivered to the Administrative Agent true and correct copies of the following documents, certified as such by an Authorized Officer of the Borrower (except to the extent that any such documents have been delivered to the Administrative Agent pursuant to Section 6.05 of the Original Credit Agreement and have not been amended or modified since, or no new documents have been entered into since, the Original Effective Date):   (i) all agreements entered into by the Borrower or any of its Subsidiaries governing the terms and relative rights of its Equity Interests and any agreements entered into by its shareholders relating to any such entity with respect to its Equity Interests (collectively, the “Shareholders’ Agreements”);   -73- -------------------------------------------------------------------------------- (ii) all tax sharing, tax allocation and other similar agreements entered into by the Borrower or any of its Subsidiaries (collectively, the “Tax Sharing Agreements”); and   (iii) all agreements evidencing or relating to Indebtedness of the Borrower or any of its Subsidiaries which is to remain outstanding after giving effect to the Restatement Effective Date (collectively, the “Existing Indebtedness Agreements”), although the Borrower shall not be required to deliver a copy of any Existing Indebtedness Agreement to the extent that same relates to an item of Indebtedness (including unused commitments in respect thereof) of less than $5,000,000.   6.06 The Original Credit Agreement. On the Restatement Effective Date and concurrently with the initial incurrence of Loans hereunder, (i) the total commitments in respect of the Indebtedness under the Original Credit Agreement shall be terminated, all outstanding Original Loans thereunder shall have been repaid in full in cash, together with accrued but unpaid interest thereon, and all letters of credit issued thereunder shall have been incorporated hereunder as Existing Letters of Credit pursuant to Section 3.01(c), provided that, at the request of the Administrative Agent, any Continuing Lender may net fund any A Term Loans, B Term Loans and/or Revolving Loans required to be made by it on the Restatement Effective Date, as the case may be, by permitting the principal amount of the Original Term Loans or Original Revolving Loans, as applicable, made by such Continuing Lender to remain outstanding on the Restatement Effective Date to satisfy such Continuing Lender’s obligation to fund a like principal amount of A Term Loans, B Term Loans and/or Revolving Loans to be incurred hereunder by the Borrower on the Restatement Effective Date, and for purposes of this Section 6.06 only such outstanding principal amount shall be deemed outstanding under this Agreement and such corresponding Original Loans shall be deemed to have been so repaid in full, and (ii) there shall have been paid in cash in full all accrued but unpaid Fees under, and as defined in, the Original Credit Agreement (including, without limitation, commitment fees, letter of credit fees and facing fees) due through the Restatement Effective Date and all other amounts, costs and expenses (including, without limitation, breakage costs, if any, with respect to eurodollar rate loans and all legal fees and expenses) then owing to any of the Original Lenders and/or the Administrative Agent, as agent under the Original Credit Agreement, in each case to the satisfaction of the Administrative Agent or the Original Lenders, as the case may be, regardless of whether or not such amounts would otherwise be due and payable at such time pursuant to the terms of the Original Credit Agreement, and (iii) all outstanding Notes (as defined in the Original Credit Agreement) issued by the Borrower to the Original Lenders under the Original Credit Agreement shall be deemed cancelled.   6.07 Adverse Change, Approvals. Since September 30, 2004, nothing shall have occurred (and neither any Agent nor the Required Lenders shall have become aware of any facts or conditions not previously known) which any Agent or the Required Lenders shall reasonably determine has had, or could reasonably be expected to have, a Material Adverse Effect.   (b) On or prior to the Restatement Effective Date, all necessary governmental (domestic and foreign) and material third party approvals and/or consents in connection with this Agreement, the other transactions contemplated hereby and the granting of Liens under the Pledge Agreement shall have been obtained and remain in effect, and all applicable waiting   -74- -------------------------------------------------------------------------------- periods with respect thereto shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of this Agreement or the other transactions contemplated hereby or otherwise referred to herein or therein. On the Restatement Effective Date, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon this Agreement or the other transactions contemplated hereby or otherwise referred to herein or therein.   6.08 Litigation. On the Restatement Effective Date, there shall be no actions, suits or proceedings pending or threatened with respect to this Agreement, any other Credit Document or otherwise which any Agent or the Required Lenders shall reasonably determine has had, or could reasonably be expected to have, a Material Adverse Effect.   6.09 Subsidiaries Guaranty; Intercompany Subordination Agreement On the Restatement Effective Date, each Subsidiary Guarantor shall have duly authorized, executed and delivered the Amended and Restated Subsidiaries Guaranty in the form of Exhibit G (as further amended, modified or supplemented from time to time in accordance with the terms hereof and thereof, the “Subsidiaries Guaranty”), and the Subsidiaries Guaranty shall be in full force and effect.   (b) On the Restatement Effective Date, each Credit Party and each other Subsidiary of the Borrower which is an obligee with respect to any Intercompany Debt shall have duly authorized, executed and delivered the Amended and Restated Intercompany Subordination Agreement in the form of Exhibit H (as amended, modified, restated and/or supplemented from time to time in accordance with the terms hereof and thereof, the “Intercompany Subordination Agreement”), and the Intercompany Subordination Agreement shall be in full force and effect.   6.10 Pledge Agreement. On the Restatement Effective Date, each Credit Party shall have duly authorized, executed and delivered the Amended and Restated Pledge Agreement in the form of Exhibit I (as amended, modified, restated and/or supplemented from time to time in accordance with the terms hereof and thereof, the “Pledge Agreement”) and shall have delivered (or shall have previously delivered) to the Collateral Agent, as Pledgee thereunder, all of the Pledge Agreement Collateral, if any, referred to therein and then owned by such Credit Party, together with executed and undated endorsements for transfer in the case of Equity Interests constituting certificated Pledge Agreement Collateral, along with evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable, to perfect the security interests purported to be created by the Pledge Agreement have been taken and the Pledge Agreement shall be in full force and effect.   6.11 Historical Financial Statements; Projections. On or prior to the Restatement Effective Date, the Administrative Agent shall have received true and correct copies of the historical financial statements and the Projections referred to in Sections 8.05(a) and (d), which historical financial statements and Projections shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders.   -75- -------------------------------------------------------------------------------- 6.12 Solvency Certificate; Insurance Certificates, etc. On the Restatement Effective Date, the Administrative Agent shall have received:   (i) a solvency certificate from the chief financial officer of the Borrower in the form of Exhibit J; and   (ii) certificates of insurance complying with the requirements of Section 9.03 for the business and properties of the Borrower and its Subsidiaries, in form and substance reasonably satisfactory to the Administrative Agent.   6.13 Fees, etc. On the Restatement Effective Date, the Borrower shall have paid to each Agent (and/or its relevant Affiliate) and each Lender all costs, fees and expenses and other compensation contemplated hereby payable to each Agent (and/or its relevant Affiliate) or such Lender to the extent then due.   SECTION 7. Conditions Precedent to All Credit Events.   The obligation of each Lender to make Loans (including Loans made on the Restatement Effective Date), and the obligation of each Issuing Lender to issue Letters of Credit (including Letters of Credit issued on the Restatement Effective Date), is subject, at the time of each such Credit Event (except as hereinafter indicated), to the Restatement Effective Date having occurred and to the satisfaction of the following conditions:   7.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).   7.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan (other than a Swingline Loan or a Revolving Loan made pursuant to a Mandatory Borrowing), the Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 2.03(a). Prior to the making of each Swingline Loan, the Swingline Lender shall have received a Notice of Borrowing meeting the requirements of Section 2.03(b)(i).   (b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Lender shall have received a Letter of Credit Request meeting the requirements of Section 3.03(a).   The occurrence of the Restatement Effective Date and the acceptance of the benefits of each Credit Event shall constitute a representation and warranty by the Borrower to the Administrative Agent and each of the Lenders that all the conditions specified in Section 6 (with respect to the occurrence of the Restatement Effective Date and Credit Events on the Restatement Effective Date) and in this Section 7 (with respect to Credit Events on or after the   -76- -------------------------------------------------------------------------------- Restatement Effective Date) and applicable to such Credit Event are satisfied as of that time. All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 6 and in this Section 7, unless otherwise specified, shall be delivered to the Administrative Agent at the Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts or copies for each of the Lenders and shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders.   SECTION 8. Representations, Warranties and Agreements.   In order to induce the Lenders to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, the Borrower makes the following representations, warranties and agreements, in each case after giving effect to the Restatement Effective Date, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and the issuance of the Letters of Credit, with the occurrence of the Restatement Effective Date and the occurrence of each Credit Event on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 8 are true and correct in all material respects on and as of the Restatement Effective Date and on the date of each such other Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).   8.01 Company Status. Each of the Borrower and each of its Subsidiaries (i) is a duly organized and validly existing Company in good standing under the laws of the jurisdiction of its organization, (ii) has the Company power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the ownership, leasing or operation of its property or the conduct of its business requires such qualifications except for failures to be so qualified or authorized which, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.   8.02 Power and Authority. Each Credit Party has the Company power and authority to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is party and has taken all necessary Company action to authorize the execution, delivery and performance by it of each of such Credit Documents. Each Credit Party has duly executed and delivered each of the Credit Documents to which it is party, and each of such Credit Documents constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).   8.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of,   -77- -------------------------------------------------------------------------------- or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Pledge Agreement) upon any of the property or assets of any Credit Party or any of its Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, in each case to which any Credit Party or any of its Subsidiaries is a party or by which it or any its property or assets is bound or to which it may be subject, or (iii) will violate any provision of the certificate or articles of incorporation, certificate of formation, limited liability company agreement or by-laws (or equivalent organizational documents), as applicable, of any Credit Party or any of its Subsidiaries.   8.04 Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except for those that have otherwise been obtained or made on or prior to the Restatement Effective Date and which remain in full force and effect on the Restatement Effective Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to be obtained or made by, or on behalf of, any Credit Party to authorize, or is required to be obtained or made by, or on behalf of, any Credit Party in connection with, (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any such Credit Document.   8.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections. (a) The consolidated balance sheets of the Borrower and its Subsidiaries at September 30, 2004 and September 30, 2005, and the related consolidated statements of income and cash flows and changes in shareholders’ equity of the Borrower and its Subsidiaries for the Borrower’s respective fiscal year ended on each such date, in each case furnished to the Lenders prior to the Restatement Effective Date, present fairly in all material respects the consolidated financial position of the Borrower and its Subsidiaries at the dates of said financial statements and the consolidated results of their operations for the periods covered thereby. The consolidated balance sheets of Pulitzer and its Subsidiaries at December 28, 2003, December 26, 2004 and March 27, 2005, and the related consolidated statements of income and cash flows and changes in shareholders’ equity of Pulitzer and its Subsidiaries for Pulitzer’s fiscal years or three month period, as the case may be, ended on each such date, in each case furnished to the Lenders prior to the Original Effective Date, present fairly in all material respects the consolidated financial condition of Pulitzer and its Subsidiaries at the dates of said financial statements and the consolidated results of their operations for the periods covered thereby. All such financial statements have been prepared in accordance with GAAP consistently applied except to the extent provided in the notes to said financial statements and subject, in the case of the unaudited interim consolidated financial statements of the Borrower and Pulitzer, to normal year-end audit adjustments (all of which are of a recurring nature and none of which, individually or in the aggregate, would be material) and the absence of footnotes.   (b) On and as of the Restatement Effective Date, and after giving effect to all Indebtedness (including the Loans) being incurred or assumed and Liens created by the Credit Parties in connection therewith, (i) the sum of the assets, at a fair valuation, of the Borrower (on a stand-alone basis) and of the Borrower and its Subsidiaries (taken as a whole) will exceed its or their respective debts, (ii) the Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (taken as a whole) has or have not incurred and does or do not intend to incur, and   -78- -------------------------------------------------------------------------------- does or do not believe that it or they will incur, debts beyond its or their respective ability to pay such debts as such debts mature, and (iii) the Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (taken as a whole) will have sufficient capital with which to conduct its or their respective businesses. For purposes of this Section 8.05(b), “debt” means any liability on a claim, and “claim” means (a) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (b) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.   (c) Except as fully disclosed in the financial statements delivered pursuant to Section 8.05(a) and for the Indebtedness incurred under this Agreement, there were as of the Restatement Effective Date no liabilities or obligations with respect to the Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, could reasonably be expected to be material to the Borrower and its Subsidiaries taken as a whole. As of the Restatement Effective Date, the Borrower knows of no basis for the assertion against it or any of its Subsidiaries of any liability or obligation of any nature whatsoever that is not fully disclosed in the financial statements delivered pursuant to Section 8.05(a) or referred to in the immediately preceding sentence which, either individually or in the aggregate, could reasonably be expected to be material to the Borrower and its Subsidiaries taken as a whole.   (d) The Projections delivered to the Administrative Agent and the Lenders prior to the Restatement Effective Date have been prepared in good faith and are based on reasonable assumptions, and there are no statements or conclusions in the Projections which are based upon or include information known to the Borrower to be misleading in any material respect or which fail to take into account material information known to the Borrower regarding the matters reported therein. On the Restatement Effective Date, the Borrower believes that the Projections are reasonable and attainable, it being recognized by the Lenders, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results.   (e) Since September 30, 2005, nothing has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect.   8.06 Litigation. There are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of the Borrower, threatened with respect to any Credit Document or otherwise that has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.   8.07 True and Complete Disclosure. All factual information (taken as a whole) theretofore furnished by or on behalf of the Borrower in writing to the Administrative Agent or any Lender (including, without limitation, all information contained in the Credit Documents and in the Pulitzer Acquisition Documents) for purposes of or in connection with this Agreement, the   -79- -------------------------------------------------------------------------------- other Credit Documents or any transaction contemplated herein or therein is true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided, it being understood and agreed that for purposes of this Section 8.07, such factual information shall not include the Projections or any pro forma financial information.   8.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the A Term Loans and the B Term Loans will be used by the Borrower to refinance outstanding Original Term Loans.   (b) All proceeds of the Revolving Loans and the Swingline Loans will be used to refinance outstanding Original Revolving Loans and for the working capital and general corporate purposes of the Borrower and its Subsidiaries.   (c) All proceeds of Incremental Term Loans will be used by the Borrower (i) to finance Permitted Acquisitions (and to pay the fees and expenses incurred in connection therewith) and to refinance any Indebtedness assumed as part of any such Permitted Acquisitions (and to pay all accrued and unpaid interest thereon, any prepayment premium associated therewith and the fees and expenses related thereto) and (ii) for its and its respective Subsidiaries’ general corporate purposes.   (d) No part of any Credit Event (or the proceeds thereof) will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.   8.09 Tax Returns and Payments. Each of the Borrower and each of its Subsidiaries has timely filed or caused to be timely filed (in each case giving effect to all applicable and permitted extensions) with the appropriate taxing authority all Federal and other material returns, statements, forms and reports for taxes (the “Returns”) required to be filed by, or with respect to the income, properties or operations of, the Borrower and/or any of its Subsidiaries. The Returns accurately reflect in all material respects all liability for taxes of the Borrower and its Subsidiaries, as applicable, for the periods covered thereby. Each of the Borrower and each of its Subsidiaries has paid all taxes and assessments payable by it which have become due, other than those that are immaterial and those that are being contested in good faith and adequately disclosed and fully provided for on the financial statements of the Borrower and its Subsidiaries in accordance with GAAP. There is no material action, suit, proceeding, investigation, audit or claim now pending or, to the knowledge of the Borrower, threatened by any authority regarding any material taxes relating to the Borrower or any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries has incurred, nor will any of them incur, any material tax liability in connection with the Original Transaction or any other transactions contemplated hereby (it being understood that the representation contained in this sentence does not cover any future tax liabilities of the Borrower or any of its Subsidiaries arising as a result of the operation of their businesses in the ordinary course of business).   -80- -------------------------------------------------------------------------------- 8.10 Compliance with ERISA. (a) Schedule IV sets forth each Plan as of the Restatement Effective Date. Except as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: each Plan (and each related trust, insurance contract or fund) is in compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan have been timely made; neither the Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any liability under any of the foregoing sections with respect to any Plan; no condition exists which presents a risk to the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not exceed $10,000,000; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate has at all times been operated in compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; each group health plan (as defined in 45 Code of Federal Regulations Section 160.103) which covers or has covered employees or former employees of the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate has at all times been operated in compliance with the provisions of the Health Insurance Portability and Accountability Act of 1996 and the regulations promulgated thereunder; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to arise on account of any Plan; and the Borrower and its Subsidiaries may cease contributions to or terminate any employee benefit plan maintained by any of them without incurring any liability.   (b) Except as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: each Foreign Pension Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with   -81- -------------------------------------------------------------------------------- applicable regulatory authorities; all contributions required to be made with respect to a Foreign Pension Plan have been timely made; neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of, or withdrawal from, any Foreign Pension Plan; and the present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the Borrower’s most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities.   8.11 The Pledge Agreement. At all times prior to the Security Release Date, the security interests created under the Pledge Agreement in favor of the Collateral Agent, as Pledgee, for the benefit of the Secured Creditors, constitute first priority perfected security interests in the Pledge Agreement Collateral described in the Pledge Agreement, subject to no security interests of any other Person other than Permitted Liens applicable thereto.   8.12 Properties. Each of the Borrower and each of its Subsidiaries has good and indefeasible title to all material properties (and to all buildings, fixtures and improvements located thereon) owned by it, including all material property reflected in the most recent historical balance sheets referred to in Section 8.05(a) (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business or as permitted by the terms of this Agreement), free and clear of all Liens, other than Permitted Liens. Each of the Borrower and each of its Subsidiaries has a valid and indefeasible leasehold interest in the material properties leased by it free and clear of all Liens other than Permitted Liens.   8.13 Capitalization. On the Restatement Effective Date, the authorized capital stock of the Borrower consists of (x) 120,000,000 shares of common stock, $2.00 par value per share, and (y) 30,000,000 shares of class B common stock, $2.00 par value per share. All outstanding shares of the capital stock of the Borrower have been duly and validly issued, are fully paid and non-assessable and have been issued free of preemptive rights. The Borrower does not have outstanding any capital stock or other securities convertible into or exchangeable for its capital stock or any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock or any stock appreciation or similar rights, except for (x) options, warrants and rights to purchase shares of the Borrower’s common stock which may be issued from time to time and (y) shares of Qualified Preferred Stock of the Borrower which may be convertible into shares of the Borrower’s common stock.   8.14 Subsidiaries. On and as of the Restatement Effective Date, the Borrower has no Subsidiaries other than those Subsidiaries listed on Schedule V. Schedule V sets forth, as of the Restatement Effective Date, (i) the percentage ownership (direct and indirect) of the Borrower in each class of capital stock or other Equity Interests of each of its Subsidiaries and also identifies the direct owner thereof, and (ii) the jurisdiction of organization of each such Subsidiary. All outstanding shares of Equity Interests of each Subsidiary of the Borrower have been duly and validly issued, are fully paid and non-assessable and have been issued free of preemptive rights. No Subsidiary of the Borrower has outstanding any securities convertible into or exchangeable for its Equity Interests or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance   -82- -------------------------------------------------------------------------------- (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its Equity Interests or any stock appreciation or similar rights except, in the case of PD LLC, as set forth in the PD LLC Operating Agreement (as in effect on the Restatement Effective Date).   8.15 Compliance with Statutes, etc. Each of the Borrower and each of its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   8.16 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.   8.17 Public Utility Holdings Company Act. Neither the Borrower nor any of its Subsidiaries is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holdings Company Act of 1935, as amended.   8.18 Environmental Matters. (a) Each of the Borrower and each of its Subsidiaries is in compliance with all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no pending or, to the knowledge of the Borrower, threatened Environmental Claims against the Borrower or any of its Subsidiaries or any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries (including any such claim arising out of the ownership, lease or operation by the Borrower or any of its Subsidiaries of any Real Property formerly owned, leased or operated by the Borrower or any of its Subsidiaries but no longer owned, leased or operated by the Borrower or any of its Subsidiaries). There are no facts, circumstances, conditions or occurrences with respect to the business or operations of the Borrower or any of its Subsidiaries, or any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries (including any Real Property formerly owned, leased or operated by the Borrower or any of its Subsidiaries but no longer owned, leased or operated by the Borrower or any of its Subsidiaries) or, to the knowledge of the Borrower, any property adjoining or adjacent to any such Real Property that could be reasonably expected (i) to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries or (ii) to cause any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries to be subject to any restrictions on the ownership, lease, occupancy or transferability of such Real Property by the Borrower or any of its Subsidiaries under any applicable Environmental Law.   (b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, or Released on or from, any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, any property adjoining or adjacent to any Real Property, where such generation, use, treatment, storage, transportation or Release has violated or could be reasonably expected to violate any applicable Environmental Law or give rise to an Environmental Claim.   -83- -------------------------------------------------------------------------------- (c) Notwithstanding anything to the contrary in this Section 8.18, the representations and warranties made in this Section 8.18 shall be untrue only if the effect of any or all conditions, violations, claims, restrictions, failures and noncompliances of the types described above could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   8.19 Employment and Labor Relations. Neither the Borrower nor any of its Subsidiaries is engaged in any unfair labor practice that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against any of them, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, (iii) no union representation question exists with respect to the employees of the Borrower or any of its Subsidiaries, (iv) no equal employment opportunity charges or other claims of employment discrimination are pending or, to the Borrower’s knowledge, threatened against the Borrower or any of its Subsidiaries, and (v) no wage and hour department investigation has been made of the Borrower or any of its Subsidiaries, except (with respect to any matter specified in clauses (i) – (v) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect.   8.20 Intellectual Property, etc. Each of the Borrower and each of its Subsidiaries owns or has the right to use all the patents, trademarks, permits, domain names, service marks, trade names, copyrights, licenses, franchises, inventions, trade secrets, proprietary information and know-how of any type, whether or not written (including, but not limited to, rights in computer programs and databases) and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases, licenses and other rights of whatever nature, necessary for the present conduct of its business, without any known conflict with the rights of others which, or the failure to own or have which, as the case may be, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.   8.21 Indebtedness. Schedule VI sets forth a list of all Indebtedness (including Contingent Obligations) of the Borrower and its Subsidiaries as of the Restatement Effective Date (excluding the Obligations, the PD LLC Notes and the PD LLC Notes Guaranty, the “Existing Indebtedness”), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any Credit Party or any of its Subsidiaries which directly or indirectly guarantees such debt.   8.22 Insurance. Schedule VII sets forth a listing of all insurance maintained by the Borrower and its Subsidiaries as of the Restatement Effective Date, with the amounts insured (and any deductibles) set forth therein.   -84- -------------------------------------------------------------------------------- 8.23 Representations and Warranties in Other Documents. All representations and warranties set forth in the other Credit Documents and the Pulitzer Acquisition Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of the Restatement Effective Date as if such representations or warranties were made on and as of such date (it being understood and agreed that any such representation or warranty which by its terms is made as of a specified date shall be true and correct in all material respects as of such specified date).   SECTION 9. Affirmative Covenants.   The Borrower hereby covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings (in each case together with interest thereon), Fees and all other Obligations (other than indemnities described in Section 13.13 which are not then due and payable) incurred hereunder and thereunder, are paid in full:   9.01 Information Covenants. The Borrower will furnish to each Lender:   (a) Quarterly Financial Statements. Within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, (i) the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarterly accounting period and the related consolidated statements of income and cash flows for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, in each case setting forth comparative figures for the corresponding quarterly accounting period in the prior fiscal year and comparable budgeted figures for such quarterly accounting period as set forth in the respective budget delivered pursuant to Section 9.01(d), all of which shall be certified by an Authorized Officer of the Borrower that they fairly present in all material respects in accordance with GAAP the financial condition of the Borrower and its Subsidiaries as of the dates indicated and the results of their operations for the periods indicated, subject to normal year-end audit adjustments and the absence of footnotes, and (ii) management’s discussion and analysis of the important operational and financial developments during such quarterly accounting period; provided that to the extent prepared to comply with SEC requirements and delivered to each Lender within the time requirement set forth above in this Section 9.01(a), a copy of the SEC Form 10-Qs filed by the Borrower with the SEC for each such quarterly accounting period shall satisfy the requirements of this Section 9.01(a) except for any required comparison against budget as provided above (which comparison will still need to be delivered to each Lender separately pursuant to this Section 9.01(a)).   (b) Annual Financial Statements. Within 90 days after the close of each fiscal year of the Borrower, (i) the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and stockholders’ equity and statement of cash flows for such fiscal year setting forth comparative figures for the preceding fiscal year and audited by Deloitte & Touche LLP or other independent certified public accountants of recognized national standing   -85- -------------------------------------------------------------------------------- reasonably acceptable to the Administrative Agent (which audit shall be without a “going concern” or like qualification or exception and without any qualification or exception as to scope of audit), together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of the Borrower and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or an Event of Default under Section 10.08 or 10.09 which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof, and (ii) management’s discussion and analysis of the important operational and financial developments during such fiscal year; provided that to the extent prepared to comply with SEC requirements and delivered to each Lender within the time requirement set forth above in this Section 9.01(b), a copy of the SEC Form 10-Ks filed by the Borrower with the SEC for such fiscal year shall satisfy the requirements of this Section 9.01(b) except for the opinion of the accounting firm as to no Default or Event of Default under Section 10.08 or 10.09 (which opinion will still need to be delivered to each Lender separately pursuant to this Section 9.01(b)).   (c) Management Letters. Promptly after the Borrower’s or any of its Subsidiaries’ receipt thereof, a copy of any “management letter” received from its certified public accountants and management’s response thereto.   (d) Budgets. No later than 60 days following the first day of each fiscal year of the Borrower (commencing with the Borrower’s fiscal year ended September 30, 2005), a budget in form reasonably satisfactory to the Administrative Agent (including budgeted statements of income and sources and uses of cash for the Borrower and its Subsidiaries on a consolidated basis) for each of the four fiscal quarters of such fiscal year prepared in detail and setting forth, with appropriate discussion, the principal assumptions upon which such budget is based.   (e) Officer’s Certificates. At the time of the delivery of the financial statements provided for in Sections 9.01(a) and (b), a compliance certificate from an Authorized Officer of the Borrower in the form of Exhibit K certifying on behalf of the Borrower that, to such officer’s knowledge after due inquiry, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall (i) set forth in reasonable detail the calculations required to establish whether the Borrower and its Subsidiaries were in compliance with the provisions of Sections 5.02(d), 5.02(f), 10.01(x), 10.01(xii), 10.01(xvii), 10.02(iv), 10.03(iii), 10.03(vii), 10.03(viii), 10.03(ix) 10.04(iv), 10.04(vii), 10.04(ix), 10.04(xiii), 10.05(v), 10.05 (viii), 10.05(xiv) and 10.07 through 10.09, inclusive, at the end of such fiscal quarter or year, as the case may be, (ii) if delivered with the financial statements required by Section 9.01(b), set forth in reasonable detail the amount of (and the calculations required to establish the amount of) Excess Cash Flow for the respective Excess Cash Flow Payment Period, and (iii) if prior to the Security Release Date, certify that there have been no changes to Annexes A through F of the Pledge Agreement, in each case since the Restatement Effective Date or, if later, since the date of the most recent certificate delivered pursuant to this Section 9.01(e), or if there have been any such changes, a list in reasonable detail of such changes   -86- -------------------------------------------------------------------------------- (but, in each case with respect to this clause (iii), only to the extent that such changes are required to be reported to the Collateral Agent pursuant to the terms of the Pledge Agreement) and whether the Borrower and the other Credit Parties have otherwise taken all actions required to be taken by them pursuant to the Pledge Agreement in connection with any such changes.   (f) Notice of Default, Litigation and Material Adverse Effect. Promptly, and in any event within ten Business Days (or five Business Days in the case of succeeding sub-clause (i)) after any senior or executive officer of the Borrower or any of its Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or an Event of Default, (ii) any litigation or governmental investigation or proceeding pending against the Borrower or any of its Subsidiaries (x) which, either individually or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect or (y) with respect to any Credit Document, or (iii) any other event, change or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect.   (g) Other Reports and Filings. Promptly after the filing or delivery thereof, copies of all financial information, proxy materials and reports, if any, which the Borrower or any of its Subsidiaries shall publicly file with the Securities and Exchange Commission or any successor thereto (the “SEC”) or deliver to holders (or any trustee, agent or other representative therefor) of its material Indebtedness pursuant to the terms of the documentation governing such Indebtedness.   (h) Environmental Matters. Promptly after any senior or executive officer of the Borrower or any of its Subsidiaries obtains knowledge thereof, notice of one or more of the following environmental matters to the extent that such environmental matters, either individually or when aggregated with all other such environmental matters, could reasonably be expected to have a Material Adverse Effect:   (i) any pending or threatened Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries;   (ii) any condition or occurrence on or arising from any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries that (a) results in noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or (b) could reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any such Real Property;   (iii) any condition or occurrence on any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries that could reasonably be expected to cause such Real Property to be subject to any restrictions on the ownership, lease, occupancy, use or transferability by the Borrower or any of its Subsidiaries of such Real Property under any Environmental Law; and   -87- -------------------------------------------------------------------------------- (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided that in any event the Borrower shall deliver to each Lender all notices received by the Borrower or any of its Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA which identify the Borrower or any of its Subsidiaries as potentially responsible parties for remediation costs or which otherwise notify the Borrower or any of its Subsidiaries of potential liability under CERCLA.   All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the Borrower’s or such Subsidiary’s response thereto.   (i) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the Borrower or any of its Subsidiaries as any Agent or any Lender (through the Administrative Agent) may reasonably request.   9.02 Books, Records and Inspections; Annual Meetings. (a) The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and accounts in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit officers and designated representatives of any Agent or any Lender to visit and inspect, under guidance of officers of the Borrower or such Subsidiary, any of the properties of the Borrower or such Subsidiary, and to examine the books of account of the Borrower or such Subsidiary and discuss the affairs, finances and accounts of the Borrower or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable prior notice and at such reasonable times and intervals and to such reasonable extent as any such Agent or any such Lender may reasonably request; provided, however, so long as no Default or Event of Default has occurred and is continuing, neither any Agent nor any Lender may exercise its rights under this Section 9.02(a) more than once per calendar year.   (b) At a date to be mutually agreed upon between the Administrative Agent and the Borrower occurring on or prior to the 120th day after the close of each fiscal year of the Borrower, the Borrower will, at the request of the Administrative Agent, hold a meeting with all of the Lenders at which meeting will be reviewed the financial results of the Borrower and its Subsidiaries for the previous fiscal year and the budgets presented for the current fiscal year of the Borrower.   9.03 Maintenance of Property; Insurance. (a) The Borrower will, and will cause each of its Subsidiaries to, (i) keep all material property necessary to the business of the Borrower and its Subsidiaries in good working order and condition, ordinary wear and tear excepted and subject to the occurrence of casualty events, (ii) maintain with financially sound and reputable insurance companies, insurance (including self-insurance retentions on a basis   -88- -------------------------------------------------------------------------------- consistent with past practice) on all such property and against all such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties and engaged in similar businesses as the Borrower and its Subsidiaries, and (iii) furnish to the Administrative Agent, upon its request therefor, full information as to the insurance carried.   (b) If the Borrower or any of its Subsidiaries shall fail to maintain insurance in accordance with this Section 9.03, the Administrative Agent shall have the right (but shall be under no obligation) to procure such insurance and the Borrower agrees to reimburse the Administrative Agent for all reasonable costs and expenses of procuring such insurance.   9.04 Existence; Franchises. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses, permits, copyrights, trademarks and patents; provided, however, that nothing in this Section 9.04 shall prevent (i) sales of assets and other transactions by the Borrower or any of its Subsidiaries in accordance with Section 10.02 or (ii) the withdrawal by the Borrower or any of its Subsidiaries of its qualification as a foreign Company in any jurisdiction if such withdrawal could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   9.05 Compliance with Statutes, etc. (a) The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to (i) environmental standards and controls and (ii) ERISA), except such noncompliances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   (b) Within five Business Days after the date on which the Borrower is required by applicable law, statute, rule or regulation (including any applicable extension of such date), the Borrower will file (or cause to be filed) with the SEC all reports, financial information and certifications required to be filed by the Borrower pursuant to any such applicable law, statute, rule or regulation.   9.06 Compliance with Environmental Laws. (a) The Borrower will comply, and will cause each of its Subsidiaries to comply, with all Environmental Laws and permits applicable to, or required by, the ownership, lease or use of its Real Property now or hereafter owned, leased or operated by the Borrower or any of its Subsidiaries, except such noncompliances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and will promptly pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property free and clear of any Liens imposed pursuant to such Environmental Laws. Neither the Borrower nor any of its Subsidiaries will generate, use, treat, store, Release or dispose of, or permit the generation, use, treatment, storage, Release or disposal of Hazardous Materials on any Real Property now or hereafter owned, leased or operated by the Borrower or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property, except for Hazardous Materials generated, used, treated, stored, Released or disposed of at any such Real Properties in compliance in all material respects with all applicable Environmental Laws.   -89- -------------------------------------------------------------------------------- (b) (i) After the receipt by the Administrative Agent or any Lender of any notice of the type described in Section 9.01(h), (ii) at any time that the Borrower or any of its Subsidiaries are not in compliance with Section 9.06(a) or (iii) in the event that the Administrative Agent or the Lenders have exercised any of the remedies pursuant to the last paragraph of Section 11, the Borrower will (in each case) provide, at the sole expense of the Borrower and at the request of the Administrative Agent, an environmental site assessment report concerning any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries, prepared by an environmental consulting firm reasonably approved by the Administrative Agent, indicating the presence or absence of Hazardous Materials and the potential cost of any removal or remedial action in connection with such Hazardous Materials on such Real Property. If the Borrower fails to provide the same within 30 days after such request was made, the Administrative Agent may order the same, the cost of which shall be borne by the Borrower, and the Borrower shall grant and hereby grants to the Administrative Agent and the Lenders and their respective agents access to such Real Property and specifically grants the Administrative Agent and the Lenders an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment at any reasonable time upon reasonable notice to the Borrower, all at the sole expense of the Borrower.   9.07 ERISA. As soon as possible and, in any event, within ten (10) days after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Lenders a certificate of an Authorized Officer of the Borrower setting forth the details as to such occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given or filed by the Borrower, such Subsidiary, the Plan administrator or such ERISA Affiliate to or with the PBGC or any other government agency, or a Plan participant and any notices received by the Borrower, such Subsidiary or ERISA Affiliate from the PBGC or any other government agency, or a Plan participant with respect thereto: that a Reportable Event has occurred (except to the extent that the Borrower has previously delivered to the Lenders a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any material contribution required to be made with respect to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds the aggregate amount of such Unfunded Current Liabilities that existed on the Restatement Effective   -90- -------------------------------------------------------------------------------- Date by $10,000,000; that proceedings may be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or may incur any material liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the Borrower or any Subsidiary of the Borrower may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. The Borrower will deliver to each of the Lenders copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. The Borrower will also deliver to each Lender, to the extent requested by such Lender, a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Lenders pursuant to the first sentence hereof, copies of annual reports and any records, documents or other information required to be furnished to the PBGC or any other government agency, and any material notices received by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to each Lender, to the extent requested by such Lender, no later than ten (10) days after the date such annual report has been filed with the Internal Revenue Service or such records, documents and/or information has been furnished to the PBGC or any other government agency or such notice has been received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable. The Borrower and each of its applicable Subsidiaries shall ensure that all Foreign Pension Plans administered by it or into which it makes payments obtains or retains (as applicable) registered status under and as required by applicable law and is administered in a timely manner in all respects in compliance with all applicable laws except where the failure to do any of the foregoing, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.   9.08 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting purposes, cause (i) its fiscal years to end on September 30 of each calendar year and (ii) its fiscal quarters to end on December 31, March 31, June 30 and September 30 of each calendar year; provided that, upon prior written notice to the Administrative Agent, the Borrower shall be permitted to change its fiscal year end to be the last Sunday in September of each calendar year and to change the end of each of its fiscal quarters in a manner consistent with such change to its fiscal year end.   9.09 Performance of Obligations. The Borrower will, and will cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement, loan agreement or credit agreement and each other agreement, contract or instrument by which it is bound, except such non-performances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   -91- -------------------------------------------------------------------------------- 9.10 Payment of Taxes. The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries not otherwise permitted under Section 10.01(i); provided that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is immaterial or which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP.   9.11 Use of Proceeds. The Borrower will use the proceeds of the Loans only as provided in Section 8.08.   9.12 Excluded Domestic Subsidiaries; Further Assurances; etc. (a) The Borrower will cause each Excluded Domestic Subsidiary (whether existing on the Restatement Effective Date or thereafter created, established or acquired) that has not entered into the Subsidiaries Guaranty and/or the Pledge Agreement because to have done so would have violated the terms and conditions contained in the applicable PD LLC Notes Documents (as in effect on the Restatement Effective Date) or the Permitted PD LLC Notes Refinancing Indebtedness) to take all actions required for such Excluded Domestic Subsidiary to become a party to the Subsidiaries Guaranty and/or the Pledge Agreement in accordance with the terms of the Subsidiaries Guaranty and/or the Pledge Agreement upon the earlier to occur of (x) the date upon which the restrictions set forth in the applicable PD LLC Notes Documents or Permitted PD LLC Notes Refinancing Indebtedness, as the case may be, cease to apply to such Excluded Domestic Subsidiary and (y) the date upon which the Administrative Agent provides written notice to the Borrower requesting any such Excluded Domestic Subsidiary to become a party to the Subsidiaries Guaranty and/or the Pledge Agreement, although in the case of this sub-clause (y), each such Excluded Domestic Subsidiary only shall be required to enter into the Subsidiaries Guaranty and/or the Pledge Agreement to the maximum extent then permitted by the terms and conditions of the applicable PD LLC Notes Documents or the Permitted PD LLC Notes Refinancing Indebtedness, as the case may be. On the date on which any Excluded Domestic Subsidiary becomes a party to the Subsidiaries Guaranty and the Pledge Agreement pursuant to this Section 9.12(a), such Excluded Domestic Subsidiary shall no longer be an “Excluded Domestic Subsidiary” but instead shall be a “Subsidiary Guarantor” for all purposes of this Agreement and each other Credit Document.   (b) The Borrower will, and will cause each of the other Credit Parties to, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, control agreements and other assurances or instruments and take such further steps relating to the Collateral as the Collateral Agent may reasonably require. In addition, at the time that the actions required or requested to be taken pursuant to clause (a) above are taken, the Borrower will cause the respective Excluded Domestic Subsidiary or Subsidiaries to execute and   -92- -------------------------------------------------------------------------------- deliver, or cause to be executed and delivered, all relevant documentation (including, but not limited to, opinions of counsel and officers’ certificates) of the type described in Section 6 as each such Excluded Domestic Subsidiary would have had to deliver if it were a Credit Party on the Restatement Effective Date.   (c) The Borrower agrees that each action required by clauses (a) and (b) of this Section 9.12 shall be completed as soon as possible, but in no event later than 15 days after such action is required to be taken or requested to be taken by the Administrative Agent. Notwithstanding anything to the contrary contained above in this Section 9.12, (i) no Excluded Domestic Subsidiary shall be required to execute and deliver the Subsidiaries Guaranty pursuant to this Section 9.12 from and after the Guaranty Release Date and (ii) no Excluded Domestic Subsidiary shall be required to execute and deliver the Pledge Agreement pursuant to this Section 9.12 from and after the Security Release Date.   9.13 Ownership of Subsidiaries; etc. Except as otherwise permitted by Section 10.05(iii) or (xiv) or pursuant to a Permitted Acquisition consummated in accordance with the terms hereof, the Borrower will, and will cause each of its Subsidiaries to, own 100% of the Equity Interests of each of their Subsidiaries (other than, in the case of a Foreign Subsidiary, directors’ qualifying shares and/or other nominal amounts of shares required to be held by local nationals in each case to the extent required by applicable law).   9.14 Interest Rate Protection. On the Restatement Effective Date, the Borrower will have theretofore entered into (and will thereafter maintain) separate Interest Rate Protection Agreements mutually acceptable to the Borrower and the Administrative Agent, (x) having a term of at least three years from the date such Interest Rate Protection Agreements were initially entered into (which date shall not have been later than November 30, 2005), establishing a fixed or maximum interest rate reasonably acceptable to the Administrative Agent for an aggregate notional principal amount equal to at least $200,000,000 and (y) having a term of at least two years from the date such Interest Rate Protection Agreements were initially entered into (which date shall not have been later than November 30, 2005), establishing a fixed or maximum interest rate reasonably acceptable to the Administrative Agent for an aggregate notional principal amount equal to at least $100,000,000.   9.15 Permitted Acquisitions. (a) Subject to the provisions of this Section 9.15 and the requirements contained in the definition of Permitted Acquisition, the Borrower and each Qualified Wholly-Owned Subsidiary may from time to time effect Permitted Acquisitions, so long as (in each case except to the extent the Required Lenders otherwise specifically agree in writing in the case of a specific Permitted Acquisition): (i) no Default or Event of Default shall have occurred and be continuing at the time of the consummation of the proposed Permitted Acquisition or immediately after giving effect thereto; (ii) except as provided below in this Section 9.15, the Borrower shall have given to the Administrative Agent and the Lenders at least 10 Business Days’ prior written notice of any Permitted Acquisition (or such shorter period of time as may be reasonably acceptable to the Administrative Agent), which notice shall describe in reasonable detail the principal terms and conditions of such Permitted Acquisition; (iii) calculations are made by the Borrower with respect to the financial covenants contained in Sections 10.08 and 10.09 for the respective Calculation Period on a Pro Forma Basis as if the respective Permitted Acquisition (as well as all other Permitted Acquisitions theretofore consummated   -93- -------------------------------------------------------------------------------- after the first day of such Calculation Period) had occurred on the first day of such Calculation Period, and such calculations shall show that the respective levels of the Borrower’s financial performance measured by such financial covenants are at least 0.25 better (i.e., at least 0.25 higher in the case of the Interest Expense Coverage Ratio and 0.25 lower in the case of the Total Leverage Ratio) than those respective levels otherwise required to have been complied with by the Borrower for such Calculation Period pursuant to such Sections 10.08 and 10.09; (iv) all representations and warranties of the Credit Parties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Permitted Acquisition (both before and after giving effect thereto), unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date; and (v) except as provided below in this Section 9.15, the Borrower shall have delivered to the Administrative Agent and each Lender a certificate executed by an Authorized Officer, certifying to the best of such officer’s knowledge, compliance with the requirements of preceding clauses (i) through (iv), inclusive, and containing the calculations (in reasonable detail) (A) required by preceding clause (iii) and (B) necessary to establish the Acquired EBITDA and consolidated gross revenues from continuing operations of the Acquired Entity or Business acquired pursuant to each Permitted Acquisition for the most recently ended 12-month period for which financial statements are available for such Acquired Entity or Business; provided, however, the notice and certificate referred to in preceding clauses (ii) and (v) shall not be required to be so delivered for any Permitted Acquisition in which the Aggregate Consideration payable is $5,000,000 or less (although all other conditions set forth above and below in this Section 9.15 shall be required to be complied with in accordance with the terms thereof whether or not any such notice or certificate is required to be delivered).   (b) At the time of each Permitted Acquisition involving the creation or acquisition of a Subsidiary, or the acquisition of capital stock or other Equity Interest of any Person, the capital stock or other Equity Interests thereof created or acquired in connection with such Permitted Acquisition shall, prior to the Security Release Date, be pledged for the benefit of the Secured Creditors pursuant to (and to the extent required by) the Pledge Agreement.   (c) The Borrower will cause each Subsidiary which is formed to effect, or is acquired pursuant to, a Permitted Acquisition to comply with, and to execute and deliver all of the documentation as and to the extent required by, Sections 9.12 and 10.14, to the reasonable satisfaction of the Administrative Agent.   (d) The consummation of each Permitted Acquisition shall be deemed to be a representation and warranty by the Borrower that the certifications pursuant to this Section 9.15 are true and correct and that all conditions thereto have been satisfied and that same is permitted in accordance with the terms of this Agreement, which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder, including, without limitation, Sections 8 and 11.   9.16 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrower reasonably acceptable to the Administrative Agent does not within 30 days after a request from the Administrative Agent or   -94- -------------------------------------------------------------------------------- the Required Lenders deliver evidence, in form and substance mutually satisfactory to the Administrative Agent and the Borrower, with respect to any Foreign Subsidiary of the Borrower which has not already had all of its Equity Interests pledged pursuant to the Pledge Agreement to secure all of the Obligations (as defined in the Pledge Agreement) that (i) a pledge of more than 66-2/3% of the total combined voting power of all classes of Equity Interests of such Foreign Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary of a pledge agreement in substantially the form of the Pledge Agreement and (iii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiaries Guaranty, in any such case could reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary’s United States parent for Federal income tax purposes, then in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary’s outstanding Equity Interests so issued by such Foreign Subsidiary, in each case not theretofore pledged pursuant to the Pledge Agreement to secure all of the Obligations (as defined in the Pledge Agreement), shall, if prior to the Security Release Date, be pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement (or another pledge agreement in substantially similar form, if needed), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall, if prior to the Security Release Date, execute and deliver the Pledge Agreement (or another pledge agreement in substantially similar form, if needed) granting to the Collateral Agent for the benefit of the Secured Creditors a security interest in all Equity Interests owned by such Foreign Subsidiary and securing the obligations of the Borrower under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement and, in the event the Subsidiaries Guaranty shall have been executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary thereunder, and in the case of a failure to deliver the evidence described in clause (iii) above, such Foreign Subsidiary shall, if prior to the Guaranty Release Date, execute and deliver the Subsidiaries Guaranty (or another guaranty in substantially similar form, if needed), guaranteeing the obligations of the Borrower under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement, in each case to the extent that the entering into of the Pledge Agreement or the Subsidiaries Guaranty (or substantially similar document) is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 9.16 to be in form and substance reasonably satisfactory to the Administrative Agent and/or the Collateral Agent.   9.17 Subsidiary Guaranty Obligations. If, at any time after the Guaranty Release Date, any Subsidiary of the Borrower provides a guaranty of any Indebtedness of the Borrower or, except for Pulitzer’s guaranty of the PD LLC Notes, any of its other Subsidiaries, the Borrower will cause such Subsidiary to duly authorize, execute and deliver the Subsidiaries Guaranty, which Subsidiaries Guaranty shall not be subject to termination pursuant to Section 13.17(b).   SECTION 10. Negative Covenants.   The Borrower hereby covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings (in each case, together with interest thereon), Fees and all   -95- -------------------------------------------------------------------------------- other Obligations (other than any indemnities described in Section 13.13 which are not then due and payable) incurred hereunder and thereunder, are paid in full:   10.01 Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Borrower or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 10.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as “Permitted Liens”):   (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP;   (ii) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s, materialmen’s and mechanics’ liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Borrower’s or such Subsidiary’s property or assets or materially impair the use thereof in the operation of the business of the Borrower or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien;   (iii) Liens in existence on the Original Effective Date which remain in effect on the Restatement Effective Date and are listed, and the property subject thereto described, in Schedule VIII, but only to the respective date, if any, set forth in such Schedule VIII for the removal, replacement and termination of any such Liens, plus renewals, replacements and extensions of such Liens to the extent set forth on such Schedule VIII, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal, replacement or extension and (y) any such renewal, replacement or extension does not encumber any additional assets or properties of the Borrower or any of its Subsidiaries;   (iv) Liens created pursuant to the Credit Documents;   (v) licenses, sublicenses, leases or subleases granted to other Persons not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;   -96- -------------------------------------------------------------------------------- (vi) Liens upon assets of the Borrower or any of its Subsidiaries subject to Capitalized Lease Obligations to the extent such Capitalized Lease Obligations are permitted by Section 10.04(iv), provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Borrower or any Subsidiary of the Borrower;   (vii) Liens placed upon equipment or machinery acquired after the Restatement Effective Date and used in the ordinary course of business of the Borrower or any of its Subsidiaries and placed at the time of the acquisition thereof by the Borrower or such Subsidiary or within 90 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such equipment or machinery or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that (x) the Indebtedness secured by such Liens is permitted by Section 10.04(iv) and (y) in all events, the Lien encumbering the equipment or machinery so acquired does not encumber any other asset of the Borrower or such Subsidiary;   (viii) easements, rights-of-way, restrictions, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;   (ix) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into in the ordinary course of business;   (x) Liens arising out of the existence of judgments or awards in respect of which the Borrower or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which there shall have been secured a subsisting stay of execution pending such appeal or proceedings, provided that the aggregate amount of all cash and the Fair Market Value of all other property subject to such Liens does not exceed $10,000,000 at any time outstanding;   (xi) statutory and common law landlords’ liens under leases to which the Borrower or any of its Subsidiaries is a party;   (xii) Liens (other than Liens imposed under ERISA) incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance and social security benefits and Liens on cash deposits securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business and consistent with past practice (exclusive of obligations in respect of the payment for borrowed money), provided that the aggregate amount of all cash and the Fair Market Value of all other property subject to all Liens permitted by this clause (xii) shall not at any time exceed $10,000,000;   -97- -------------------------------------------------------------------------------- (xiii) Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Subsidiary of the Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition, provided that (x) any Indebtedness that is secured by such Liens is permitted to exist under Section 10.04(vii), and (y) such Liens are not incurred in connection with, or in contemplation or anticipation of, such Permitted Acquisition and do not attach to any other asset of the Borrower or any of its Subsidiaries;   (xiv) Liens arising out of any conditional sale, title retention, consignment or other similar arrangements for the sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business to the extent such Liens do not attach to any assets other than the goods subject to such arrangements;   (xv) Liens (x) incurred in the ordinary course of business in connection with the purchase or shipping of goods or assets (or the related assets and proceeds thereof), which Liens are in favor of the seller or shipper of such goods or assets and only attach to such goods or assets, and (y) in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;   (xvi) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Borrower or any Subsidiary, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank or banks with respect to cash management and operating account arrangements; and   (xvii) additional Liens of the Borrower or any Subsidiary of the Borrower not otherwise permitted by this Section 10.01 that (v) were not incurred in connection with borrowed money, (w) do not encumber Collateral or Equity Interests of a Subsidiary of the Borrower, (x) do not encumber any other assets of the Borrower or any of its Subsidiaries the Fair Market Value of which exceeds the amount of the Indebtedness or other obligations secured by such assets, (y) do not materially impair the use of such assets in the operation of the business of the Borrower or such Subsidiary and (z) do not secure obligations in excess of $25,000,000 in the aggregate for all such Liens at any time.   10.02 Consolidation, Merger, Purchase or Sale of Assets, etc. The Borrower will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any partnership, joint venture, or transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets (other than sales of inventory in the ordinary course of business), or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except that:   (i) Capital Expenditures by the Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 10.07 (it being understood, however, Capital Expenditures to the extent constituting a Permitted Acquisition shall be subject to Section 9.15);   -98- -------------------------------------------------------------------------------- (ii) the Borrower and its Subsidiaries may sell, convey or otherwise dispose of obsolete or worn-out property in the ordinary course of business;   (iii) Investments may be made to the extent permitted by Section 10.05;   (iv) the Borrower and its Subsidiaries may sell assets (other than the capital stock or other Equity Interests of any Wholly-Owned Subsidiary of the Borrower, unless all of the capital stock or other Equity Interests of such Wholly-Owned Subsidiary are sold in accordance with this clause (iv)), so long as (v) no Default or Event of Default then exists or would result therefrom, (w) each such sale is in an arm’s-length transaction and the Borrower or the respective Subsidiary receives at least Fair Market Value, (x) the consideration received by the Borrower or such Subsidiary consists of at least 90% cash and is paid at the time of the closing of such sale, (y) the Net Sale Proceeds therefrom are applied and/or reinvested as (and to the extent) required by Section 5.02(d) and (z) the assets sold pursuant to this clause (iv) shall not, in the aggregate, be comprised of assets that generated either (A) in any fiscal year of the Borrower, more than 5% of Consolidated EBITDA for the immediately preceding fiscal year of the Borrower, or (B) for all periods from and after the Original Effective Date, more than 15% of Consolidated EBITDA for the most recently ended four consecutive fiscal quarters of the Borrower (taken as one accounting period);   (v) each of the Borrower and its Subsidiaries may lease (as lessee) or license (as licensee) real or personal property (so long as any such lease or license does not create a Capitalized Lease Obligation except to the extent permitted by Section 10.04(iv));   (vi) each of the Borrower and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof and not as part of any financing transaction;   (vii) each of the Borrower and its Subsidiaries may grant licenses, sublicenses, leases or subleases to other Persons not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;   (viii) any Subsidiary of the Borrower may convey, lease, license, sell or otherwise transfer all or any part of its business, properties and assets to the Borrower or to any Qualified Wholly-Owned Domestic Subsidiary, so long as, if prior to the Security Release Date, any security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement in any Equity Interests of a Subsidiary of the Borrower so transferred shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer) and all actions required to maintain said perfected status have been taken;   -99- -------------------------------------------------------------------------------- (ix) any Subsidiary of the Borrower may merge or consolidate with and into, or be dissolved or liquidated into, the Borrower or any Qualified Wholly-Owned Domestic Subsidiary, so long as (i) in the case of any such merger, consolidation, dissolution or liquidation involving the Borrower, the Borrower is the surviving or continuing corporation of any such merger, consolidation, dissolution or liquidation, (ii) in all other cases, a Qualified Wholly-Owned Domestic Subsidiary is the surviving or continuing corporation of any such merger, consolidation, dissolution or liquidation, and (iii) if prior to the Security Release Date, any security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement in any Equity Interests of such Subsidiary shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such merger, consolidation, dissolution or liquidation) and all actions required to maintain said perfected status have been taken;   (x) any Foreign Subsidiary of the Borrower may be merged, consolidated or amalgamated with and into, or be dissolved or liquidated into, or transfer any of its assets to, any Qualified Wholly-Owned Foreign Subsidiary of the Borrower, so long as (i) such Qualified Wholly-Owned Foreign Subsidiary of the Borrower is the surviving or continuing corporation of any such merger, consolidation, amalgamation, dissolution or liquidation and (ii) any security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement in the Equity Interests of such Qualified Wholly-Owned Foreign Subsidiary and such Foreign Subsidiary shall remain in full force and effect and perfected and enforceable (to at least the same extent as in effect immediately prior to such merger, consolidation, amalgamation, dissolution, liquidation or transfer) and all actions required to maintain said perfected status have been taken;   (xi) Permitted Acquisitions may be consummated in accordance with the requirements of Section 9.15; and   (xii) the Borrower and its Subsidiaries may sell, convey or otherwise dispose of cash and Cash Equivalents in the ordinary course of business, in each case for cash at Fair Market Value.   10.03 Dividends. The Borrower will not, and will not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to the Borrower or any of its Subsidiaries, except that:   (i) any Subsidiary of the Borrower may pay cash Dividends to the Borrower or to any Wholly-Owned Domestic Subsidiary of the Borrower and any Foreign Subsidiary of the Borrower also may pay cash Dividends to any Wholly-Owned Foreign Subsidiary of the Borrower;   (ii) any Non-Wholly-Owned Subsidiary of the Borrower may pay cash Dividends to its shareholders, members or partners generally, so long as the Borrower or   -100- -------------------------------------------------------------------------------- its respective Subsidiary which owns the Equity Interest in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holding of the Equity Interest in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of Equity Interests of such Subsidiary);   (iii) so long as no Default or Event of Default exists at the time of the respective Dividend or would exist immediately after giving effect thereto, the Borrower may redeem or repurchase Equity Interests of the Borrower from officers, employees and directors of the Borrower or its Subsidiaries (or their estates) after the death, disability, retirement or termination of employment or service as a director of any such Person, or otherwise in accordance with any stock option plan or any employee stock ownership plan that has been approved by the board of directors of the Borrower, provided that the aggregate amount of Dividends made by the Borrower pursuant to this clause (iii) shall not exceed $5,000,000 during any fiscal year of the Borrower;   (iv) the Borrower may declare and pay regularly scheduled Dividends on its Qualified Preferred Stock pursuant to the terms thereof through the issuance of additional shares of such Qualified Preferred Stock rather than in cash, provided that in lieu of issuing additional shares of such Qualified Preferred Stock as Dividends, the Borrower may increase the liquidation preference of the shares of Qualified Preferred Stock in respect of which such Dividends have accrued;   (v) upon at least 20 Business Days prior written notice to the Administrative Agent, PD LLC may make a cash distribution to Herald as, and to the extent, required by Section 3.11(b) of the PD LLC Operating Agreement (as in effect on the Restatement Effective Date, but otherwise subject to the provisions of Section 3.11(c) thereof as in effect on the Restatement Effective Date);   (vi) upon at least five months prior written notice to the Administrative Agent, PD LLC may redeem all of the Equity Interests of PD LLC held by Herald on the Restatement Effective Date as, and to the extent, required by Section 7.2 of the PD LLC Operating Agreement (as in effect on the Restatement Effective Date);   (vii) the Borrower may declare and pay quarterly cash Dividends on its common stock on a basis consistent with its historical practices so long as (i) the aggregate amount of all such cash Dividends does not exceed in any fiscal quarter of the Borrower an amount equal to $0.18 per share of common stock of the Borrower outstanding on the respective record date for establishing such Dividends (as such amount may be adjusted for stock splits or stock combinations), (ii) such cash Dividends are paid within 60 days after the same are declared by the board of directors of the Borrower and (iii) no Default or Event of Default exists at the time of the payment of the respective Dividend or would exist immediately after giving effect thereto;   (viii) so long as no Default or Event of Default exists at the time of the making or payment of the respective Dividend or would exist immediately after giving effect thereto, the Borrower may redeem or repurchase additional outstanding shares of its Equity Interests and may declare and pay additional cash Dividends on its Equity   -101- -------------------------------------------------------------------------------- Interests, provided that the aggregate amount of all such redemptions, repurchases and other Dividends paid or made by the Borrower pursuant to this clause (viii) shall not exceed $35,000,000 in any fiscal year of the Borrower; and   (ix) the Borrower may redeem or repurchase additional shares of its Equity Interests and may declare and pay additional cash Dividends on its Equity Interests, so long as (i) no Default or Event of Default exists at the time of the making or payment of the respective Dividend or would exist immediately after giving effect thereto and (ii) at least five Business Days prior to the making or payment of any such Dividend pursuant to this Section 10.03(ix), the Borrower shall have delivered to the Administrative Agent a certificate executed by an Authorized Officer of the Borrower setting forth (in reasonable detail) the recalculation of the Interest Expense Coverage Ratio and the Total Leverage Ratio on a Pro Forma Basis for the Calculation Period then most recently ended prior to the date of such Dividend for which financial statements have been delivered to the Lenders under this Agreement, and such recalculation shall show that (x) the Borrower would have been in compliance with Section 10.08 as of the last day of such Calculation Period and (y) the Total Leverage Ratio as of the last day of such Calculation Period would have been less than 3.50:1.00.   10.04 Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except:   (i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents;   (ii) Existing Indebtedness outstanding on the Original Effective Date (to the extent that same remains outstanding on the Restatement Effective Date) and listed on Schedule VI (as reduced by any repayments of principal thereof), without giving effect to any subsequent extension, renewal or refinancing thereof except to the extent set forth on Schedule VI, provided that the aggregate principal amount of the Indebtedness to be extended, renewed or refinanced does not increase from that amount outstanding at the time of any such extension, renewal or refinancing;   (iii) Indebtedness of the Borrower under (x) Interest Rate Protection Agreements entered into with respect to other Indebtedness permitted under this Section 10.04 and (y) Other Hedging Agreements entered into in the ordinary course of business and providing protection to the Borrower and its Subsidiaries against fluctuations in currency values or commodity prices in connection with the Borrower’s or any of its Subsidiaries’ operations, in either case so long as the entering into of such Interest Rate Protection Agreements or Other Hedging Agreements are bona fide hedging activities and are not for speculative purposes;   (iv) Indebtedness of the Borrower and its Subsidiaries evidenced by Capitalized Lease Obligations (to the extent permitted pursuant to Section 10.07) and purchase money Indebtedness described in Section 10.01(vii), provided that in no event shall the sum of the aggregate principal amount of all Capitalized Lease Obligations and purchase money Indebtedness permitted by this clause (iv) exceed $50,000,000 at any time outstanding;   -102- -------------------------------------------------------------------------------- (v) Indebtedness constituting Intercompany Loans to the extent permitted by Section 10.05(viii);   (vi) subject to the provisions of Section 9.17 (to the extent applicable), Indebtedness consisting of guaranties by the Borrower and the Qualified Wholly-Owned Domestic Subsidiaries of each other’s Indebtedness and lease and other contractual obligations permitted under this Agreement (other than obligations (if any) in respect of the PD LLC Notes, the PD LLC Notes Guaranty and the Permitted PD LLC Notes Refinancing Indebtedness);   (vii) Indebtedness of a Subsidiary of the Borrower acquired pursuant to a Permitted Acquisition (or Indebtedness assumed at the time of a Permitted Acquisition of an asset securing such Indebtedness), provided that (x) such Indebtedness was not incurred in connection with, or in anticipation or contemplation of, such Permitted Acquisition, (y) such Indebtedness does not constitute debt for borrowed money, it being understood and agreed that Capitalized Lease Obligations and purchase money Indebtedness shall not constitute debt for borrowed money for purposes of this clause (y) and (z) the aggregate principal amount of all Indebtedness permitted by this clause (vii) shall not exceed $75,000,000 at any one time outstanding;   (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, so long as such Indebtedness is extinguished within four Business Days after its incurrence;   (ix) Indebtedness of the Borrower and its Subsidiaries with respect to performance bonds, surety bonds, appeal bonds or customs bonds required in the ordinary course of business or in connection with the enforcement of rights or claims of the Borrower or any of its Subsidiaries or in connection with judgments that do not result in a Default or an Event of Default, provided that the aggregate outstanding amount of all such performance bonds, surety bonds, appeal bonds and customs bonds permitted by this clause (ix) shall not at any time exceed $10,000,000;   (x) Indebtedness of the Borrower or any of its Subsidiaries which may be deemed to exist in connection with agreements providing for indemnification, purchase price adjustments and similar obligations in connection with the acquisition or disposition of assets in accordance with the requirements of this Agreement, so long as any such obligations are those of the Person making the respective acquisition or sale, and are not guaranteed by any other Person except as permitted by Section 10.04(vi);   (xi) Indebtedness of PD LLC under the PD LLC Notes and the other PD LLC Notes Documents and of Pulitzer under the PD LLC Notes Guaranty, in an aggregate principal amount (without duplication in the case of amounts owing by Pulitzer under the PD LLC Notes Guaranty) not to exceed $306,000,000 less the amount of any repayments of principal thereof after the Restatement Effective Date;   -103- -------------------------------------------------------------------------------- (xii) Indebtedness of PD LLC incurred pursuant to the Permitted PD LLC Notes Refinancing Indebtedness and of Pulitzer under an unsecured guaranty thereof on terms no more restrictive in any material respect than those set forth in the PD LLC Notes Guaranty but only so long as Herald provides an indemnity in favor of Pulitzer for any payments made under such unsecured guaranty on the same basis provided by Herald under the current PD LLC Indemnity Agreement; and   (xiii) additional unsecured Indebtedness of the Borrower and its Subsidiaries (“Additional Permitted Indebtedness”), so long as (i) no Default or Event of Default then exists or would result from the incurrence or issuance of any such Additional Permitted Indebtedness, (ii) at least five Business Days prior to the incurrence or issuance of any such Additional Permitted Indebtedness, the Borrower shall have delivered to the Administrative Agent a certificate executed by an Authorized Officer of the Borrower setting forth (in reasonable detail) the recalculation of the Interest Expense Coverage Ratio and the Total Leverage Ratio on a Pro Forma Basis for the Calculation Period then most recently ended prior to the date of such incurrence or issuance for which financial statements have been delivered to the Lenders under this Agreement (and determined as if such Additional Permitted Indebtedness had been incurred or issued on the first day of, and had remained outstanding throughout, such Calculation Period, and also taking into account the aggregate principal amount of all other Additional Permitted Indebtedness theretofore incurred or issued after the first day of such Calculation Period), and such recalculation shall show that the Borrower would have been in compliance with Sections 10.08 and 10.09 as of the last day of such Calculation Period, (iii) all of the terms and conditions of such Additional Permitted Indebtedness (other than interest rates, but including, without limitation, covenants, events of default, remedies, amortizations and maturities) are no less favorable in any material respect to the Lenders or materially more restrictive on the Borrower and its Subsidiaries than those terms and conditions contained in this Agreement, (iv) such Additional Permitted Indebtedness shall have a Weighted Average Life to Maturity greater than the Tranche of any then outstanding Term Loans that has the longest Weighted Average Life to Maturity, and (v) the aggregate principal amount of all Additional Permitted Indebtedness incurred by Subsidiaries of the Borrower that are not Qualified Wholly-Owned Domestic Subsidiary Guarantors shall not exceed $75,000,000 at any one time outstanding.   10.05 Advances, Investments and Loans. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other Equity Interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an “Investment” and, collectively, “Investments”), except that the following shall be permitted:   (i) the Borrower and its Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such Subsidiary;   -104- -------------------------------------------------------------------------------- (ii) the Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents, provided that during any time that Revolving Loans or Swingline Loans are outstanding, the aggregate amount of Unrestricted cash and Cash Equivalents permitted to be held by the Borrower and its Subsidiaries (excluding Excluded Domestic Subsidiaries to the extent that such cash is not permitted to be distributed at such time by the terms of the applicable PD LLC Notes Documents or the Permitted PD LLC Notes Refinancing Indebtedness) shall not exceed $75,000,000 for any period of five consecutive Business Days;   (iii) the Borrower and its Subsidiaries may hold the Investments held by them on the Original Effective Date to the extent continued to be held by them on the Restatement Effective Date and described on Schedule IX, provided that any additional Investments made with respect thereto shall be permitted only if permitted under the other provisions of this Section 10.05;   (iv) the Borrower and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;   (v) the Borrower and its Subsidiaries may make loans and advances to their officers and employees for moving, relocation and travel expenses and other similar expenditures, in each case in the ordinary course of business in an aggregate outstanding amount not to exceed $10,000,000 at any time (determined without regard to any write-downs or write-offs of such loans and advances);   (vi) the Borrower may acquire and hold obligations of the officers and employees of the Borrower or any of its Subsidiaries in connection with such officers’ and employees’ acquisition of shares of common Equity Interests of the Borrower so long as no cash is actually advanced by the Borrower or any of its Subsidiaries in connection with the acquisition of such Equity Interests;   (vii) the Borrower may enter into Interest Rate Protection Agreements and Other Hedging Agreements to the extent permitted by Section 10.04(iii);   (viii) (A) the Borrower and its Wholly-Owned Domestic Subsidiaries may make intercompany loans and advances between and among one another, (B) Qualified Wholly-Owned Foreign Subsidiaries may make intercompany loans and advances between and among one another and to the Borrower and the Qualified Wholly-Owned Domestic Subsidiaries and (C) the Borrower and its Wholly-Owned Domestic Subsidiaries may make intercompany loans and advances to Qualified Wholly-Owned Foreign Subsidiaries to enable such Qualified Wholly-Owned Foreign Subsidiaries to make Permitted Acquisitions in an aggregate principal amount not to exceed $50,000,000 (all such intercompany loans and advances pursuant to this Section 10.05(viii),   -105- -------------------------------------------------------------------------------- collectively, the “Intercompany Loans”), provided that (x) the aggregate amount of all Intercompany Loans made by the Borrower and the Qualified Wholly-Owned Domestic Subsidiaries to Wholly-Owned Domestic Subsidiaries that are not Qualified Wholly-Owned Domestic Subsidiaries shall not exceed $75,000,000 at any time outstanding (determined without regard to any write-downs or write-offs thereof), and (y) each Intercompany Loan constituting Intercompany Debt shall be subject to the terms and conditions contained in the Intercompany Subordination Agreement;   (ix) the Borrower and any Subsidiary Guarantor may make capital contributions to any Qualified Wholly-Owned Domestic Subsidiary Guarantor;   (x) the Borrower and its Subsidiaries may own the Equity Interests of their respective Subsidiaries created or acquired in accordance with the terms of this Agreement (so long as all amounts invested in such Subsidiaries are independently justified under another provision of this Section 10.05);   (xi) Contingent Obligations permitted by Section 10.04, to the extent constituting Investments;   (xii) Permitted Acquisitions shall be permitted in accordance with the requirements of Section 9.15;   (xiii) the Borrower and its Subsidiaries may receive and hold promissory notes and other non-cash consideration received in connection with any Asset Sale permitted by Section 10.02(iv); and   (xiv) in addition to Investments permitted by clauses (i) through (xiii) of this Section 10.05, the Borrower and its Subsidiaries may make additional loans, advances and other Investments to or in a Person in an aggregate amount for all loans, advances and other Investments made on or after the Original Effective Date pursuant to this clause (xiv) (determined without regard to any write-downs or write-offs thereof), net of cash repayments of principal in the case of loans, sale proceeds in the case of Investments in the form of debt instruments and cash equity returns (whether as a distribution, dividend, redemption or sale) in the case of equity investments, not to exceed 20% of Consolidated EBITDA for the then most recently ended four consecutive fiscal quarters of the Borrower (taken as one accounting period).   10.06 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate of the Borrower or any of its Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would reasonably be obtained by the Borrower or such Subsidiary at that time in a comparable arm’s-length transaction with a Person other than an Affiliate, except that the following in any event shall be permitted:   (i) Dividends may be paid to the extent provided in Section 10.03;   (ii) loans may be made and other transactions may be entered into by the Borrower and its Subsidiaries to the extent permitted by Sections 10.02, 10.04 and 10.05;   -106- -------------------------------------------------------------------------------- (iii) customary fees may be paid to non-officer directors of the Borrower and its Subsidiaries;   (iv) the Borrower may issue shares of its Equity Interests as otherwise permitted by this Agreement;   (v) the Borrower and its Subsidiaries may enter into, and may make payments under, employment agreements, employee benefits plans, stock option plans, indemnification provisions and other similar compensatory arrangements with officers, employees and directors of the Borrower and its Subsidiaries in the ordinary course of business; and   (vi) Subsidiaries of the Borrower may pay management fees, licensing fees and similar fees to the Borrower or to any Qualified Wholly-Owned Domestic Subsidiary.   10.07 Capital Expenditures. At any time prior to the Security Release Date:   (a) The Borrower will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that during any fiscal year of the Borrower (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of such Capital Expenditures does not exceed 5.00% of the aggregate amount of the Borrower’s consolidated gross revenues from continuing operations for its immediately preceding fiscal year (determined (x) in respect of the Borrower’s fiscal year ended September 30, 2005, as if the Pulitzer Acquisition had occurred on October 1, 2004, and (y) on a Pro Forma Basis for each Permitted Acquisition consummated during such immediately preceding fiscal year as if same had occurred on the first day of such immediately preceding fiscal year).   In addition to the foregoing, in each year in which a Permitted Acquisition is consummated the aggregate amount of Capital Expenditures permitted to be made in such year shall be increased by an amount equal to the product of (I) 5.00% of the gross revenues from continuing operations of the respective Acquired Entity or Business acquired in each such Permitted Acquisition for the most recently ended 12-month period for which financial statements are available for such Acquired Entity or Business (as certified in the respective officer’s certificate delivered pursuant to clause (vii) of Section 9.15(a)) multiplied by (II) a fraction, the numerator of which is the number of days remaining in such fiscal year and the denominator of which is 365 (or 366, as the case may be).   (b) In addition to the foregoing, in the event that the amount of Capital Expenditures permitted to be made by the Borrower and its Subsidiaries pursuant to clause (a) above in any fiscal year of the Borrower (before giving effect to any increase in such permitted Capital Expenditure amount pursuant to this clause (b)) is greater than the amount of Capital Expenditures actually made by the Borrower and its Subsidiaries during such fiscal year, the lesser of (x) such excess and (y) 50% of the applicable permitted scheduled Capital Expenditure amount as set forth in such clause (a) above for such fiscal year may be carried forward and utilized to make Capital Expenditures in the immediately succeeding fiscal year, provided that no amounts once carried forward pursuant to this Section 10.07(b) may be carried forward to any fiscal year of the Borrower thereafter.   -107- -------------------------------------------------------------------------------- (c) In addition to the foregoing, the Borrower and its Subsidiaries may make additional Capital Expenditures (which Capital Expenditures will not be included in any determination under Section 10.07(a) or (b)) with the amount of Net Sale Proceeds received by the Borrower or any of its Subsidiaries from any Asset Sale so long as such Net Sale Proceeds are reinvested within 360 days following the date of such Asset Sale, but only to the extent that such Net Sale Proceeds are not otherwise required to be applied as a mandatory repayment and/or commitment reduction pursuant to Section 5.02(d).   (d) In addition to the foregoing, the Borrower and its Subsidiaries may make additional Capital Expenditures (which Capital Expenditures will not be included in any determination under Section 10.07(a) or (b)) with the amount of Net Cash Proceeds received by the Borrower or any of its Subsidiaries from any Recovery Event so long as such Net Cash Proceeds are used to replace or restore any properties or assets in respect of which such Net Cash Proceeds were paid within 360 days following the date of receipt of such Net Cash Proceeds from such Recovery Event, but only to the extent that such Net Cash Proceeds are not otherwise required to be applied as a mandatory repayment and/or commitment reduction pursuant to Section 5.02(f).   (e) In addition to the foregoing, the Borrower and its Qualified Wholly-Owned Subsidiaries may make additional Capital Expenditures (which Capital Expenditures will not be included in any determination under Section 10.07(a) or (b)) constituting Permitted Acquisitions effected in accordance with the requirements of Section 9.15.   10.08 Interest Expense Coverage Ratio. The Borrower will not permit the Interest Expense Coverage Ratio for any Test Period ending on the last day of a fiscal quarter of the Borrower ending on or after the last day of the Borrower’s fiscal quarter ending closest to September 30, 2005 to be less than 2.50:1.00.   10.09 Total Leverage Ratio. The Borrower will not permit the Total Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below:   Period --------------------------------------------------------------------------------    Ratio -------------------------------------------------------------------------------- From the Original Effective Date through and including the last day of the Borrower’s fiscal quarter ending closest to September 30, 2005    6.25:1.00 The first day of the Borrower’s fiscal quarter beginning closest to October 1, 2005 through and including the last day of the Borrower’s fiscal quarter ending closest to June 30, 2006    6.00:1.00 The first day of the Borrower’s fiscal quarter beginning closest to July 1, 2006 through and including the last day of the Borrower’s fiscal quarter ending closest to September 30, 2007    5.75:1.00   -108- -------------------------------------------------------------------------------- Period --------------------------------------------------------------------------------    Ratio -------------------------------------------------------------------------------- The first day of the Borrower’s fiscal quarter beginning closest to October 1, 2007 through and including the last day of the Borrower’s fiscal quarter ending closest to September 30, 2008    5.25:1.00 The first day of the Borrower’s fiscal quarter beginning closest to October 1, 2008 through and including the last day of the Borrower’s fiscal quarter ending closest to September 30, 2009    5.00:1.00 The first day of the Borrower’s fiscal quarter beginning closest to October 1, 2009 through and including the last day of the Borrower’s fiscal quarter ending closest to September 30, 2010    4.75:1.00 Thereafter    4.50:1.00   Notwithstanding anything to the contrary contained above in this Section 10.09, each of the ratios contained above in this Section 10.09 shall be reduced by 0.75:1.00 for any period from and after the Security Release Date; provided, however, in no event shall any of the ratios contained above in this Section 10.09 be reduced below 4.50:1.00 by operation of the provisions of this sentence.   10.10 Modifications of Pulitzer Acquisition Documents, Certificate of Incorporation, By-Laws and Certain Other Agreements; Limitations on Voluntary Payments, etc. The Borrower will not, and will not permit any of its Subsidiaries to:   (i) amend, modify, change or waive any term or provision of any Pulitzer Acquisition Document unless such amendment, modification, change or waiver is approved in advance by the Administrative Agent and same could not reasonably be expected to be adverse to the interests of the Lenders in any material respect;   (ii) amend, modify or change its certificate or articles of incorporation (including, without limitation, by the filing or modification of any certificate or articles of designation), certificate of formation, limited liability company agreement or by-laws (or the equivalent organizational documents), as applicable, or any agreement entered into by it with respect to its capital stock or other Equity Interests (including any Shareholders’ Agreement) in any material respect, or enter into any new agreement with respect to its capital stock or other Equity Interests, unless such amendment, modification, change or other action contemplated by this clause (ii) could not reasonably be expected to be adverse to the interests of the Lenders in any material respect;   (iii) amend, modify or change any provision of any Tax Sharing Agreement or enter into any new tax sharing agreement, tax allocation agreement or similar agreement without the prior written consent of the Administrative Agent;   (iv) make (or give any notice in respect of) any voluntary or optional payment   -109- -------------------------------------------------------------------------------- or prepayment on or redemption, repurchase or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due), or any prepayment or redemption as a result of any asset sale or similar event of, the PD LLC Notes, the PD LLC Notes Guaranty or the Permitted PD LLC Notes Refinancing Indebtedness, provided that the PD LLC Notes may be refinanced with Permitted PD LLC Notes Refinancing Indebtedness in accordance with the terms of this Agreement; or   (v) amend or modify, or permit the amendment or modification of, any provision of any PD LLC Note Document or any indenture, purchase agreement, loan agreement or other agreement or instrument relating to the Permitted PD LLC Notes Refinancing Indebtedness, other than any such amendments or modifications with the consent of the Administrative Agent and the Syndication Agent and which are not adverse to the Lenders in any material respect.   10.11 Limitation on Certain Restrictions on Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other Equity Interest or participation in its profits owned by the Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the Borrower or any of its Subsidiaries, (b) make loans or advances to the Borrower or any of its Subsidiaries or (c) transfer any of its properties or assets to the Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) the PD LLC Notes Documents (as in effect on the Restatement Effective Date) and the Permitted PD LLC Notes Refinancing Indebtedness (as in effect at the time of the issuance or incurrence thereof so long as such restrictions are no more restrictive in any material respect than those restrictions set forth in the PD LLC Notes Documents as in effect on the Restatement Effective Date), in each case so long as such restrictions apply solely to Pulitzer and/or its applicable Subsidiaries, (iv) customary provisions restricting subletting or assignment of any lease governing any leasehold interest of the Borrower or any of its Subsidiaries, (v) customary provisions restricting assignment of any licensing agreement (in which the Borrower or any of its Subsidiaries is the licensee) or other contract entered into by the Borrower or any of its Subsidiaries in the ordinary course of business, (vi) restrictions on the transfer of any asset pending the close of the sale of such asset, and (vii) restrictions on the transfer of any asset subject to a Lien permitted by Section 10.01(iii), (vi), (vii), (x), (xiv), (xv) or (xvii).   10.12 Limitation on Issuance of Equity Interests. (a) The Borrower will not, and will not permit any of its Subsidiaries to, issue (i) any Preferred Equity (other than Qualified Preferred Stock of the Borrower issued pursuant to clause (c) below) or (ii) any redeemable common stock or other redeemable common Equity Interests other than common stock or other redeemable common Equity Interests that is or are redeemable at the sole option of the Borrower or such Subsidiary, as the case may be.   (b) The Borrower will not permit any of its Subsidiaries to issue any capital stock or other Equity Interests (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock or other Equity Interests, except   -110- -------------------------------------------------------------------------------- (i) for transfers and replacements of then outstanding shares of capital stock or other Equity Interests, (ii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of the Borrower or any of its Subsidiaries in any class of the capital stock or other Equity Interests of such Subsidiary, (iii) in the case of Foreign Subsidiaries of the Borrower, to qualify directors and other nominal amounts held by local nationals in each case to the extent required by applicable law, or (iv) for issuances by Subsidiaries of the Borrower which are newly created or acquired in accordance with the terms of this Agreement.   (c) The Borrower may from time to time (i) issue shares of its Qualified Preferred Stock, so long as (x) no Default or Event of Default shall exist at the time of any such issuance or immediately after giving effect thereto, and (y) with respect to each issuance of Qualified Preferred Stock, the gross cash proceeds therefrom (or in the case of Qualified Preferred Stock directly issued as consideration for a Permitted Acquisition, the Fair Market Value of the assets received therefor) shall be at least equal to 100% of the liquidation preference thereof at the time of issuance and (ii) issue additional shares of Qualified Preferred Stock to pay in-kind regularly scheduled Dividends on Qualified Preferred Stock theretofore issued in compliance with this Section 10.12(c).   10.13 Business; etc. The Borrower will not, and will not permit any of its Subsidiaries to, engage directly or indirectly in any business other than the businesses engaged in by the Borrower and its Subsidiaries as of the Restatement Effective Date and with reasonable extensions thereof and business ancillary or complimentary thereto.   10.14 Limitation on Creation of Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, establish, create or acquire after the Restatement Effective Date any Subsidiary, provided that (x) the Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish, create and, to the extent permitted by this Agreement, acquire Wholly-Owned Subsidiaries, and (y) the Borrower and its Subsidiaries shall be permitted to establish, create and acquire Non-Wholly Owned Subsidiaries to the extent permitted by Section 10.05(xiv) or as a result of a Permitted Acquisition, in each case so long as (i) at least 5 days’ prior written notice thereof is given by the Borrower to the Administrative Agent (or such shorter period of time as is acceptable to the Administrative Agent in any given case), (ii) if prior to the Security Release Date, the capital stock or other Equity Interests of such new Subsidiary are promptly pledged pursuant to, and to the extent required by, this Agreement and the Pledge Agreement and the certificates, if any, representing such stock or other Equity Interests, together with stock or other appropriate powers duly executed in blank, are delivered to the Collateral Agent, and (iii) if prior to the Guaranty Release Date, each such new Domestic Subsidiary (and, to the extent required by Section 9.16, each such new Foreign Subsidiary) executes a counterpart of the Subsidiaries Guaranty, the Pledge Agreement and the Intercompany Subordination Agreement; provided, however, until such time as Pulitzer and its Domestic Subsidiaries become Qualified Wholly-Owned Domestic Subsidiaries, any such Person that is not a Qualified Wholly-Owned Domestic Subsidiary may not acquire any new Subsidiaries pursuant to a Permitted Acquisition or an Investment made pursuant to Section 10.05(xiv). In addition, each new Subsidiary that is required to execute any Credit Document shall execute and deliver, or cause to be executed and delivered, all other relevant documentation (including opinions of counsel) of the type described in Section 6 as such new Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Restatement Effective Date.   -111- -------------------------------------------------------------------------------- SECTION 11. Events of Default.   Upon the occurrence of any of the following specified events (each, an “Event of Default”):   11.01 Payments. The Borrower shall (i) default in the payment when due of any principal of any Loan, Note or Unpaid Drawing or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any interest on any Loan, Note or Unpaid Drawing or any Fees or any other amounts owing hereunder or under any other Credit Document; or   11.02 Representations, etc. Any representation, warranty or statement made or deemed made by any Credit Party herein or in any other Credit Document or in any certificate delivered to the Administrative Agent or any Lender pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or   11.03 Covenants. The Borrower or any of its Subsidiaries shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 9.01(f)(i), 9.08, 9.11, 9.15 or Section 10 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement (other than those set forth in Sections 11.01 and 11.02) and such default shall continue unremedied for a period of 30 days after written notice thereof to the defaulting party by the Administrative Agent or the Required Lenders; or   11.04 Default Under Other Agreements. (i) The Borrower or any of its Subsidiaries shall (x) default in any payment of any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in an instrument or agreement under which such Indebtedness was created or (y) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due (and/or, in the case of an Interest Rate Protection Agreement or Other Hedging Agreement, to be terminated) prior to its stated maturity, or (ii) any Indebtedness (other than the Obligations) of the Borrower or any of its Subsidiaries shall be declared to be (or shall become) due and payable (and/or, in the case of an Interest Rate Protection Agreement or Other Hedging Agreement, to be terminated), or required to be prepaid (and/or terminated, as the case may be) other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that it shall not be a Default or an Event of Default under this Section 11.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) and (ii) is at least $25,000,000; or   11.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto (the “Bankruptcy Code”); or an involuntary case is commenced against the Borrower or any of its Subsidiaries, and the   -112- -------------------------------------------------------------------------------- petition is not controverted within 15 days, or is not dismissed within 60 days after the filing thereof; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries, to operate all or any substantial portion of the business of the Borrower or any of its Subsidiaries, or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Subsidiaries, or there is commenced against the Borrower or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days after the filing thereof, or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any Company action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or   11.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA, Section 4980B(g)(2) of the Code or 45 Code of Federal Regulations Section 160.103) under Section 4980B of the Code and/or the Health Insurance Portability and Accountability Act of 1996, or the Borrower or any Subsidiary of the Borrower has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans, a “default,” within the meaning of Section 4219(c)(5) of ERISA, shall occur with respect to any Plan; any applicable law, rule or regulation is adopted, changed or interpreted, or the interpretation or administration thereof is changed, in each case after the date hereof, by any governmental authority or agency or by any court (a “Change in Law”), or, as a result of a Change in Law, an event occurs following a Change in Law, with respect to or otherwise affecting any Plan; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, either individually or in the aggregate, in the opinion of the Required Lenders, has had, or could reasonably be expected to have, a Material Adverse Effect; or   -113- -------------------------------------------------------------------------------- 11.07 Pledge Agreement. At any time prior to the Security Release Date, the Pledge Agreement shall cease to be in full force and effect, or shall cease to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral, in favor of the Collateral Agent, superior to and prior to the rights of all third Persons, and subject to no other Liens, or any Credit Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Pledge Agreement and such default shall continue beyond the period of grace, if any, specifically applicable thereto pursuant to the terms of the Pledge Agreement; or   11.08 Subsidiaries Guaranty. The Subsidiaries Guaranty or any provision thereof shall cease to be in full force or effect as to any Subsidiary Guarantor (except as a result of a release of any Subsidiary Guarantor in accordance with the terms of the Subsidiaries Guaranty), or any Subsidiary Guarantor or any Person acting for or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor’s obligations under the Subsidiaries Guaranty or any Subsidiaries Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Subsidiaries Guaranty; or   11.09 Intercompany Subordination Agreement. The Intercompany Subordination Agreement or any provision thereof shall cease to be in full force or effect as to the Borrower or any Subsidiary of the Borrower party thereto (except as a result of a release of any such Person in accordance with the terms of the Intercompany Subordination Agreement), or the Borrower, any Subsidiary of the Borrower or any Person acting for or on behalf of the Borrower or any Subsidiary of the Borrower shall deny or disaffirm the Borrower’s or such Subsidiary’s obligations under the Intercompany Subordination Agreement or the Borrower or any of its Subsidiaries shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Intercompany Subordination Agreement; or   11.10 Judgments. One or more judgments or decrees shall be entered against the Borrower or any Subsidiary of the Borrower involving in the aggregate for the Borrower and its Subsidiaries a liability (not paid or to the extent not covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 30 consecutive days, and the aggregate amount of all such judgments equals or exceeds $10,000,000; or   11.11 Change of Control. A Change of Control shall occur;   then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Lenders, shall by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or the holder of any Note to enforce its claims against any Credit Party (provided that, if an Event of Default specified in Section 11.05 shall   -114- -------------------------------------------------------------------------------- occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon all Commitments of each Lender shall forthwith terminate immediately and any Commitment Commission shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 11.05 with respect to the Borrower, it will pay) to the Collateral Agent at the Payment Office such additional amount of cash or Cash Equivalents, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Borrower and then outstanding; (v) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Pledge Agreement; and (vi) apply any cash collateral held by the Administrative Agent pursuant to Section 5.02 to the repayment of the Obligations.   SECTION 12. The Administrative Agent.   12.01 Appointment. The Lenders hereby irrevocably designate and appoint DBTCA as Administrative Agent (for purposes of this Section 12 and Section 13.01, the term “Administrative Agent” also shall include DBTCA in its capacity as Collateral Agent pursuant to the Pledge Agreement) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its respective duties hereunder by or through its officers, directors, agents, employees or affiliates.   12.02 Nature of Duties. (a) The Administrative Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents. Neither the Administrative Agent nor any of its officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision). The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or in any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein.   -115- -------------------------------------------------------------------------------- (b) Notwithstanding any other provision of this Agreement or any provision of any other Credit Document, the Syndication Agent, the Co-Documentation Agents, the Joint Lead Arrangers, the Book Running Manager and the Persons named on the title page hereof as “Senior Managing Agents” and “Managing Agents” are named as such for recognition purposes only, and in their respective capacities as such shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Credit Documents or the transactions contemplated hereby and thereby; it being understood and agreed that the Syndication Agent, the Co-Documentation Agents, the Joint Lead Arrangers, the Book Running Manager and the Persons named on the title page hereof as “Senior Managing Agents” and “Managing Agents” shall each be entitled to all indemnification and reimbursement rights in favor of the Administrative Agent as, and to the extent, provided for under Sections 12.06 and 13.01. Without limitation of the foregoing, neither the Syndication Agent, the Co-Documentation Agents, the Joint Lead Arranger, the Book Running Manager, nor any of the Persons named on the title page hereof as “Senior Managing Agents” or “Managing Agents” shall, solely by reason of this Agreement or any other Credit Documents, have any fiduciary relationship in respect of any Lender or the holder of any Note.   12.03 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries and, except as expressly provided in this Agreement, the Administrative Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Administrative Agent shall not be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower or any of its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrower or any of its Subsidiaries or the existence or possible existence of any Default or Event of Default.   12.04 Certain Rights of the Administrative Agent. If the Administrative Agent requests instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Lenders; and the Administrative Agent shall not incur liability to any Lender by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.   -116- -------------------------------------------------------------------------------- 12.05 Reliance. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent reasonably believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent.   12.06 Indemnification. To the extent the Administrative Agent (or any affiliate thereof) is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Administrative Agent (and any affiliate thereof) in proportion to their respective “percentage” as used in determining the Required Lenders (determined as if there were no Defaulting Lenders) for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent (or any affiliate thereof) in performing its duties hereunder or under any other Credit Document or in any way relating to or arising out of this Agreement or any other Credit Document with respect to such duties or its role as Administrative Agent; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s (or such affiliate’s) gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).   12.07 The Administrative Agent in its Individual Capacity. With respect to its obligation to make Loans, or issue or participate in Letters of Credit, under this Agreement, the Administrative Agent shall have the rights and powers specified herein for a “Lender” and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term “Lender”, “Required Lenders”, “Majority Lenders”, or any similar terms shall, unless the context clearly indicates otherwise, include the Administrative Agent in its respective individual capacities. The Administrative Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with, or provide debt financing, equity capital or other services (including financial advisory services) to any Credit Party or any Affiliate of any Credit Party (or any Person engaged in a similar business with any Credit Party or any Affiliate thereof) as if they were not performing the duties specified herein, and may accept fees and other consideration from any Credit Party or any Affiliate of any Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.   12.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.   -117- -------------------------------------------------------------------------------- 12.09 Resignation by the Administrative Agent. (a) The Administrative Agent may resign from the performance of all its respective functions and duties hereunder and/or under the other Credit Documents at any time by giving 30 days’ prior written notice to the Lenders and, unless a Default or an Event of Default under Section 11.05 then exists, the Borrower. Any such resignation by an Administrative Agent hereunder shall also constitute its (and its applicable Affiliate’s) resignation as an Issuing Lender and/or the Swingline Lender, as the case may be, in which case the resigning Administrative Agent (and its applicable Affiliates) (x) shall not be required to issue any further Letters of Credit or make any additional Swingline Loans hereunder and (y) shall maintain all of its rights as Issuing Lender or Swingline Lender, as the case may be, with respect to any Letters of Credit issued by it, or Swingline Loans made by it, prior to the date of such resignation. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below.   (b) Upon any such notice of resignation by the Administrative Agent, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower, which acceptance shall not be unreasonably withheld or delayed (provided that the Borrower’s approval shall not be required if an Event of Default then exists).   (c) If a successor Administrative Agent shall not have been so appointed within such 30 day period, the Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed, provided that the Borrower’s consent shall not be required if an Event of Default then exists), shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.   (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 35th day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent’s resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.   (e) Upon a resignation of the Administrative Agent pursuant to this Section 12.09, the Administrative Agent shall remain indemnified to the extent provided in this Agreement and the other Credit Documents and the provisions of this Section 12 (and the analogous provisions of the other Credit Documents) shall continue in effect for the benefit of the Administrative Agent for all of its actions and inactions while serving as the Administrative Agent.   12.10 Collateral Matters. (a) Each Lender authorizes and directs the Collateral Agent to enter into the Pledge Agreement for the benefit of the Lenders and the other Secured Creditors. Each Lender hereby agrees, and each holder of any Note by the acceptance thereof will be deemed to agree, that, except as otherwise set forth herein, any action taken by the Required Lenders (or all of the Lenders hereunder, to the extent required by Section 13.12) in accordance with the provisions of this Agreement or the Pledge Agreement, and the exercise by   -118- -------------------------------------------------------------------------------- the Required Lenders (or all the Lenders, as the case may be) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. The Collateral Agent is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or the Pledge Agreement which may be necessary to perfect and maintain perfected the security interest in and liens upon the Collateral granted pursuant to the Pledge Agreement.   (b) The Lenders hereby authorize the Collateral Agent, at its option and in its discretion, to release any Lien granted to or held by the Collateral Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations at any time arising under or in respect of this Agreement or the Credit Documents or the transactions contemplated hereby or thereby, (ii) constituting property being sold or otherwise disposed of (to Persons other than the Borrower and its Subsidiaries) upon the sale or other disposition thereof in compliance with Section 10.02, (iii) if approved, authorized or ratified in writing by the Required Lenders (or all of the Lenders hereunder, to the extent required by Section 13.12) or (iv) as otherwise may be expressly provided in this Agreement and/or the Pledge Agreement. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Collateral Agent’s authority to release particular types or items of Collateral pursuant to this Section 12.10.   (c) The Collateral Agent shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by any Credit Party or is cared for, protected or insured or that the Liens granted to the Collateral Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Collateral Agent in this Section 12.10 or in the Pledge Agreement, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion, given the Collateral Agent’s own interest in the Collateral as one of the Lenders and that the Collateral Agent shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).   12.11 Delivery of Information. The Administrative Agent shall not be required to deliver to any Lender originals or copies of any documents, instruments, notices, communications or other information received by the Administrative Agent from any Credit Party, any Subsidiary, the Required Lenders, any Lender or any other Person under or in connection with this Agreement or any other Credit Document except (i) as specifically provided in this Agreement or any other Credit Document and (ii) as specifically requested from time to time in writing by any Lender with respect to a specific document, instrument, notice or other written communication received by and in the possession of the Administrative Agent at the time of receipt of such request and then only in accordance with such specific request.   -119- -------------------------------------------------------------------------------- SECTION 13. Miscellaneous.   13.01 Payment of Expenses, etc. The Borrower hereby agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of each Agent (including, without limitation, the reasonable fees and disbursements of White & Case LLP and each Agent’s other counsel and consultants) in connection with the preparation, execution, delivery and administration of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of each Agent and its Affiliates in connection with its or their syndication efforts with respect to this Agreement and of each Agent and, after the occurrence of an Event of Default, each of the Issuing Lenders and Lenders in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or pursuant to any insolvency or bankruptcy proceedings (including, in each case without limitation, the reasonable fees and disbursements of counsel and consultants for each Agent and, after the occurrence of an Event of Default, counsel for each of the Issuing Lenders and Lenders); (ii) pay and hold each Agent, each of the Issuing Lenders and each of the Lenders harmless from and against any and all present and future stamp, excise and other similar documentary taxes with respect to the foregoing matters and save each Agent, each of the Issuing Lenders and each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Agent, such Issuing Lender or such Lender) to pay such taxes; and (iii) indemnify each Agent, each Issuing Lender and each Lender, and each of their respective officers, directors, employees, representatives, agents, affiliates, trustees and investment advisors from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys’ and consultants’ fees and disbursements) of whatsoever kind or nature incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not any Agent, any Issuing Lender or any Lender is a party thereto and whether or not such investigation, litigation or other proceeding is brought by or on behalf of any Credit Party) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of the Original Transaction or any other transactions contemplated herein or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents or in any other way relating to or arising out of this Agreement or any other Credit Document, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property at any time owned, leased or operated by the Borrower or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials by the Borrower or any of its Subsidiaries at any location, whether or not owned, leased or operated by the Borrower or any of its Subsidiaries, the non-compliance by the Borrower or any of its Subsidiaries with any Environmental Law (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against the Borrower, any of its Subsidiaries or any Real Property at any time owned, leased or operated by the Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and   -120- -------------------------------------------------------------------------------- other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified (as determined by a court of competent jurisdiction in a final and non-appealable decision)). To the extent that the undertaking to indemnify, pay or hold harmless any Agent, any Issuing Lender or any Lender set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law.   13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent, each Issuing Lender and each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by the Administrative Agent, such Issuing Lender or such Lender (including, without limitation, by branches and agencies of the Administrative Agent, such Issuing Lender or such Lender wherever located) to or for the credit or the account of the Borrower or any of its Subsidiaries against and on account of the Obligations and liabilities of the Credit Parties to the Administrative Agent, such Issuing Lender or such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not the Administrative Agent, such Issuing Lender or such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.   13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to any Credit Party, at the address specified opposite its signature below or in the other relevant Credit Documents; if to any Lender, at its address specified on Schedule II; and if to the Administrative Agent, at the Notice Office; or, as to any Credit Party or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Lender, at such other address as shall be designated by such Lender in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Administrative Agent and the Borrower shall not be effective until received by the Administrative Agent or the Borrower, as the case may be.   13.04 Benefit of Agreement; Assignments; Participations. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, the Borrower may not assign or transfer any of its rights, obligations or interest hereunder without the prior written consent of each Lender   -121- -------------------------------------------------------------------------------- and, provided further, that, although any Lender may transfer, assign or grant participations in its rights hereunder, such Lender shall remain a “Lender” for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Sections 2.13 and 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a “Lender” hereunder and, provided further, that no Lender shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof (it being understood that any amendment or modification to the financial definitions in this Agreement or to Section 13.07(a) shall not constitute a reduction in the rate of interest or Fees payable hereunder), or increase the amount of the participant’s participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment (or the available portion thereof) or Loan shall be permitted without the consent of any participant if the participant’s participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under the Pledge Agreement (except as expressly provided in the Credit Documents) supporting the Loans or Letters of Credit hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (including, without limitation, any rights of set-off) (the participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation.   (b) Notwithstanding the foregoing, any Lender (or any Lender together with one or more other Lenders) may (x) assign all or a portion of its Commitments and related outstanding Obligations (or, if the Commitments with respect to the relevant Tranche have terminated, outstanding Obligations) hereunder to (i)(A) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or (B) to one or more other Lenders or any affiliate of any such other Lender which is at least 50% owned by such other Lender or its parent company (provided that any fund that invests in loans and is managed or advised by the same investment advisor of another fund which is a Lender (or by an Affiliate of such investment advisor) shall be treated as an affiliate of such other Lender for the purposes of this sub-clause (x)(i)(B)), or (ii) in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed or advised by the same investment advisor of any Lender or by an Affiliate of such investment advisor or (y) assign all, or if less than all, a portion equal to at least $1,000,000 in the aggregate for the assigning Lender or assigning Lenders, of such Commitments and related outstanding Obligations (or, if the Commitments with respect to the relevant Tranche have terminated, outstanding Obligations) hereunder to one or more Eligible Transferees (treating any fund that invests in loans and any other fund that invests in loans and is managed or advised by the same investment advisor of such fund or by an Affiliate of such investment advisor as a single Eligible Transferee), each of which   -122- -------------------------------------------------------------------------------- assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement, provided that (i) at such time, Schedule I shall be deemed modified to reflect the Commitments and/or outstanding Loans, as the case may be, of such new Lender and of the existing Lenders, (ii) upon the surrender of the relevant Notes by the assigning Lender (or, upon such assigning Lender’s indemnifying the Borrower for any lost Note pursuant to a customary indemnification agreement) new Notes will be issued, at the Borrower’s expense, to such new Lender and to the assigning Lender upon the request of such new Lender or assigning Lender, such new Notes to be in conformity with the requirements of Section 2.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments and/or outstanding Loans, as the case may be, (iii) the consent of the Administrative Agent and, so long as no Default or Event of Default then exists, the Borrower, shall be required in connection with any such assignment pursuant to clause (y) above (each of which consents shall not be unreasonably withheld or delayed), (iv) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500, and (v) no such transfer or assignment will be effective until recorded by the Administrative Agent on the Register pursuant to Section 13.15. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments and outstanding Loans. At the time of each assignment pursuant to this Section 13.04(b) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall, to the extent legally entitled to do so, provide to the Borrower the appropriate Internal Revenue Service Forms (and, if applicable, a Section 5.04(b)(ii) Certificate) described in Section 5.04(b). To the extent that an assignment of all or any portion of a Lender’s Commitments and related outstanding Obligations pursuant to Section 2.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 2.10, 3.06 or 5.04 from those being charged by the respective assigning Lender prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower, in accordance with and pursuant to the other provisions of this Agreement, shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment).   (c) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with prior notification to the Administrative Agent (but without the consent of the Administrative Agent or the Borrower), any Lender which is a fund may pledge all or any portion of its Loans and Notes to its trustee or to a collateral agent providing credit or credit support to such Lender in support of its obligations to such trustee, such collateral agent or a holder of such obligations, as the case may be. No pledge pursuant to this clause (c) shall release the transferor Lender from any of its obligations hereunder.   13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent, the Collateral Agent, any Issuing Lender or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower or any other Credit Party and the Administrative Agent, the Collateral Agent, any Issuing Lender or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document   -123- -------------------------------------------------------------------------------- preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Administrative Agent, the Collateral Agent, any Issuing Lender or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent, the Collateral Agent, any Issuing Lender or any Lender to any other or further action in any circumstances without notice or demand.   13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations hereunder, the Administrative Agent shall distribute such payment to the Lenders entitled thereto (other than any Lender that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.   (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker’s lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Lenders, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.   (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.   13.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders); provided that, (i) except as otherwise specifically provided herein, all computations of Excess Cash Flow and the Applicable Margin, and all computations and all definitions (including accounting terms) used in determining compliance with Sections 10.07, 10.08 and 10.09 shall utilize GAAP and policies in conformity with those used to prepare the audited financial statements of the Borrower referred to in Section 8.05(a) for the Borrower’s fiscal year ended September 30, 2004 and (ii) to the extent expressly provided herein, certain calculations shall be made on a Pro Forma Basis.   -124- -------------------------------------------------------------------------------- (b) All computations of interest, Commitment Commission and other Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day; except that in the case of Letter of Credit Fees and Facing Fees, the last day shall be included) occurring in the period for which such interest, Commitment Commission or Fees are payable.   13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE PERSONAL JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER THE BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER THE BORROWER. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.   (b) THE BORROWER 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 AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.   -125- -------------------------------------------------------------------------------- (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.   13.09 Counterparts. This Agreement may be executed in any number of counterparts (including by facsimile or other electronic transmission) and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent.   13.10 Effectiveness. This Agreement shall become effective on the date (the “Restatement Effective Date”) on which (i) the Borrower, the Administrative Agent and each of the Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same (including by facsimile or other electronic transmission) to the Administrative Agent at the Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it and (ii) each of the conditions precedent set forth in Section 6 shall have been satisfied. The Administrative Agent will give the Borrower and each Lender prompt written notice of the occurrence of the Restatement Effective Date.   13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.   13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party hereto or thereto and the Required Lenders (although additional parties may be added to (and annexes may be modified to reflect such additions), and Subsidiaries of the Borrower may be released from, the Subsidiaries Guaranty and the Pledge Agreement in accordance with the provisions hereof and thereof without the consent of the other Credit Parties party thereto or the Required Lenders), provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) (with Obligations being directly affected in the case of following clause (i)), (i)(x) extend the final scheduled maturity of any Loan or Note or extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with the waiver of applicability of any post-default increase in interest rates), or reduce the principal amount thereof (it being understood that any amendment or modification to the financial definitions in this Agreement or to Section 13.07(a) shall not constitute a reduction in the rate of interest or Fees for the purposes   -126- -------------------------------------------------------------------------------- of this clause (i)), or (y) reduce the amount of, or extend the date of, any Scheduled Term Loan Repayment of a given Tranche of Term Loans, (ii) release all or substantially all of the Collateral (except as expressly provided in the Credit Documents) under the Pledge Agreement, (iii) amend, modify or waive any provision of this Section 13.12(a) (except for technical amendments with respect to additional extensions of credit pursuant to this Agreement which afford the protections to such additional extensions of credit of the type provided to the Term Loans and the Revolving Loan Commitments on the Restatement Effective Date), (iv) reduce the percentage specified in the definition of Required Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date) or (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (1) increase the Commitments of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitment shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase of the Commitment of such Lender), (2) except in cases where additional extensions of term loans and/or revolving loans are being afforded substantially the same treatment afforded to the Term Loans and Revolving Loans pursuant to this Agreement as originally in effect, (x) without the consent of the Majority Lenders of each Tranche which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below, alter the required application of any prepayments or repayments (or commitment reduction), as between the various Tranches, pursuant to Section 5.01(a) or 5.02 (excluding Section 5.02(b)) (although the Required Lenders may waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered) or (y) without the consent of each Lender of each Tranche which is adversely affected by such amendment, amend the definition of Majority Lenders (it being understood that with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date), (3) without the consent of each Issuing Lender, amend, modify or waive any provision of Section 3 or alter its rights or obligations with respect to Letters of Credit, (4) without the consent of the Swingline Lender, alter the Swingline Lender’s rights or obligations with respect to Swingline Loans, (5) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 12 or any other provision as same relates to the rights or obligations of the Administrative Agent, or (6) without the consent of Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent.   (b) If, in connection with any proposed change, waiver, discharge or termination of or to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual   -127- -------------------------------------------------------------------------------- consent is required are treated as described in either clause (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders (or, at the option of the Borrower, if the respective Lender’s consent is required with respect to less than all Tranches of Loans (or related Commitments), to replace only the Revolving Loan Commitments and/or Loans of the respective non-consenting Lender which gave rise to the need to obtain such Lender’s individual consent) with one or more Replacement Lenders pursuant to Section 2.13 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender’s Revolving Loan Commitment (if such Lender’s consent is required as a result of its Revolving Loan Commitment) and/or repay each Tranche of outstanding Loans of such Lender which gave rise to the need to obtain such Lender’s consent and/or cash collateralize its applicable RL Percentage of the Letter of Credit of Outstandings, in accordance with Sections 4.02(b) and/or 5.01(b), provided that, unless the Commitments which are terminated and Loans which are repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B), the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans solely as a result of the exercise of such Lender’s rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.12(a).   13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 2.10, 2.11, 3.06, 5.04, 12.06 and 13.01 shall survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Obligations.   13.14 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 2.10, 2.11, 3.06 or 5.04 from those being charged by the respective Lender prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer).   13.15 Register. The Borrower hereby designates the Administrative Agent to serve as its agent, solely for purposes of this Section 13.15, to maintain a register (the “Register”) on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be   -128- -------------------------------------------------------------------------------- recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note (if any) evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender at the request of any such Lender. The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.15.   13.16 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.16, each Lender agrees that it will use its reasonable efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors, advisors or counsel or to another Lender if such Lender or such Lender’s holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Lender) any non-public confidential information with respect to the Borrower or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document, provided that any Lender may disclose any such information (i) as has become generally available to the public other than by virtue of a breach of this Section 13.16(a) by the respective Lender or is or has become available to such Lender on a non-confidential basis, (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (iii) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (iv) in order to comply with any law, order, regulation or ruling applicable to such Lender, (v) to the Administrative Agent or the Collateral Agent, (vi) to any direct or indirect contractual counterparty in any swap, hedge or similar agreement (or to any such contractual counterparty’s professional advisor), so long as such contractual counterparty (or such professional advisor) agrees to be bound by the provisions of this Section 13.16 and (vii) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, provided that such prospective transferee agrees to be bound by the confidentiality provisions contained in this Section 13.16.   (b) The Borrower hereby acknowledges and agrees that each Lender may share with any of its affiliates, and such affiliates may share with such Lender, any information related to the Borrower or any of its Subsidiaries (including, without limitation, any non-public customer information regarding the creditworthiness of the Borrower and its Subsidiaries), in each case only if such Lender or affiliate shall have determined in its sole discretion that the Lender or affiliate with whom the information is to be shared should have access to such information; provided that such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Lender.   -129- -------------------------------------------------------------------------------- 13.17 Securities Release; Guaranty Release. (a) To the extent that the Borrower achieves a Total Leverage Ratio of less than 4.25:1.00 for two consecutive Test Periods, then upon the delivery of the applicable financial statements and related Compliance Certificate pursuant to Section 9.01(a) or (b), as the case may be, and Section 9.01(e) in respect of the second such consecutive Test Period, if no Default or Event of Default has occurred or is continuing at such time, all Pledge Agreement Collateral shall be automatically released from the Liens created by the Pledge Agreement, and except for indemnification and similar obligations, the Pledge Agreement shall terminate at such time (the “Security Release Date”).   (b) To the extent that the Borrower achieves a Total Leverage Ratio of less than 4.25:1.00 for two consecutive Test Periods, then upon the delivery of the applicable financial statements and related Compliance Certificate pursuant to Section 9.01(a) or (b), as the case may be, and Section 9.01(e) in respect of the second such consecutive Test Period, if (x) no Default or Event of Default has occurred or is continuing at such time, (y) the Subsidiary Guarantors have not provided a guaranty of any other Indebtedness of the Borrower or any of its Subsidiaries at such time and (z) the aggregate principal amount of all Additional Permitted Indebtedness of all Subsidiaries of the Borrower does not exceed $75,000,000 at such time, the Subsidiary Guarantors shall be released from their obligations under the Subsidiaries Guaranty (the “Guaranty Release Date”), subject to the provisions of Section 9.17.   13.18 The Patriot Act. Each Lender subject to the USA PATRIOT ACT (Title 111 of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”) hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower and the other Credit Parties and other information that will allow such Lender to identify the Borrower and the other Credit Parties in accordance with the Patriot Act.   *    *    *   -130- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written.   Address:   215 North Harrison Street Suite 600 Davenport, Iowa 52801 Attention: Chief Financial Officer Tel: (563) 383-2179 Fax: (563) 327-2600   LEE ENTERPRISES, INCORPORATED     By:   /s/ Carl G. Schmidt --------------------------------------------------------------------------------   Title:   Vice President, Chief Financial       Officer & Treasurer     DEUTSCHE BANK TRUST COMPANY AMERICAS, Individually and as Administrative Agent     By:   /s/ Susan L. LeFrvre --------------------------------------------------------------------------------     Title:   Director     By:   /s/ Omayra Laucella --------------------------------------------------------------------------------     Title:   Vice President     DEUTSCHE BANK SECURITIES INC., as a Joint Lead Arranger and as Book Running Manager     By:   /s/ Sean C. Murphy --------------------------------------------------------------------------------     Title:   Director     By:   /s/ Catherine A. Madigan --------------------------------------------------------------------------------     Title:   Managing Director     SUNTRUST BANK, Individually and as Syndication Agent     By:   /s/ Gregory N. Waters --------------------------------------------------------------------------------     Title:   Vice President     SUNTRUST CAPITAL MARKETS, INC., as a Joint Lead Arranger     By:   /s/ Gregory N. Waters --------------------------------------------------------------------------------     Title:   Managing Director -------------------------------------------------------------------------------- SIGNATURE PAGE TO THE CREDIT AGREEMENT DATED AS OF DECEMBER 21, 2005, AMONG LEE ENTERPRISES, INCORPORATED, THE LENDERS PARTY HERETO FROM TIME TO TIME, DEUTSCHE BANK TRUST COMPANY AMERICAS, AS ADMINISTRATIVE AGENT, DEUTSCHE BANK SECURITIES INC. AND SUNTRUST CAPITAL MARKETS, INC., AS JOINT LEAD ARRANGERS, DEUTSCHE BANK SECURITIES INC., AS BOOK RUNNING MANAGER, SUNTRUST BANK, AS SYNDICATION AGENT, AND BANK OF AMERICA, N.A., THE BANK OF NEW YORK AND THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH, AS CO-DOCUMENTATION AGENTS BANK OF AMERICA, N.A. By:   /s/ Christopher Holmgren -------------------------------------------------------------------------------- Title:   Managing Director THE BANK OF NEW YORK By:   /s/ Mehrasa Raygani -------------------------------------------------------------------------------- Title:   Vice President THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By:   /s/ Tsuguyuki Umene -------------------------------------------------------------------------------- Title:   Deputy General Manager US BANK NATIONAL ASSOCIATION By:   /s/ Mark Weitekamp -------------------------------------------------------------------------------- Title:   Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION By:   /s/ Scott B. Carlson -------------------------------------------------------------------------------- Title:   Vice President -------------------------------------------------------------------------------- THE BANK OF NOVA SCOTIA By:   /s/ Brenda S. Insull -------------------------------------------------------------------------------- Title:   Authorized Signatory SCOTIABANC INC. By:   /s/ William E. Zarrett -------------------------------------------------------------------------------- Title:   Managing Director JPMORGAN CHASE BANK, N.A. By:   /s/ Steven P. Sullivan -------------------------------------------------------------------------------- Title:   Vice President CITIBANK, N.A. By:   /s/ Ross Levitsky -------------------------------------------------------------------------------- Title:   Director SUMITOMO MITSUI BANKING CORPORATION By:   /s/ Shigeru Tsuru -------------------------------------------------------------------------------- Title:   Joint General Manager MORGAN STANLEY BANK By:   /s/ Eugene F. Martin -------------------------------------------------------------------------------- Title:   Vice President WACHOVIA BANK, N.A. By:   /s/ Russell Lyons -------------------------------------------------------------------------------- Title:   Director UNION BANK OF CALIFORNIA, N.A. By:   /s/ Richard Vain -------------------------------------------------------------------------------- Title:   Vice President -------------------------------------------------------------------------------- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEEN BANK B.A. By:   /s/ Kimberly Miller -------------------------------------------------------------------------------- Title:   Vice President By:   /s/ Brett Delfino -------------------------------------------------------------------------------- Title:   Executive Director COMERICA BANK By:   /s/ James B. Haeffner -------------------------------------------------------------------------------- Title:   First Vice President THE NORTHERN TRUST COMPANY By:   /s/ William R. Kopp -------------------------------------------------------------------------------- Title:   Vice President ASSOCIATED BANK, N.A. By:   /s/ Daniel Holzhauer -------------------------------------------------------------------------------- Title:   Assistant Vice President BANK OF COMMUNICATIONS, NEW YORK BRANCH By:   /s/ Shelley He -------------------------------------------------------------------------------- Title:   Deputy General Manager BANK OF THE WEST By:   /s/ Andrew Gaspard -------------------------------------------------------------------------------- Title:   Vice President CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By:   /s/ Kuang-Hua Wei -------------------------------------------------------------------------------- Title:   Senior Vice President & General Manager -------------------------------------------------------------------------------- ERSTE BANK NEW YORK By:   /s/ Robert J. Wagman -------------------------------------------------------------------------------- Title:   Director By:   /s/ Bryan Lynch -------------------------------------------------------------------------------- Title:   First Vice President FORTIS CAPITAL CORP. By:   /s/ Barbara Nash -------------------------------------------------------------------------------- Title:   Managing Director By:   /s/ Andrew White -------------------------------------------------------------------------------- Title:   Vice President HSH NORDBANK AG, NEW YORK BRANCH By:   /s/ Amhy Chen Lu -------------------------------------------------------------------------------- Title:   Assistant Vice President By:   /s/ Thomas D’Avanzo -------------------------------------------------------------------------------- Title:   Senior Vice President QUAD CITY BANK AND TRUST COMPANY By:   /s/ John C. Bradley -------------------------------------------------------------------------------- Title:   Senior Vice President UNITED OVERSEAS BANK LIMITED, NEW YORK AGENCY By:   /s/ Kwong Yew Wong -------------------------------------------------------------------------------- Title:   First Vice President & General Manager By:   /s/ Philip Cheong -------------------------------------------------------------------------------- Title:   Vice President & Deputy General Manager WEBSTER BANK, NATIONAL ASSOCIATION By:   /s/ Gail Bruhn -------------------------------------------------------------------------------- Title:   Senior Vice President -------------------------------------------------------------------------------- WESTLB AG, NEW YORK BRANCH By:   /s/ R. Mackereth Ruckman -------------------------------------------------------------------------------- Title:   Executive Director By:   /s/ Thomas Rapp -------------------------------------------------------------------------------- Title:   Director

EXHIBIT 10.1 PURCHASE AND SALE AGREEMENT -------------------------------------------------------------------------------- THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made and entered into this ____ day of December, 2006, by and between LENOX INCORPORATED, a New Jersey corporation (“Seller”), and FIRST INDUSTRIAL ACQUISITIONS, INC., a Maryland corporation (“Buyer”). 1.   SALE. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, on the terms and conditions set forth in this Agreement, the Property (as hereinafter defined), including that certain building (the “Building”) commonly known as 16507 Hunters Green Parkway, Hagerstown, Maryland. For purposes of this Agreement, the term, “Property” shall mean collectively: 1.1.       Land. The parcel of land described in Exhibit A attached hereto (the “Land”), together with all rights, easements and interests appurtenant thereto, including, but not limited to, any streets or other public ways adjacent to the Land and any water or mineral rights owned by, or leased to, Seller. 1.2.       Improvements. All improvements located on the Land, including, but not limited to, the Building, and all other structures, systems, and utilities associated with, and utilized by Seller in, the ownership and operation of the Building (all such improvements being collectively referred to as the “Improvements”), but specifically excluding all personal property of Seller located on, in or about the Improvements, including but not limited to business trade fixtures and equipment (e.g., conveyors and racking). 1.3.       Intangible Property. All, if any, (i) guaranties and warranties issued to and with respect to the Improvements; and (ii) copies of any reports, studies, surveys and other comparable analysis, depictions or examinations of the Land and/or the Improvements (collectively, the “Intangibles”); provided, however, Seller makes no representations as to the accuracy or validity of such Intangibles and Buyer shall solely rely on its own information and evaluation of the Property, except as otherwise expressly provided herein or in any conveyance documents or certification.   2. PURCHASE PRICE. 2.1.       Purchase Price. The total purchase price to be paid to Seller by Buyer for the Property shall be Twenty-Seven Million and No/100 Dollars ($27,000,000) (the “Purchase Price”). Provided that all conditions precedent to Buyer’s obligations to close as set forth in this Agreement (“Conditions Precedent”) have been satisfied and fulfilled, or waived or deemed waived by Buyer, the Purchase Price shall be paid to Seller at Closing, plus or minus prorations and other adjustments hereunder, by federal wire transfer of immediately available funds. 2.2.       Earnest Money. No later than five (5) business days after the complete execution and delivery of this Agreement (the date upon which this Agreement has been fully executed and delivered to both parties, the “Effective Date”), Buyer shall deposit the sum of Five Hundred Thousand and No/100 Dollars ($500,000) as its earnest money deposit (the “Earnest Money”) in an escrow with First American Title Insurance Company, 801 Nicollet Mall, 1900 Midwest Plaza West, Minneapolis, MN 55402, Attn: Kristi Broderick, phone: 612- -------------------------------------------------------------------------------- 305-2002, fax: 612-305-2001, e-mail: [email protected] (“Escrowee”). The Earnest Money, together with all interest earned thereon, is hereinafter referred to as the “Deposit.” The Deposit shall be held pursuant to an escrow agreement (the “Escrow Agreement”) between Buyer, Seller and Escrowee, which Escrow Agreement shall contain terms mutually and reasonably acceptable to Buyer and Seller. The Deposit shall be applied against the Purchase Price at Closing. 3.          CLOSING. The purchase and sale contemplated herein shall be consummated at a closing (“Closing”) to take place by mail through an escrow with the Title Company (as hereinafter defined) on the basis of a “New York-style” closing. The Closing shall occur on or before December 29, 2006 (the “Closing Date”), which date shall be subject to extension by up to thirty (30) days as provided in Section 7.4 below. The Closing shall be effective as of 12:01 A.M. on the Closing Date. Notwithstanding the foregoing, the risk of loss of all or any portion of the Property shall be borne by Seller up to and including the actual time of the Closing and wire transfer of the Purchase Price to Seller, and thereafter by Buyer, subject, however, to the terms and conditions of Section 13 below.   4. PROPERTY INSPECTION. 4.1.       Basic Property Inspection. Not later than two (2) days after the Effective Date, Seller shall deliver to Buyer all of the agreements, documents, contracts, information, records, reports and other items described in Exhibit B attached hereto (the “Documents”) that are in its possession or reasonable control. At all times prior to Closing, including times following the “Review Period Expiration Date” (which Review Period Expiration Date is defined to be December 26, 2006), Buyer, its agents and representatives shall be entitled to conduct a “Due Diligence Inspection,” which includes the rights to: (i) enter upon the Land and Improvements, on reasonable notice to Seller, to perform inspections and tests of the Land and the Improvements, including, but not limited to, inspection, evaluation and testing of the heating, ventilation and air-conditioning systems and all components thereof and environmental studies and investigations of the Land and the Improvements; (ii) examine and copy any and all books, records, correspondence, financial data, and all other documents and matters, public or private, maintained by Seller or its agents, and relating to receipts and expenditures pertaining to the Property for the three most recent full calendar years and the current calendar year; (iii) make investigations with regard to zoning, environmental, building, code and other legal requirements; and (iv) make or obtain market studies and real estate tax analyses. Buyer shall conduct all its inspections in a manner that is not disruptive to the business operations at the Property. If, at any time prior to the Review Period Expiration Date, Buyer, in its sole and absolute discretion, determines that the results of any inspection, test or examination do not meet Buyer’s criteria for the purchase, financing or operation of the Property in the manner contemplated by Buyer, or if Buyer, in its sole discretion, otherwise determines that the Property is unsatisfactory to it, then Buyer may terminate this Agreement by written notice to Seller, with a copy to Escrowee, given not later than 5:00 P.M. (Pacific Standard Time) on the Review Period Expiration Date, whereupon the provisions of Section 20.8 governing a permitted termination by Buyer shall apply. In the event Buyer does not elect to terminate this Agreement as provided in this Section 2 -------------------------------------------------------------------------------- 4.1, Buyer will accept the Property in its “As-Is” condition, subject only to the representations and warranties of Seller contained herein or in any conveyance documents or certifications. 4.2.       Indemnification. Buyer hereby covenants and agrees that it shall cause all studies, investigations and inspections performed at the Property pursuant to this Section 4 to be performed in a manner that does not unreasonably disturb or disrupt the business operations at the Improvements. In the event that, as a result of Buyer’s Due Diligence Inspection, any damage occurs to the Property, then Buyer shall promptly repair such damage at Buyer’s sole cost and expense. Buyer hereby indemnifies, protects, defends and holds Seller harmless from and against any and all losses, damages, claims, causes of action, judgments, damages, costs and expenses (including reasonable fees of attorneys) (collectively, “Losses”) that Seller actually suffers or incurs as a result of (i) a breach of Buyer’s agreements set forth in this Section 4 in connection with the Due Diligence Inspection or (ii) physical damage to the Property or bodily injury caused by any negligent act of Buyer or its agents, employees or contractors in connection with the right of inspection granted under this Section 4. The terms of this Section 4.2 shall survive the termination of this Agreement.   5. TITLE AND SURVEY MATTERS. 5.1.       Conveyance of Title. At Closing, Seller agrees to deliver to Buyer a special warranty deed (the “Special Warranty Deed”), in recordable form, conveying the Land and the Improvements to Buyer or Buyer’s permitted assignee or designee, free and clear of all liens, claims and encumbrances except for the Permitted Exceptions (as hereinafter defined). On or prior to December 4, 2006, Seller shall, at Seller’s sole cost, cause to be delivered to Buyer a commitment (the “Title Commitment”) issued by First American Title Insurance Company, 801 Nicollet Mall, 1900 Midwest Plaza West, Minneapolis, MN 55402, Attn: Kristi Broderick, phone: 612-305-2002, fax: 612-305-2001, e-mail: [email protected], for an owner’s title insurance policy (the “Title Policy”), ALTA Policy Form B-1992, in the full amount of the Purchase Price. It shall be a Condition Precedent to Buyer’s obligation to proceed to Closing that, at Closing, the Title Company shall issue the Title Policy to Buyer insuring Buyer as the fee simple owner of the Property for the full amount of the Purchase Price with all standard and general printed exceptions deleted so as to afford full “extended form coverage”. 5.2.       Survey. On or prior to December 15, 2006, Seller shall, at Seller’s sole cost, deliver to Buyer an ALTA, as-built survey of the Land and the Improvements located thereon with a form of certification acceptable to Buyer (the “Survey”). 5.3.       Defects and Cure. If the Title Commitment, the Survey or any update to either of the foregoing, (“Title Evidence”) discloses any claims, liens, exceptions or conditions that are not acceptable to Buyer (the “Defects”), said Defects shall be addressed by Seller prior to Closing in accordance with this Sections 5.3.1 and 5.3.2 below. 5.3.1.    Mandatory Cure Items. On or prior to Closing, Seller shall be unconditionally obligated to cure or remove the following Defects (the “Liquidated Defects”), whether described in the Title Commitment, or first arising or first disclosed by the Title Company (or otherwise) to Buyer after the date of the Title Commitment, and whether or not 3 -------------------------------------------------------------------------------- raised in a Title Objection Notice (defined below): (a) liens securing a mortgage, deed of trust or trust deed; (b) judgment liens against any or all of Seller and the Seller Parties; (c) tax liens other than property taxes and assessments not constituting a lien while in contest; (d) broker’s liens; and (e) any mechanics liens that are based upon a written agreement between either (x) the claimant (a “Contract Claimant”) and any or all of Seller and any or all of Seller, its shareholders and the officers, directors, employees, agents or duly authorized managing agent of any or all of Seller or its shareholders (collectively “Seller Parties”), or (y) the Contract Claimant and any other contractor, supplier or materialman with which any or all of Seller and the Seller Parties has a written agreement. Notwithstanding anything to the contrary set forth herein, if, prior to Closing, Seller fails to so cure or remove (or insure over, in a form and substance reasonably acceptable to Buyer) all Liquidated Defects, then Buyer may either (1) terminate this Agreement by written notice to Seller, in which event the provisions of Section 20.8 governing a permitted termination by Buyer shall apply; or (2) proceed to close with title to the Property as it then is, with the right to deduct from the Purchase Price a sum equal to the aggregate amount necessary to cure or remove (by endorsement or otherwise, as reasonably determined in good faith by the parties) the Liquidated Defects. 5.3.2.    Other Defects. Buyer may deliver one or more notices (each a “Title Objection Notice”) to Seller specifying any lien, claim, encumbrance, restriction, covenant, condition, exception to title or other matter disclosed by the Title Evidence, that is not a Liquidated Defect and that renders title unacceptable to Buyer (“Other Defects”): (aa) that is evidenced by the Title Evidence, in which case Buyer shall provide such Title Objection Notice on or prior to the sooner of (i) the Review Period Expiration Date; and (ii) ten (10) days after the later of the Effective Date and its receipt of the applicable item of Title Evidence or (bb) that first arises, or is first disclosed to Buyer, subsequent to the delivery of the applicable item of Title Evidence to Buyer, in which case Buyer shall provide such Title Objection Notice three (3) business days after its receipt of the applicable item of Title Evidence. Seller shall be obligated to advise Buyer in writing (“Seller’s Cure Notice”) within three (3) business days after Buyer delivers any Title Objection Notice, which (if any) of the Other Defects specified in the applicable of Title Objection Notice Seller is willing to cure (the “Seller’s Cure Items”). If Seller delivers a Seller’s Cure Notice, and identifies any Seller’s Cure Items, Seller shall be unconditionally obligated to cure or remove the Seller’s Cure Items prior to the Closing. In the event that Seller fails to timely deliver a Seller’s Cure Notice, or in the event that Seller’s Cure Notice (specifying Seller’s Cure Items) does not include each and every Other Defect specified in each Title Objection Notice, then Buyer may either (A) elect to terminate this Agreement by written notice to Seller, in which event the provisions of Section 20.8 governing a permitted termination by Buyer shall apply, or (B) proceed to close, accepting title to the Property subject to those Other Defects not included in Seller’s Cure Notice. Buyer shall notify Seller of its election within three (3) business days after receipt of Seller’s Cure Notice, if delivered, or the last day Seller’s Cure Notice could have been timely delivered. If Buyer fails to timely deliver notice of its election, Buyer shall be deemed to have waived all Other Defects which Seller has elected not to cure and remove. For purposes of this Agreement, the term, “Permitted Exceptions,” shall mean both (i) all liens, claims, encumbrances, restrictions, covenants, conditions, matters or exceptions to title (other than Liquidated Defects) that are set forth in the Title Evidence, but not objected to by Buyer in a Title Objection Notice; and (ii) any Other 4 -------------------------------------------------------------------------------- Defects to which Buyer objects by delivery of a Title Objection Notice, but Seller does not timely elect to convert such Other Defects to Seller’s Cure Items, and pursuant to (B) above, Buyer nevertheless elects to close or, where, pursuant to the terms of this Agreement, Buyer’s objections have been deemed waived and the parties are to proceed to Closing, with Buyer accepting title to the Property subject to such Other Defects. 6.          SELLER’S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Buyer that the following matters are true as of the Effective Date and shall be true as of the Closing Date:   6.1. Seller’s Representations. 6.1.1.    Documents. To Seller’s actual knowledge, Seller has delivered (or will deliver in a timely manner) to Buyer true and complete copies of the Documents in Seller’s possession. 6.1.2.    Contracts. There are no contracts of any kind relating to the management, leasing, operation, maintenance or repair of the Property that will survive Closing, except contracts that will be binding on Seller, as tenant, rather than Buyer, as landlord. 6.1.3.    Environmental Matters. To Seller’s actual knowledge (as opposed to deemed, imputed or constructive), the Property has been and continues to be owned and operated in full compliance with all Environmental Laws (as hereinafter defined). To Seller’s actual knowledge, there have been no past and Seller has not received any written notice of any pending or threatened claims, complaints, notices, correspondence or requests for information received by Seller with respect to any violation or alleged violation of any Environmental Law, any releases of Hazardous Substances (as hereinafter defined) or with respect to any corrective or remedial action for or cleanup of the Property or any portion thereof. For purposes of this Agreement, “Environmental Laws” shall mean: all federal, state and local statutes, regulations, directives, ordinances, rules, policies, guidelines, court orders, decrees, arbitration awards and the common law, which pertain to environmental matters, contamination of any type whatsoever or health and safety matters, as such have been amended, modified or supplemented from time to time (including all present and future amendments thereto and re-authorizations thereof). For purposes of this Agreement, “Hazardous Substances” shall mean: any chemical, pollutant, contaminant, pesticide, petroleum or petroleum product or by product, radioactive substance, solid waste (hazardous or extremely hazardous), special, dangerous or toxic waste, substance, chemical or material regulated, listed, limited or prohibited under any Environmental Law. 6.1.4.    Compliance with Laws and Codes. Seller has not received any written notice advising or alleging that the entirety of the Property (including the Improvements), and the use and operation thereof, are not in compliance with all applicable municipal and other governmental laws, ordinances, rules, regulations, codes (including Environmental Laws), licenses, permits and authorizations. To Seller’s actual knowledge (as opposed to deemed, imputed or constructive), the Property (and the use and operation thereof) is in material 5 -------------------------------------------------------------------------------- compliance with all applicable laws, ordinances, rules, regulations, codes, licenses, permits and authorizations. 6.1.5.    Litigation. There are no pending, or, to Seller’s actual knowledge, threatened, judicial, municipal or administrative proceedings affecting the Property, or in which Seller is or will be a party by reason of Seller’s ownership or operation of the Property or any portion thereof, including, without limitation, proceedings for or involving collections, condemnation, eminent domain, alleged building code or environmental or zoning violations, or personal injuries or property damage alleged to have occurred on the Property or by reason of the condition, use of, or operations on, the Property. No attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings are pending, or, to Seller’s actual knowledge, threatened, against Seller, nor are any of such proceedings contemplated by Seller. 6.1.6.    Re-Zoning. Seller is not a party to, nor does Seller have any actual knowledge of, any threatened proceeding for the rezoning of the Property or any portion thereof, or the taking of any other action by governmental authorities that would have an adverse or material impact on the value of the Property or use thereof. 6.1.7.    Authority. The execution and delivery of this Agreement by Seller, and the performance of this Agreement by Seller, have been duly authorized by Seller, and this Agreement is binding on Seller and enforceable against Seller in accordance with its terms. No consent of any creditor, investor, judicial or administrative body, governmental authority, or other governmental body or agency, or other party to such execution, delivery and performance by Seller is required, other than the consent of Seller’s lender, which Seller will use good faith efforts to obtain on or prior to the Closing Date. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in a breach of, default under, or acceleration of, any agreement to which Seller is a party or by which Seller or the Property are bound if the consent of Seller’s lender is obtained; or (ii) violate any restriction, court order, agreement or other legal obligation to which Seller and/or the Property is subject. 6.1.8.    Lease Matters. There are no leases, licenses or occupancy agreements binding upon or otherwise affecting all or any portion of the Land or the Improvements. 6.1.9.    United States Person. Seller is a “United States Person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and shall execute and deliver an “Entity Transferor” certification at Closing. 6.2.       Limitations. The representations and warranties of Seller to Buyer contained in Section 6.1 hereof (the “Seller Representations”) shall survive the Closing Date and the delivery of the Deed for a period of one (1) year. No claim for a breach of any Seller Representation shall be actionable or payable unless (a) the breach in question results from, or is based on, a condition, state of facts or other matter which was not actually known by Buyer prior to Closing, (b) the valid claims for all such breaches collectively aggregate more than Twenty-Five thousand No/100 Dollars ($25,000), in which event the full amount of such claims shall be 6 -------------------------------------------------------------------------------- actionable, and (c) written notice containing a description of the specific nature of such breach shall have been delivered by Buyer to Seller prior to the expiration of said one (1) year survival period, and an action with respect to such breach(es) shall have been commenced by Buyer against Seller within eighteen (18) months after Closing. Notwithstanding anything to the contrary contained herein, if Buyer obtains actual (as opposed to deemed, imputed or constructive) knowledge that any Seller Representation made by Seller is not true or correct, Buyer shall not be entitled to commence any action after Closing to recover damages from Seller due to such Seller Representation(s) failing to be true or correct. 7.          COVENANTS OF SELLER. From and after the Effective Date, Seller hereby covenants with Buyer as follows: 7.1.       New Lease. At Closing, Buyer (or its successor and assigns), as landlord, shall execute and enter into the lease in the form attached hereto as Exhibit C (the “Lease”) with Seller, as tenant, pursuant to which Seller leases the Property from and after Closing. From and after the Effective Date, other than the Lease, Seller shall not enter into any new lease, license or occupancy agreement (a “New Lease”, which term expressly excludes contracts Seller is permitted to enter into pursuant to other provisions of this Agreement) for all or any portion of the Land and the Improvements without obtaining Buyer’s prior written consent, which consent may be withheld in Buyer’s sole discretion. 7.2.       New Contracts. Seller shall not amend any existing contract or enter into any new contract with respect to the operation of the Property that will survive the Closing, or that would otherwise affect the use, operation or enjoyment of the Property after Closing, without Buyer’s prior written approval (which approval shall not be unreasonably withheld). Seller is free to enter into reasonable amendments of any existing contracts or enter into any new contracts with respect to the operation and maintenance of the Property. Seller shall, at Seller’s sole cost, terminate all service and management contacts binding upon Seller or the Property on or prior to Closing, except those service and management contracts to which Seller, as tenant, will be party after Closing rather than Buyer, as landlord. 7.3.       Operation of Property. Seller shall operate and manage the Property in the same manner in which it is being operated as of the Effective Date, maintaining present services, and shall maintain the Property in its same repair and working order; shall keep on hand sufficient materials, supplies, equipment and other personal property for the efficient operation and management of the Property in the manner in which it is being operated as of the Effective Date; and shall perform, when due, all of Seller’s obligations under governmental approvals and other agreements relating to the Property and otherwise in accordance with applicable laws, ordinances, rules and regulations affecting the Property. Except as otherwise specifically provided herein, at Closing, Seller shall deliver the Property in substantially the same condition as exists on the Effective Date, reasonable wear and tear and damage by casualty or condemnation excepted. 7.4.       Lender Approval. Seller shall use good faith efforts to obtain the consent of its Term and Revolver lenders to this transaction (the “Lender Consent”) on or before December 26, 2006. This approval is a condition precedent to Seller’s obligation to close the 7 -------------------------------------------------------------------------------- transaction contemplated by this Agreement. In the event Seller is unable to obtain the Lender Consent on or prior to Closing, Seller shall have the right to extend Closing and the Closing Date for up to thirty (30) days to obtain the Lender Consent provided Seller pays Buyer’s rate lock fee for its loan (if any), and, if Seller obtains the Lender Consent in such thirty (30) day period, the parties shall proceed to Closing five (5) business days thereafter. In the event Seller is unable to obtain the Lender Consent, either initially or after extending Closing for such purposes, Seller shall promptly notify Buyer, in writing, whereupon (A) this Agreement shall terminate; (B) the Deposit shall be promptly returned to Buyer; (C) Seller shall reimburse Buyer for any and all (i) Buyer Legal Fees (as hereinafter defined) and (ii) third party costs or expenses paid or incurred by Buyer or its joint venture partner to conduct the Due Diligence Inspection, negotiate this Agreement and the Lease and pursue the transactions contemplated hereby, including, but not limited to, the Buyer Transaction Costs (as hereinafter defined), promptly, and in any event within ten (10) business days, after the presentation of invoices therefore. 7.5.       No Assignment. After the Effective Date and prior to Closing, Seller shall not assign, alienate, lien, encumber or otherwise transfer all or any part of the Property or any interest therein. Without limitation of the foregoing, Seller shall not grant any easement, right of way, restriction, covenant or other comparable right affecting the Land or the Improvements without obtaining Buyer’s prior written consent, which consent shall not be unreasonably withheld. 7.6.       Change in Conditions. Seller shall, to the extent Seller obtains actual knowledge thereof, promptly notify Buyer of any material change in any condition with respect to the Property, or of the occurrence of any event or circumstance, that makes any representation or warranty of Seller to Buyer under this Agreement untrue or misleading, or any covenant of Seller under this Agreement incapable or less likely of being performed, or any Condition Precedent incapable or less likely of being satisfied. Seller shall promptly (and in any event within five (5) business days) deliver any materials, reports, information or other documents that it obtains or discovers after the Effective Date that would constitute a Document to the extent Seller did not, for any reason, deliver such items as part of the Documents. 7.7.       Lease. Seller, as tenant, shall execute and enter into the Lease. 8.          ADDITIONAL CONDITIONS PRECEDENT TO CLOSING. In addition to the other conditions enumerated in this Agreement, the following shall be additional Conditions Precedent to Buyer’s obligation to close hereunder: 8.1.       Representations and Warranties. As of the Closing Date, the representations and warranties made by Seller to Buyer as of the Effective Date shall be true, accurate and correct as if specifically remade at that time. 8.2.       Lease. Buyer and Seller shall execute and enter into the Lease on the terms contemplated by Exhibit C hereto. 8 -------------------------------------------------------------------------------- 9.          SELLER’S CLOSING DELIVERIES. At Closing, Seller shall deliver or cause to be delivered to Buyer the following, in form and substance acceptable to Buyer: 9.1.       Deed. Special Warranty Deed for the Land and the Improvements, executed by Seller, in recordable form conveying the Land (and the Improvements) to Buyer free and clear of all liens, claims and encumbrances except for the Permitted Exceptions. 9.2.       General Assignment. An assignment, executed by Seller, to Buyer of all right, title and interest of Seller and its agents in and to the Intangibles (including, but not limited to, the governmental approvals, permits and the Plans), to the extent such Intangibles are assignable. Seller shall also assign, in accordance with the relevant terms of such guaranties and warranties and at Seller’s expense (if any cost is imposed), all guarantees and warranties given to Seller that have not expired (either on a “claims made” or “occurrences” basis), in connection with the operation, construction, improvement, alteration or repair of the Property, to the extent such guaranties and warranties are assignable. 9.3.       Lease. Originals of the Lease duly executed by Seller. 9.4.       Keys. Keys to all locks located in the Property, to the extent in Seller’s possession or control. 9.5.       ALTA Statement. If required by the Title Company, an ALTA (or comparable) Statement and a “gap” affidavit, each executed by Seller and in form and substance acceptable to the Title Company. 9.6.       Documents. To the extent not previously delivered to Buyer, copies of the assigned Plans and permits or approvals. 9.7.       Closing Statement. A closing statement conforming to the proration and other relevant provisions of this Agreement. 9.8.       Plans and Specifications. Copies of all plans and specifications relating to the Property in Seller’s possession and control (collectively, the “Plans”). 9.9.       Entity Transfer Certificate. Entity Transfer Certification confirming that Seller is a “United States Person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended. 9.10.     Certificate of Occupancy. A currently valid certificate of occupancy (or comparable permit, letter, license or other document) with respect to the Land and the Improvements, if required. 9.11.     Closing Certificate. A certificate, signed by Seller, certifying to the Buyer that the Seller Representations contained in this Agreement are true and correct as of the Closing Date; and that all covenants required to be performed by Seller prior to the Closing Date have been performed, in all material respects. 9 -------------------------------------------------------------------------------- 9.12.     Other. Such other documents and instruments as may reasonably be required by Buyer or the Title Company and that may be reasonably necessary or appropriate to consummate this transaction and to otherwise effect the agreements of the parties hereto. For a period of one year after Closing, Seller shall execute and deliver to Buyer such further documents and instruments as Buyer shall reasonably request to effect this transaction and otherwise effect the agreements of the parties hereto. 10.        CLOSING DELIVERIES. At Closing Buyer shall cause the following to be delivered to Seller: 10.1.     Purchase Price. The Purchase Price, plus or minus prorations, shall be delivered to the Title Company in escrow for disbursement to Seller. 10.2.     Lease. Originals of the Lease duly executed by Buyer, as landlord. 10.3.     Other. Such other documents and instruments as may reasonably be required by Seller or the Title Company and that may be reasonably necessary or appropriate to consummate this transaction and to otherwise effect the agreements of the parties hereto. 11.        PRORATIONS AND ADJUSTMENTS. The following shall be prorated and adjusted between Seller and Buyer as of the Closing Date, except as otherwise specified: 11.1.     Seller shall credit to Buyer an amount equal to: (a) any and all reasonable legal fees paid or incurred by Buyer (or its joint venture partner) to negotiate this Agreement and the Lease (the “Buyer Legal Fees”) up to a maximum aggregate amount not to exceed $50,000; and (b) the actual cost of Buyer’s property appraisal, inspection and environmental reports (“Buyer Transaction Costs”), as evidenced by invoices for such services. Buyer Legal Fees and Buyer Transaction Costs shall not include any costs incurred by Buyer related to any financing of the acquisition hereby contemplated or future financing to be secured by the Property. 11.2.     Water, electricity, sewer, gas, telephone and other utility charges shall not be prorated as the same shall be payable by Seller, as tenant, pursuant to the Lease. 11.3.     General real estate, personal property and ad valorem taxes applicable to the Property shall not be prorated as the same shall be payable by Seller, as tenant, under the Lease. Prior to or at Closing, Seller shall pay or have paid all tax bills that are due and payable prior to or on the Closing Date (but not any such taxes not yet due and payable) and shall furnish evidence of such payment to Buyer and the Title Company. 11.4.     All assessments, general or special, shall not be prorated as the same shall be payable by Seller, as tenant, under the Lease. 11.5.     All base rents and other charges due and owing from Seller pursuant to the Lease for the month in which Closing occurs shall be credited to Buyer at Closing. 10 -------------------------------------------------------------------------------- 11.6.     Such other items that are customarily prorated in transactions of this nature shall be ratably prorated. For purposes of calculating prorations, Buyer shall be deemed to be in title to the Property, and therefore entitled to the income therefrom and responsible for the expenses thereof, for the entire day upon which the Closing occurs. All such prorations shall be made on the basis of the actual number of days of the year and month that shall have elapsed as of the Closing Date. The amount of such prorations shall be adjusted in cash after Closing, as and when complete and accurate information becomes available. Seller and Buyer agree to cooperate and use their good faith and diligent efforts to make such adjustments no later than 30 days after the Closing, or as soon as is reasonably practicable if and to the extent that the required final proration information is not available within such 30 day period. Items of income and expense for the period prior to the Closing Date will be for the account of Seller and items of income and expense for the period on and after the Closing Date will be for the account of Buyer, all as determined by the accrual method of accounting. Bills received after Closing that relate to expenses incurred, services performed or other amounts allocable to the period prior to the Closing Date shall be paid by Seller. Any amounts not so paid by Seller may be set off against amounts (if any) otherwise due Seller hereunder. The obligations of the parties pursuant to this Section 11 shall survive the Closing and shall not merge into any documents of conveyance delivered at Closing. 12.        CLOSING EXPENSES. Buyer will pay one half the costs of any escrows hereunder, one half of all documentary and state, county and municipal transfer taxes and deed recordation fees and the cost of any endorsements to the Title Policy. Seller shall pay the entire cost of the basic premium for the Title Policy (excluding any endorsements), the cost of the Survey, one half of all documentary and state, county and municipal transfer taxes, the Buyer Transaction Costs and the Buyer Legal Fees (up to a maximum amount of $50,000), any pre-payment penalties associated with the payment of any indebtedness encumbering the Land or the Improvements, any expenses relating to the assignment of the existing warranties to Buyer, one half the cost of any deed recordation fees and one half of the cost of any escrows hereunder. Buyer shall pay all costs associated with any financing of its acquisition of the Property. 13.        DESTRUCTION, LOSS OR DIMINUTION OF PROJECT. If, prior to Closing, all or any portion of the Land or the Improvements are damaged by fire or other natural casualty (collectively “Damage”), or are taken or made subject to condemnation, eminent domain or other governmental acquisition proceedings (collectively “Eminent Domain”), then the following procedures shall apply:   (a) If the aggregate cost of repair or replacement of the Damage (collectively, “repair and/or replacement”) is $250,000.00 or less, in the opinion of Buyer’s and Seller’s respective engineering consultants, Buyer shall close and take the Property as diminished by such events, subject to a reduction in the Purchase Price in the full amount of the repair and/or replacement. Any proceeds from casualty insurance shall be the sole property of Seller.   (b) If the aggregate cost of repair and/or replacement is greater than $250,000.00, in the opinion of Buyer’s and Seller’s respective engineering 11 --------------------------------------------------------------------------------     consultants, or in the event of an Eminent Domain, then Buyer, within five (5) days after such determination and at its sole option, may elect either to (i) terminate this Agreement by written notice to Seller in which event the provisions of Section 20.8 governing a permitted termination by Buyer shall apply; or (ii) proceed to close subject to an assignment of the proceeds of Seller’s casualty insurance for all Damage (or condemnation awards for any Eminent Domain). In such event, Seller shall fully cooperate with Buyer in the adjustment and settlement of the insurance claim. The proceeds and benefits under any rent loss or business interruption policies attributable to the period following the Closing shall likewise be transferred and paid over (and, if applicable, likewise credited on an interim basis) to Buyer. If Buyer does not elect to terminate pursuant to this Section 13(b), Seller may elect to terminate this Agreement by written notice to Buyer, in which event (A) the Deposit shall be returned to Buyer, (B) Seller shall reimburse Buyer for all Buyer Legal Fees up to $50,000 and all Buyer Transaction Costs promptly, and in any event within ten (10) business days after, the presentation of invoices therefore, and (C) the parties shall have no further obligation to each other except as otherwise expressly set forth herein.   (c) In the event of a dispute between Seller and Buyer with respect to the cost of repair and/or replacement with respect to the matters set forth in this Section 13, an engineer designated by Seller and an engineer designated by Buyer shall select an independent engineer licensed to practice in the jurisdiction where the Property is located who shall resolve such dispute. All fees, costs and expenses of such third engineer so selected shall be shared equally by Buyer and Seller.   (d) In the event that any Damage or Eminent Domain occurs and the parties proceed to Closing, Article 18 of the Lease shall govern the rights and obligations of Buyer and Seller as tenant and landlord after the Closing Date, except that Buyer shall not have the right to terminate the Lease pursuant to Section 18.3.   14. DEFAULT. 14.1.     Default by Seller. If any of Seller’s Representations contained herein are not true and correct on the Effective Date and continuing thereafter through and including the Closing Date, or if Seller fails to perform any of the covenants and agreements contained herein to be performed by Seller within the time for performance as specified herein (including Seller’s obligation to close), and in either case such failure continues for five (5) days beyond notice and demand for cure from Buyer, Buyer may elect either to (i) terminate Buyer’s obligations under this Agreement by written notice to Seller with a copy to Escrowee, in which event the Deposit shall be returned immediately to Buyer and Seller shall reimburse Buyer for any and all Buyer Transaction Costs and Buyer Legal Fees (up to $50,000 in the aggregate as to Buyer Legal Fees) promptly, and in any event within ten (10) business days, after the presentation of invoices 12 -------------------------------------------------------------------------------- therefore; or (ii) file an action for specific performance. Seller agrees that in the event Buyer elects (ii) above, Buyer shall not be required to post a bond or any other collateral with the court or any other party as a condition to Buyer’s pursuit of an action. Seller hereby covenants and agrees that in the event that a default on the part of Seller hereunder is willful in nature, Buyer may (in addition to any and all other remedies of Buyer hereunder) file an action for damages actually suffered by Buyer by reason of Seller’s defaults hereunder (including, but not limited to, attorneys’ fees, engineering fees, fees of environmental consultants, appraisers’ fees, and accountants’ fees incurred by Buyer in connection with this Agreement and any action hereunder) up to a maximum amount of $300,000. The provisions of the immediately preceding sentence shall survive any termination of this Agreement. Nothing in this Section 14.1 shall be deemed to in any way limit or prevent Buyer from exercising any right of termination provided to Buyer elsewhere in this Agreement. Notwithstanding the foregoing, in the event Seller defaults in any of its post-closing obligations, Buyer shall have all of its remedies at law and in equity on account of such default. 14.2.     Default by Buyer. IN THE EVENT BUYER DEFAULTS IN ITS OBLIGATIONS TO CLOSE THE PURCHASE OF THE PROPERTY, SELLER’S SOLE AND EXCLUSIVE REMEDY SHALL BE TO CAUSE ESCROWEE TO DELIVER TO SELLER THE DEPOSIT, AS FIXED AND LIQUIDATED DAMAGES, IT BEING UNDERSTOOD THAT SELLER’S ACTUAL DAMAGES IN THE EVENT OF SUCH DEFAULT ARE DIFFICULT TO ASCERTAIN AND THAT SUCH PROCEEDS REPRESENT THE PARTIES’ BEST CURRENT ESTIMATE OF SUCH DAMAGES. SELLER SHALL HAVE NO OTHER REMEDY FOR ANY DEFAULT BY BUYER; PROVIDED, HOWEVER THAT, NOTWITHSTANDING THE FOREGOING, IN THE EVENT BUYER DEFAULTS IN ANY OF ITS POST-CLOSING OBLIGATIONS, SELLER SHALL HAVE ALL OF ITS REMEDIES AT LAW OR IN EQUITY ON ACCOUNT OF SUCH DEFAULT.   15. SUCCESSORS AND ASSIGNS; TAX-DEFERRED EXCHANGE. 15.1.     Assignment. The terms, conditions and covenants of this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective nominees, successors, beneficiaries and assigns; provided, however, no conveyance, assignment or transfer of any interest whatsoever of, in or to the Property or of this Agreement shall be made by Seller during the term of this Agreement. Buyer may assign all or any of its right, title and interest under this Agreement to (i) any third party intermediary (an “Intermediary”) in connection with a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code (an “Exchange”); (ii) First Industrial, L.P., First Industrial Development Investment, Inc. or any of their affiliates (collectively, “First Industrial”); or (iii) any joint venture partnership or limited liability company in which First Industrial has direct or indirect interest. In the event of an assignment of this Agreement by Buyer, its assignee shall be deemed to be the Buyer hereunder for all purposes hereof, and shall have all rights of Buyer hereunder (including, but not limited to, the right of further assignment), but the assignor shall not be released from all liability hereunder. 15.2.     Tax-Deferred Exchange. In the event Buyer elects to assign this Agreement to an Intermediary, Seller shall reasonably cooperate with Buyer (without incurring any additional liability or any additional third party expenses or delaying the Closing Date) in 13 -------------------------------------------------------------------------------- connection with such election and the consummation of the Exchange, including without limitation, by executing an acknowledgment of Buyer’s assignment of this Agreement to the Intermediary. 16.        NOTICES. Any notice, demand or request which may be permitted, required or desired to be given in connection therewith shall be given in writing and directed to Seller and Buyer as follows:   Seller: Lenox Incorporated   6436 City West Parkway   Eden Prairie, MN 55344   Attn: Tim J. Schugel   Fax:__________________   With a copy to   its attorneys: Lenox Group, Inc. 1414 Radcliffe Street Bristol, PA 19007-5496   Attn: L.A. Fantin   Fax: 267-525-5646     and: Dorsey & Whitney LLP   50 South Sixth Street   Suite 1500   Minneapolis, MN 55402   Attn: Robert J. Olson   Fax: 612-340-2644     Buyer: First Industrial Acquisitions, Inc. 43 Route 46 East, Suite 701 Pine Brook, New Jersey 07058   Attn: Howard Freeman   Fax: (973) 227-9198       With a copy to   its attorneys: Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP   333 West Wacker Drive   27th Floor   Chicago, Illinois 60606   Attn: Mark J. Beaubien   Fax: (312) 984-3150   Notices shall be deemed properly delivered and received: (i) the same day when personally delivered; or (ii) one day after deposit with Federal Express or other comparable commercial overnight courier; or (iii) the same day when sent by confirmed facsimile. 14 -------------------------------------------------------------------------------- 17.        BENEFIT. This Agreement is for the benefit only of the parties hereto and their nominees, successors, beneficiaries and assignees as permitted in Section 15 and no other person or entity shall be entitled to rely hereon, receive any benefit herefrom or enforce against any party hereto any provision hereof. 18.        LIMITATION OF LIABILITY. Upon the Closing, Buyer shall neither assume nor undertake to pay, satisfy or discharge any liabilities, obligations or commitments of Seller other than those specifically agreed to between the parties and set forth in this Agreement. Except with respect to the foregoing obligations, Buyer shall not assume or discharge any debts, obligations, liabilities or commitments of Seller, whether accrued now or hereafter, fixed or contingent, known or unknown. 19.        BROKERAGE. Each party hereto represents and warrants to the other that it has dealt with no brokers or finders in connection with this transaction other than CRESA Partners (“Broker”). Seller shall pay any commission owing to Broker pursuant to the terms of a separate agreement between Broker and Seller. Seller and Buyer each hereby indemnify, protect and defend and hold the other harmless from and against all Losses, resulting from the claims of any broker, finder, or other such party claiming by, through or under the acts or agreements of the indemnifying party. The obligations of the parties pursuant to this Section 19 shall survive the Closing or any earlier termination of this Agreement. 20.        MISCELLANEOUS. 20.1.     Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the transaction contemplated herein, and all prior or contemporaneous oral agreements, understandings, representations and statements, and all prior written agreements, understandings, letters of intent and proposals, in each case with respect to the transaction contemplated herein, are hereby superseded and rendered null and void and of no further force and effect and are merged into this Agreement. Neither this Agreement nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument. 20.2.     Time of the Essence. Time is of the essence of this Agreement. 20.3.     Legal Holidays. If any date herein set forth for the performance of any obligations by Seller or Buyer or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday or legal holiday. As used herein, the term “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed for observance thereof in the State of Maryland. 20.4.     Conditions Precedent. The obligations of Buyer to make the payments described herein and to close the transaction contemplated herein are subject to the express 15 -------------------------------------------------------------------------------- Conditions Precedent set forth in this Agreement, each of which is for the sole benefit of Buyer and may be waived at any time by written notice thereof from Buyer to Seller. The waiver of any particular Condition Precedent shall not constitute the waiver of any other. In the event of the failure of a Condition Precedent for any reason whatsoever, Buyer may elect, in its sole discretion, to terminate this Agreement in which event the provisions of Section 20.8 governing a permitted termination by Buyer shall apply. 20.5.     Construction. This Agreement shall not be construed more strictly against one party than against the other merely by virtue of the fact that it may have been prepared by counsel for one of the parties, it being recognized that both Seller and Buyer have contributed substantially and materially to the preparation of this Agreement. The headings of various sections in this Agreement are for convenience only, and are not to be utilized in construing the content or meaning of the substantive provisions hereof. 20.6.     Governing Law. This Agreement shall be governed by and construed in accordance with the State of Maryland. 20.7.     Partial Invalidity. The provisions hereof shall be deemed independent and severable, and the invalidity or partial invalidity or enforceability of any one provision shall not affect the validity of enforceability of any other provision hereof. 20.8.     Permitted Termination. In the event that Buyer exercises any right it may have hereunder to terminate this Agreement, (A) the Deposit shall be immediately returned to Buyer and neither party shall have any further liability under this Agreement except as otherwise expressly provided hereunder; and (B) Seller shall reimburse Buyer for (i) any and all Buyer Legal Fees up to a maximum aggregate amount not to exceed $50,000; and (ii) Buyer Transaction Costs, promptly, and in any event within ten (10) business days, after the presentation of invoices therefor. [Signature Page to Follow] 16 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Agreement of Purchase and Sale on the date first above written.   SELLER: LENOX INCORPORATED, a New Jersey corporation       By:    /s/   Timothy J. Schugel     Name:    Timothy J. Schugel     Its:    Chief Financial Officer and Chief Operating Officer   S-1 --------------------------------------------------------------------------------   BUYER: FIRST INDUSTRIAL ACQUISITIONS, INC., a Maryland corporation       By:    /s/   Bernard A. Bak     Name:    Bernard A. Bak     Its:    Authorized Signatory   S-2 -------------------------------------------------------------------------------- SCHEDULE OF EXHIBITS     A Land   B Seller’s Deliveries   C Lease     S-3 -------------------------------------------------------------------------------- EXHIBIT A Legal Description of the Land   All of those lots or parcels of land located in Washington County, Maryland and more particularly described as follows:   Beginning at an iron pin and cap along the existing right of way for the cul-de-sac at Hunter’s-Green Parkway, said point also being located S 2326’32” W 64.91 feet form the most southeastern corner of the lands of Lot 1 as recorded in Washington County Plat folio 5724, thence running   1. N 6152’12” W 357.43 feet to a point, thence 2. N 7357’41” W 311.22 feet to a point, thence with a curve to the left having a radius of 130.00 feet, an arc length of 176.77 feet and a chord bearing and distance of 3. S 6705’05” W 163.46 feet to a point; thence 4. S 2807’48” W 294.58 feet to a point, thence with a curve to the left having a radius of 30 feet, an arc length of 47.12 feet and a chord bearing and distance of 5. S 1652’12” E 42.43 feet to a point, thence 6. S 6152’12” E 45.24 feet to a point, thence 7. S 2807’48” W 212.00 feet to a point, thence 8. N 6152’12” W 842.09 feet to a point, thence 9. N 3341’02” E 554.60 feet to a point, thence 10. S 6152’12” E 642.53 feet to a point, thence 11. N 3014’06” E 218.22 feet to a point, thence 12. N 5944’09” W 677.59 feet to a point, thence 13. N 2632’54” E 251.87 feet to a point, thence 14. N 6756’10” W 332.65 feet to a point, thence 15. S 2203’50” W 300.00 feet to a point, thence 16. N 5458’15” W 142.05 feet to a point, thence 17. S 7014’47” W 24.81 feet to a point, thence 18. S 2056’55” W 118.29 feet to a point, thence 19. S 0959’56” W 210.79 feet to a point, thence 20. S 1800’23” W 18.67 feet to a point, thence 21. S 5619’00” W 287.69 feet to a point, thence 22. N 3341’04” E 425.87 feet to a point, thence 23. S 5944’08” W 100.18 feet to a point, thence 24. S 3341’02” W 185.64 feet to a point, thence 25. S 8518’25” W 31.89 feet to a point, thence 26. S 3341’02” W 591.12 feet to a point along the northern right-of-way line of Interstate 70, thence with said right-of-way line S 6142’34” E 2724.62 feet to a point, thence leaving said right of way and running along the remaining lands of Grace Litton, et al, N 2817’26” E 382.02 feet to a point, thence with said southern right-of-way line and with a curve to the right having a radius of 530.00 feet, an arc length of 279.97 feet and a chord bearing and distance of 27. N 22 34’01” W 276.73 feet to a point, thence with a curve to the left having a radius of 470.00 feet, an arc length of 400.99 feet and a chord bearing and distance of 28. N 3152’32” W 388.94 feet to a point; thence A-1 -------------------------------------------------------------------------------- 29. N 5619’02” W 445.43 feet to a point, thence running with the cul-de-sac at the end of Hunter’s Green Parkway and with a curve to the left having a radius of 50 feet, an arc length of 61.51 feet and a chord bearing and distance of 30. S 8825’06” W 57.743 feet to a point, thence running with a curve to the right having a radius of 70 feet, an arc length of 149.87 feet and a chord bearing and distance of 31. N 6530’43” W 122.84 feet to the place of beginning.   Containing 40.00 acres of land, more or less.   Being Lot 5 as shown on a plat entitled “Final Plat of Subdivision of Lots 5 and 6 and Simplified Plat of Parcels B and C of Hunter’s Green Business Park for Tiger Development 11, LP”, said plat being recorded at Plat folio 6647, et seq, one of the plat records in the office of the Clerk of the Circuit Court for Washington County, Maryland. A-2 -------------------------------------------------------------------------------- EXHIBIT B Seller’s Deliveries To the extent in Seller’s possession the following shall be delivered to Buyer: 1. Copies of any bills and other notices pertaining to any real estate taxes or personal property taxes applicable to the Property for the current year and the three (3) years immediately preceding the date of the Agreement.   • 2007 FY Tax Statement   • 2006 FY Tax Statement   • 2005 FY Tax Statement   • 2004 FY Tax Statement   • 2003 FY Tax Statement   2. Copies of all real estate tax, insurance, common area maintenance and other operating expense reconciliations prepared by Seller or Seller’s management agent in connection with the Property for the current year and the year immediately preceding the date of the Agreement.   • 2005 and 2006 summary of facility expenses 3. Copies of all maintenance, landscaping repair, pest control, and other service and/or supply contracts, and any other contracts or agreements relating to or affecting the Property.   • Pepco Energy Services contract summary   • Facility vendor list and contact information for:   o rapid air HV units,   o fire sprinkler system,   o CCTV system, door access/fire/burglar alarms,   o firestone roofing system   o lawn care, landscaping, snow removal and storm water retention maintenance   • Facility Utility Supplies list and contact information for:   o Electricity transportation   o Electricity supplier   o Natural Gas supplier   o Public water and sewer   4. Copies of certificates of insurance for all hazard, rent loss, liability and other insurance policies currently in force with respect to the Property and/or Seller’s business.   • Acordia Certificate of Liability   • Property Insurance B-1 -------------------------------------------------------------------------------- 5. Copies of all final, written, third-party reports regarding soil conditions, ground water, wetlands, underground storage tanks, subsurface conditions and/or other environmental or physical conditions relating to the Property, in Seller’s possession or control.   • Phase I Environmental Site Assessment prepared for UBS Securities, LLC, dated June 2005.   • Storm water inspection by Washington County Engineer for Structure No. DP-01-0322   6. Copies of all engineering and architectural plans and specifications, drawings, studies and surveys relating to the Property, in Seller’s possession or control, and copies of all records pertaining to the repair, replacement and maintenance of the mechanical systems at the Property, the roof and the structural components of the Property.   • PDF version of site plan prepared by Frederick, Siebert & Associates, including expansion area site plan   • PDF version of as-built plans for the building   • Wolff Roofing and Sheet Metal, Firestone Roofing System 10 Year Warranty No. RB102630   7. A schedule listing all repairs, replacements or items of maintenance costing in excess of $10,000.00 per occurrence or per item, performed at the Property, at any time or from time to time, during the current year and the year immediately preceding the Contract Date, together with supporting invoices, purchase orders and billing statements for each such item of repair, replacement or maintenance.   • None over $10,000. Minor repairs as follows:   o Otter Creek Custom Landscaping & Lawn Maintenance (drainage ditch repair)   o Fire-X Sales & Service invoices for annual maintenance of portable fire extinguishers   o Long Fence guardrail repair   8. Copies of Seller’s most recent owner’s title policy issued in connection with the Property and the most recent survey of the Property.   • Owner’s Policy of Title Insurance from First American Title Insurance Company N. NCS-183780-MPLS, dated September 7, 2005.   • Commitment No. NCS-266083 for title insurance in the amount of $27,000,000.   • All recorded documents affecting the property listed on the title policy and title commitment.   9. Copies of all, if any, of the following in Seller’s possession or control: subdivision plans or plats, variances, parcel maps or development agreements relating to the Property; and licenses, permits, certificates, authorizations, or approvals issued by any governmental authority in connection with the construction, ownership, use and occupancy of the Property.   • Copy of Certificate of Occupancy dated October 14, 2003 B-2 -------------------------------------------------------------------------------- EXHIBIT C Lease       C-1 -------------------------------------------------------------------------------- INDUSTRIAL BUILDING LEASE (BOND-TYPE)   1.  BASIC TERMS. This Section 1 contains the Basic Terms of this Industrial Building Lease (the “Lease”) between Landlord and Tenant, named below. Other Sections of the Lease referred to in this Section 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.   1.1. Effective Date of Lease: December 29, 2006   1.2. Landlord: [_______________________], a Delaware limited liability company   1.3. Tenant: Lenox, Incorporated, a New Jersey corporation   1.4. Premises: Approximately forty (40) acres of land on which the Building (the “Building”) commonly known as 16507 Hunters Green Parkway, Hagerstown, Maryland, is located, which Building contains approximately 506,003 rentable square feet, as legally described on Exhibit A attached hereto.   1.5. Guarantor: Lenox Group Inc.   1.6. Lease Term: Fifteen (15) years (“Term”), commencing December 29, 2006 (“Commencement Date”) and ending, subject to Section 2.5 below and Rider 1 hereof, on December 31, 2021 (“Expiration Date”).   1.7. Permitted Uses: (See Section 4.1) Any lawful purposes, subject to applicable zoning restrictions, provided that Tenant’s use does not otherwise violate the other terms and conditions of this Lease; provided, however, that if Tenant desires to use the Premises for any use other than warehouse, and distribution and ancillary office use, then Tenant must first obtain Landlord’s consent, which consent shall not be withheld unless such use creates a nuisance (e.g., by production or emission of objectionable or unpleasant odors, smoke, dust, gas, light, noise or vibrations) or materially increases the risk of environmental contamination.   1.8. Tenant’s Broker: N/A   1.9. Exhibits and Riders to Lease: The following exhibits and riders are attached to and made a part of this Lease. Exhibit A (legal description); Exhibit B (Tenant Operations Inquiry Form); Exhibit C (Broom Clean Condition and Repair Requirements), Exhibit D (Termination Fee); Exhibit E (Guaranty); Exhibit F (Right of First Offer); and Rider No. 1 (Tenant’s Expansion Option).   2. LEASE OF PREMISES; RENT. 2.1.          Lease of Premises for Lease Term. Landlord hereby leases the Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the Term and subject to the conditions of this Lease.   -------------------------------------------------------------------------------- 2.2.          Types of Rental Payments. Tenant shall pay net base rent to Landlord in monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease (the “Base Rent”) in the amounts and for the periods as set forth below: Rental Payments                         Lease Period Annual Base Rent Monthly Base Rent 12/29/06 – 12/31/06 Per diem $    5,268.00 1/1/07 – 12/31/07 $1,922,820.00 $160,235.00 1/1/08 – 12/31/08 $1,961,268.00 $163,439.00 1/1/09 – 12/31/09 $2,000,496.00 $166,708.00 1/1/10 – 12/31/10 $2,040,504.00 $170,042.00 1/1/11 – 12/31/11 $2,081,316.00 $173,443.00 1/1/12 – 12/31/12 $2,122,944.00 $176,912.00 1/1/13 – 12/31/13 $2,165,400.00 $180,450.00 1/1/14 – 12/31/14 $2,208,708.00 $184,059.00 1/1/15 – 12/31/15 $2,252,880.00 $187,740.00 1/1/16 – 12/31/16 $2,297,940.00 $191,495.00 1/1/17 – 12/31/17 $2,343,900.00 $195,325.00 1/1/18 – 12/31/18 $2,390,784.00 $199,232.00 1/1/19 – 12/31/19 $2,438,604.00 $203,217.00 1/1/20 – 12/31/20 $2,487,372.00 $207,281.00 1/1/21 – 12/31/21 $2,537,124.00 $211,427.00   Tenant shall also pay all Operating Expenses (defined below) and any other amounts owed by Tenant hereunder (collectively, “Additional Rent”). In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 5 days of the date when due, a late charge in an amount equal to 2% of the then delinquent installment of Base Rent and/or Additional Rent (the “Late Charge”; the Late Charge, Default Interest, as defined in Section 21.3 below, Base Rent and Additional Rent shall collectively be referred to as “Rent”) shall be paid by Tenant to Landlord. Default Interest shall not be charged on the Late Charge and the Late Charge shall not be imposed on accrued Default Interest. Tenant shall deliver all Rent payments to Landlord at [311 South Wacker Drive, Suite 4000, Chicago, IL, 60606, Attn: Joint Venture Accounting Group] (or to such other entity designated as Landlord’s management agent, if any, and if Landlord so appoints such a management agent, the “Agent”), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing. 2.3.          Covenants Concerning Rental Payments; Initial and Final Rent Payments. Tenant shall pay the Rent promptly when due, without notice or demand, and without any abatement, deduction or setoff. No payment by Tenant, or receipt or acceptance by Agent or Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Agent or Landlord may accept such payment without prejudice to its right to recover the balance due or to pursue any other remedy available to Landlord.   2 --------------------------------------------------------------------------------   2.4. Net Lease; Nonterminability. 2.4.1.       This Lease is a complete “bond net lease,” and Tenant’s obligations arising or accruing during the Term of this Lease to pay all Base Rent, Additional Rent, and all other payments hereunder required to be made by Tenant shall be absolute and unconditional, and Tenant shall pay all Base Rent, Additional Rent and all other payments required to be made by Tenant under this Lease without notice (except as otherwise expressly and specifically set forth herein), demand, counterclaim, set-off, deduction, or defense and without abatement, suspension, deferment, diminution or reduction, free from any charges, assessments, impositions, expenses or deductions of any and every kind of and nature whatsoever. All costs, expenses and obligations of every kind and nature whatsoever relating to the Premises and the appurtenances thereto and the use and occupancy thereof that may arise or become due prior to or during the Term (including Operating Expenses related to the period prior to the Term and payable during the Term) shall be paid by Tenant, and Landlord is not responsible for any costs, charges, expenses or outlays of any nature whatsoever arising during the Term from or relating to the Premises or the use or occupancy thereof; and Landlord, Landlord’s mortgagee or lender and their respective employees, shareholders, officers, directors, members, managers, trustees, partners or principals, disclosed or undisclosed, and all of their respective successors and assigns (hereinafter collectively referred to as the “Indemnitees” and each individually as an “Indemnitee”), shall be indemnified and saved harmless as provided below. The willful misconduct or negligence of Landlord and the Indemnitee parties of Landlord shall not be imputed to Landlord’s mortgagee or lender and the Indemnitee parties of such mortgagee or lender. Tenant assumes the sole responsibility during the Term for the condition, use, operation, repair, maintenance, replacement of any and all components and systems of, and the underletting and management of, the Premises. Tenant shall and hereby does indemnify, defend and hold the Indemnitees harmless from and against any and all Losses (defined below) actually incurred by any or all of the Indemnitees with respect to, and to the extent of, matters that arise or accrue with respect to the Term of this Lease and in connection with any or all of the maintenance, repair and operation of the Premises (whether or not the same shall become payable during the Term); and the Indemnitees shall have no (a) responsibility in respect thereof and (b) liability for damage to the property of Tenant or any subtenant of Tenant on any account or for any reason whatsoever, except in the event of (and then only to the extent of) such Indemnitee’s respective willful misconduct or negligence. It is the purpose and intention of the parties to this Lease that the Base Rent due hereunder shall be absolutely net to the Landlord and Landlord shall have no obligation or responsibility, of any nature whatsoever, to perform any tenant improvements; to provide any services; or to perform any repairs, maintenance or replacements in, to, at, on or under the Premises, whether for the benefit of Tenant or any other party, and that Tenant has the authority to operate, maintain and repair the Premises as it deems appropriate, in its sole discretion, subject to the terms of the Lease. 2.4.2.       Except as otherwise expressly provided in Sections 18 and 21 of this Lease, this Lease shall not terminate, nor shall Tenant have any right to terminate this Lease or to be released or discharged from any obligations or liabilities hereunder for any reason, including, without limitation: (i) any damage to or destruction of the Premises; (ii) any restriction, deprivation (including eviction) or prevention of, or any interference with, any use or the occupancy of the Premises (whether due to any default in, or failure of, Landlord’s title to the Premises or otherwise); (iii) any condemnation, requisition or other taking or sale of the use, occupancy or title of or to the Premises; (iv) any action, omission or breach on the part of Landlord under this Lease or any other agreement between Landlord and Tenant; (v) the inadequacy or failure of the description of the Premises to   3 -------------------------------------------------------------------------------- demise and let to Tenant the property intended to be leased hereby; (vi) any sale or other disposition of the Premises by Landlord; (vii) the impossibility or illegality of performance by Landlord or Tenant or both; (viii) any action of any court, administrative agency or other governmental authority; or (ix) any other cause, whether similar or dissimilar to the foregoing, any present or future law notwithstanding. Nothing in this paragraph shall be construed as an agreement by Tenant to perform any illegal act or to violate the order of any court, administrative agency or other governmental authority. 2.4.3.       Tenant will remain obligated under this Lease in accordance with its terms, and will not take any action to terminate (except in accordance with the provisions of Section 18 of this Lease), rescind or avoid this Lease for any reason, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any assignee of Landlord, or any action with respect to this Lease that may be taken by any receiver, trustee or liquidator or by any court. Tenant waives all rights at any time conferred by statute or otherwise to quit, terminate or surrender this Lease or the Premises, or to any abatement or deferment of any amount payable by Tenant hereunder, or for claims against any Indemnitee for any Losses suffered by Tenant on account of any cause referred to in this Section 2.4 or otherwise (except claims directly arising out of the negligence or willful misconduct by such Indemnitee).   2.5. Option to Renew. 2.5.1.       Tenant shall have the option (“Renewal Option”) to renew this Lease for three (3) consecutive terms of five (5) years each (each, a “Renewal Term”), on all the same terms and conditions set forth in this Lease, except that initial Base Rent during any Renewal Term shall be equal to Fair Market Rent (as defined in Section 2.5.2 below), and as of the first anniversary of the commencement of each Renewal Term and continuing on each anniversary thereof through the remainder of that Renewal Term, the Base Rent shall increase at the rate of two percent (2.0%), per annum, on a compounded basis. Tenant shall deliver written notice to Landlord of Tenant’s election to exercise the Renewal Option (“Renewal Notice”) not less than twelve (12) months, nor more than eighteen (18) months, prior to the expiration date of the original Term or the then-current Renewal Term, as applicable; and if Tenant fails to timely deliver a Renewal Notice to Landlord, then Tenant shall automatically be deemed to have irrevocably waived and relinquished the Renewal Option. 2.5.2.       For the purposes of this Lease, “Fair Market Rent” shall be determined by Landlord, in good faith, based upon the annual base rental rates then being charged in the industrial market sector of the geographic area where the Building is situated for comparable space and for a lease term commencing on or about the commencement date of the applicable Renewal Term and equal in duration to the applicable Renewal Term, taking into consideration: the geographic location, quality and age of the Building; the location and configuration of the relevant space within the Building; the extent of service to be provided to the proposed tenant thereunder; applicable distinctions between “gross” and “net” leases; the creditworthiness and quality of Tenant; leasing commissions; and any other relevant term or condition in making such evaluation, all as reasonably determined by Landlord. In no event, however (and notwithstanding any provision to the contrary in this Section 2.5), shall the Fair Market Rent be less than an amount equal to the Base Rent in effect during the one (1) year period immediately preceding the expiration date of the then-applicable term (the “Renewal Rent Floor”). Landlord shall notify Tenant of Landlord’s determination of Fair Market Rent for any Renewal Term, in writing (the “Base Rent Notice”) within sixty (60) days after receiving the applicable Renewal Notice.   4 -------------------------------------------------------------------------------- 2.5.3.       Tenant shall then have sixty (60) days after Landlord’s delivery of the Base Rent Notice in which to advise Landlord, in writing (the “Base Rent Response Notice”), whether Tenant (i) is prepared to accept the Fair Market Rent established by Landlord in the Base Rent Notice and proceed to lease the Premises, during the Renewal Term, at that Fair Market Rent; or (ii) elects to withdraw and revoke its Renewal Notice, whereupon the Renewal Option shall automatically be rendered null and void; or (iii) elects to contest Landlord’s determination of Fair Market Rent. In the event that Tenant fails to timely deliver the Base Rent Response Notice, then Tenant shall automatically be deemed to have elected (i) above. Alternatively, if Tenant timely elects (ii), then this Lease shall expire on the original expiry date of the initial Term or the then current Renewal Term, as applicable. If, however, Tenant timely elects (iii), then the following provisions shall apply: 2.5.3.1.              The Fair Market Rent shall be determined by either the Independent Brokers or the Determining Broker, as provided and defined below, but in no event shall the Fair Market Rent be less than the Renewal Rent Floor. 2.5.3.2.               Within thirty (30) days after Tenant timely delivers its Base Rent Response Notice electing to contest Landlord’s determination of Fair Market Rent, each of Landlord and Tenant shall advise the other, in writing (the “Arbitration Notice”), of both (i) the identity of the individual that each of Landlord and Tenant, respectively, is designating to act as Landlord’s or Tenant’s, as the case may be, duly authorized representative for purposes of the determination of Fair Market Rent pursuant to this Section 2.5.3 (the “Representatives”); and (ii) a list of three (3) proposed licensed real estate brokers, any of which may serve as one of the Independent Brokers (collectively, the “Broker Candidates”). Each Broker Candidate:   (i) shall be duly licensed in the jurisdiction in which the Premises is located; and   (ii) shall have at least five (5) years’ experience, on a full-time basis, leasing industrial space (warehouse/distribution/ancillary office) in the same general geographic area as that in which the Premises is located, and at least three (3) of those five (5) years of experience shall have been consecutive and shall have elapsed immediately preceding the date on which Tenant delivers the Renewal Notice. 2.5.3.3.               Within fourteen (14) days after each of Landlord and Tenant delivers its Arbitration Notice to the other, Landlord and Tenant shall cause their respective Representatives to conduct a meeting at a mutually convenient time and location. At that meeting, the two (2) Representatives shall examine the list of six (6) Broker Candidates and shall each eliminate two (2) names from the list on a peremptory basis. In order to eliminate four (4) names, first, the Tenant’s Representative shall eliminate a name from the list and then the Landlord’s Representative shall eliminate a name therefrom. The two (2) Representatives shall alternate in eliminating names from the list of six (6) Broker Candidates in this manner until each of them has eliminated two (2) names. The two (2) Representatives shall immediately contact the remaining two (2) Broker Candidates (the “Independent Brokers”), and engage them, on behalf of Landlord and Tenant, to determine the Fair Market Rent in accordance with the provisions of this Section 2.5.3.   5 -------------------------------------------------------------------------------- 2.5.3.4.              The Independent Brokers shall determine the Fair Market Rent within thirty (30) days of their appointment. Within ten (10) days after appointment of the Independent Brokers, Landlord and Tenant shall each make a written submission to the Independent Brokers advising of the rate that the submitting party believes should be the Fair Market Rate, together with whatever written evidence or supporting data that the submitting party desires in order to justify its desired rate of Fair Market Rent; provided, in all events, however, that the aggregate maximum length of each party’s submission shall not exceed ten (10) pages (each such submission package, a “FMR Submission”). The Independent Brokers shall be obligated to choose one (1) of the parties’ specific proposed rates of Fair Market Rent, without being permitted to effectuate any compromise position. 2.5.3.5.               In the event, however, that the Independent Brokers fail to reach agreement, within twenty (20) days after the date on which both Landlord and Tenant deliver the FMR Submissions to the Independent Brokers (the “Decision Period”), as to which of the two (2) proposed rates of Fair Market Rent should be selected, then, within five (5) days after the expiration of the Decision Period, the Independent Brokers shall jointly select a real estate broker who (x) meets all of the qualifications of a Broker Candidate, but was not included in the original list of six (6) Broker Candidates; and (y) is not affiliated with any or all of (A) either or both of the Independent Brokers and (B) the real estate brokerage companies with which either or both of the Independent Brokers is affiliated (the “Determining Broker”). The Independent Brokers shall engage the Determining Broker on behalf of Landlord and Tenant (but without expense to the Independent Brokers), and shall deliver the FMR Submissions to the Determining Broker within five (5) days after the date on which the Independent Brokers select the Determining Broker pursuant to the preceding sentence (the “Submission Period”). 2.5.3.6.              The Determining Broker shall make a determination of the Fair Market Rent within twenty (20) days after the date on which the Submission Period expires. The Determining Broker shall be required to select one of the parties’ specific proposed rates of Fair Market Rent, without being permitted to effectuate any compromise position. 2.5.3.7.              The decision of the Independent Brokers or the Determining Broker, as the case may be, shall be conclusive and binding on Landlord and Tenant, and neither party shall have any right to contest or appeal such decision, except in case of fraud. 2.5.3.8.               In the event that the initial Term or the then current Renewal Term, as applicable, expires and the subject Renewal Term commences prior to the date on which the Independent Brokers or the Determining Broker, as the case may be, renders their/its decision as to the Fair Market Rent, then from the commencement date of the subject Renewal Term through the date on which the Fair Market Rent is determined under this Section 2.5.3 (the “Determination Date”), Tenant shall pay monthly Base Rent to Landlord at a rate equal to 102% of the most recent rate of monthly Base Rent in effect on the expiration date of the initial Term or the immediately preceding Renewal Term, as applicable (the “Temporary Base Rent”). Within ten (10) business days after the Determination Date, Landlord shall pay to Tenant, or Tenant shall pay to Landlord, depending on whether the Fair Market Rent is less than or greater than the Temporary Base Rent, whatever sum that Landlord or Tenant, as the case may be, owes the other (the “Catch-Up Payment”), based on the Temporary Base Rent actually paid and the Fair Market Rent due (as determined by the Independent Brokers or the Determining Broker, as the case may be) during that   6 -------------------------------------------------------------------------------- portion of the Renewal Term that elapses before the Catch-Up Payment is paid, in full (together with interest thereon, as provided below). The Catch-Up Payment shall bear interest at the rate of Prime (defined below), plus two percent (2.0%) per annum, from the date each monthly component of the Catch-Up Payment would have been due, had the Fair Market Rent been determined prior to the commencement of the Renewal Term, through the date on which the Catch-Up Payment is paid, in full (inclusive of interest thereon). For purposes hereof, “Prime” shall mean the per annum rate of interest publicly announced by JPMorgan Chase Bank NA (or its successor), from time to time, as its “prime” or “base” or “reference” rate of interest. 2.5.3.9.              The party whose proposed rate of Fair Market Rent is not selected by the Independent Brokers or the Determining Broker, as the case may be, shall bear all costs of all counsel, experts or other representatives that are retained by both parties, together with all other costs of the arbitration proceeding described in this Section 2.5.3, including, without limitation, the fees, costs and expenses imposed or incurred by any or all of the Independent Brokers and the Determining Broker. 2.5.3.10.             Unless otherwise expressly agreed in writing, during the period of time that any arbitration proceeding is pending under this Section 2.5.3, Landlord and Tenant shall continue to comply with all those terms and provisions of this Lease that are not the subject of their dispute and arbitration proceeding under this Section 2.5.3, most specifically including, but not limited to, Tenant’s monetary obligations under this Lease; and, with respect to the payment of Base Rent during that portion of the Renewal Term that elapses during the pendency of any arbitration proceeding under this Section 2.5.3, the provisions of Section 2.5.3.8 shall apply.   2.5.4. The Renewal Option is granted subject to all of the following conditions: 2.5.4.1.               As of the date on which Tenant delivers any Renewal Notice and continuing through the commencement date of the applicable Renewal Term, there shall not exist any uncured Default by Tenant under this Lease. 2.5.4.2.              There shall be no further right of renewal after the expiration of the third Renewal Term. 2.5.4.3.              The Renewal Option is personal to Tenant and may only be exercised by Tenant or any assignee of Tenant (provided such assignment was made with Landlord’s prior written consent and otherwise in accordance with the requirements of Section 8 or made without Landlord’s consent but in accordance with Section 8). 2.5.4.4.              The Premises shall be delivered to Tenant during the Renewal Term(s) on an “as-is” “where-is” basis, with no obligation on the part of Landlord to perform any tenant improvements to the Premises. 2.6.          Guaranty. Simultaneously with the execution and delivery of this Lease, Guarantor has executed and entered into the Guaranty Agreement in the form attached hereto as Exhibit E (the “Guaranty”), for the benefit of Landlord pursuant to which Guarantor has absolutely and unconditionally guaranteed the payment and performance of Tenant’s obligations hereunder.   7 --------------------------------------------------------------------------------   3. OPERATING EXPENSES. 3.1.          Definitional Terms Relating to Additional Rent. For purposes of this Section and other relevant provisions of the Lease: 3.1.1.       Operating Expenses. The term “Operating Expenses” shall mean all costs, expenses and charges of every kind or nature relating to, or incurred in connection with, the maintenance and operation of the Premises, including, but not limited to the following: (i) Taxes, as hereinafter defined in Section 3.1.2; (ii) dues, fees or other costs and expenses, of any nature, due and payable to any association or comparable entity to which Landlord, as owner of the Premises, is a member or otherwise belongs and that governs or controls any aspect of the operation of the Premises; (iii) any so called “rent” or “revenue” taxes imposed on the Rent payable hereunder; and (iv) any real estate taxes and common area maintenance expenses due and payable under any declaration of covenants, conditions and restrictions, reciprocal easement agreement or comparable arrangement that encumbers and benefits the Premises and other real property (e.g. a business park). Under no circumstances, however, shall Operating Expenses include: (i) depreciation or amortization on the Premises or any fixtures or equipment installed therein, (ii) federal, state, or local income, margin, franchise, gift, transfer, excise, capital stock, estate, succession, or inheritance taxes, (iii) interest on debt or amortization payments on mortgages or deeds of trust or any other debt for borrowed money and costs or any expenses incurred by Landlord in connection with such debt and liens, (iv) costs incurred because Landlord violated any governmental rule or authority or as a result of Landlord’s negligence or willful misconduct; (v) costs or expenses of a partnership, or other entity, which constitutes Landlord, which costs or expenses are not directly related to the Premises (such as accounting fees, tax returns, and income taxes of such entity), (vi) any sums that Landlord is required to pay Tenant pursuant to any other written agreement between Landlord and Tenant, (vii) sums reimbursed to Landlord by a third party, (viii) remediation of Hazardous Materials if such remediation is necessitated by Landlord’s acts or neglect; (ix) expenses for services provided by Landlord to the extent such expenses exceed those that would be charged by an unrelated third party charging competitive market rates, and (x) expenses incurred by Landlord that are not directly related to the Premises or its operations including, without limitation, compensation paid to employees of Landlord; however, Operating Expenses shall include those expenses, if any, incurred by Landlord in order to perform or provide any services required of Landlord under this Lease or to provide any services specifically requested by Tenant (including a portion of the compensation paid to employees performing or providing such services, pro-rated to reflect the extent of the employee’s time spent performing or providing such services), subject to the limitation set forth in clause (ix) above.   3.1.2. Taxes. 3.1.2.1.              The term “Taxes” shall mean (i) all governmental taxes, assessments, fees and charges of every kind or nature (other than Landlord’s federal, state, or local income, margin, franchise, gift, transfer, excise, capital stock, estate, succession, or inheritance taxes income taxes), whether general, special, ordinary or extraordinary, due at any time or from time to time, during the Term and any extensions thereof, in connection with the ownership, leasing, or operation of the Premises, or of the personal property and equipment located therein or used in connection therewith; and (ii) any reasonable expenses incurred by Landlord in contesting such taxes or assessments and/or the assessed value of the Premises, if Landlord participates in a tax contest at Tenant’s request. For purposes hereof, Tenant shall be responsible for any Taxes that are due and   8 -------------------------------------------------------------------------------- payable at any time or from time to time during the Term (including, but not limited to, those Taxes that accrued prior to the Commencement Date), and for its pro rata share of any Taxes that are assessed, become a lien, or accrue during any Operating Year but are not payable until after the Expiration Date, which obligation shall survive the termination or expiration of this Lease. Without in any way limiting Tenant’s obligation to pay any and all Taxes, Tenant hereby acknowledges that Tenant shall be solely responsible for any increase in Taxes which is the result of the loss of any tax abatement owed to, or expected by, Tenant pursuant to any tax abatement agreement to which Tenant is a party. To the extent that any retroactive tax liability arises pursuant to any tax abatement agreement to which Tenant is a party, Tenant shall be and remain liable for such retroactive liability, regardless of whether said liability relates to a period of time or accrued prior to, or following, the Commencement Date. Notwithstanding the foregoing or anything to the contrary herein, Tenant shall be entitled to the benefits of all existing and future reduction or abatement of Taxes to the extent such reductions and abatements are granted by the applicable taxing authority and relate to the Term. 3.1.2.2.              Tenant shall have the right to contest the amount or validity, in whole or in part, of any Tax or to seek a reduction in the valuation of the Premises as assessed for real estate property tax purposes by appropriate proceedings diligently conducted in good faith (but only after the deposit or payment, whether under protest or otherwise, of any amounts required by applicable law to stay or prevent collection activities). No additional deposit shall be payable to Landlord in connection with any contest. If Tenant elects to initiate any proceeding referred to in this Section 3.1.2.2, Tenant shall promptly so advise Landlord, but Landlord shall not be required to join such proceeding, except to the extent required by law, in which event Landlord shall, upon written request by Tenant, join in such proceedings or permit the same to be brought in its name, all at Tenant’s sole expense. Landlord agrees to provide, at Tenant’s expense, whatever assistance Tenant may reasonably require in connection with any such contest initiated by Tenant. Tenant covenants that Landlord shall not suffer or sustain any costs or expenses (including attorneys’ fees) or any liability in connection with any such proceeding initiated by Tenant. No such contest initiated by Tenant shall subject Landlord to any civil liability or the risk of any criminal liability or forfeiture. 3.1.3.       Operating Year. The term “Operating Year” shall mean the calendar year commencing January 1st of each year during the Term. The first Operating Year under this Lease shall begin on January 1, 2007 and end on December 31, 2007. 3.2.          Payment of Operating Expenses. Tenant shall directly pay, on a timely basis and to the appropriate entity, all Operating Expenses and Taxes.   4. USE OF PREMISES AND COMMON AREAS. 4.1.          Use of Premises. The Premises shall be used by the Tenant for the purpose(s) set forth in Section 1.7 above and for no other purpose whatsoever. Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises, in any manner that may (a) violate any Certificate of Occupancy for the Premises; (b) cause, or be likely to cause, injury to, or in any way impair the value or proper utilization of, all or any portion of the Premises (including, but not limited to, the structural elements of the Premises); (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies, or any covenant, condition or restriction affecting the Premises; (d) exceed the load bearing capacity of the floor of the Premises; (e) materially impair the appearance of   9 -------------------------------------------------------------------------------- the Premises; or (f) have any detrimental environmental effect on the Premises which (i) arises out of a violation or violations of Environmental Laws or (ii) results in any material increased risk of liability to Landlord. On or prior to the date hereof, Tenant has completed and delivered for the benefit of Landlord a “Tenant Operations Inquiry Form” in the form attached hereto as Exhibit B describing the nature of Tenant’s proposed business operations at the Premises, which form is intended to, and shall be, relied upon by Landlord. From time to time during the Term (but no more often than once in any twelve month period unless Tenant is in default hereunder beyond applicable notice and cure periods or unless Tenant assigns this Lease or subleases all or any portion of the Premises, whether or not in accordance with Section 8), Tenant shall provide an updated and current Tenant Operations Inquiry Form within twenty (20) days after Landlord’s request therefor. 4.2.          Signage. Any and all signage must at all times fully comply with all applicable laws, regulations and ordinances. Tenant shall remove all signs of Tenant upon the expiration or earlier termination of this Lease and immediately repair any damage to the Premises caused by, or resulting from, such removal. 4.3.          Liens. During the Term, Tenant will promptly, but no later than forty-five (45) days after the date Tenant first has knowledge of the filing thereof, or such shorter period as shall prevent the forfeiture of the Premises, remove and discharge of record, by bond or otherwise, any charge, lien, security interest or encumbrance upon any of the Premises, Base Rent and Additional Rent which charge, lien, security interest or encumbrance arises for any reason (other than a result of Landlord’s act), including, but not limited to, all liens that arise out of the possession, use, occupancy, construction, repair or rebuilding of the Premises or by reason of labor or materials furnished, or claimed to have been furnished, to Tenant for the Premises, but not including any encumbrances expressly permitted under this Lease or any mechanics liens created by Landlord. Nothing contained in this Lease shall be construed as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to or for the performance of any contractor, laborer, materialman, or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Premises or any part thereof. Notice is hereby given that, during the Term, Landlord will not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding an interest in the Premises or any part thereof through or under Tenant, and that no mechanics or other liens for any such labor, services or materials shall attach to or affect the interest of Landlord in and to the Premises, unless such labor, services or materials were placed in the Premises pursuant to a written agreement entered into by Landlord. In the event of the failure of Tenant to discharge any charge, lien, security interest or encumbrances as aforesaid, Landlord may, if not discharged by Tenant within ten (10) business days after written notice to Tenant, discharge such items by payment or bond or both, and Section 23.4 hereof shall apply. Provided Tenant is diligently contesting any such lien or encumbrance in accordance with applicable law, in lieu of a bond Tenant shall have the option to deposit cash (or an irrevocable, standby letter of credit in form reasonably acceptable to Landlord) with Landlord in an amount sufficient to fully discharge such lien or encumbrance (as reasonably determined by Landlord, the “Lien Deposit”), which Lien Deposit may be used by Landlord to discharge, settle or otherwise satisfy the applicable lien or encumbrance at any time after the commencement of foreclosure proceedings or before forfeiture of the Premises or any portion thereof. 5.             CONDITION AND DELIVERY OF PREMISES. Tenant agrees that Tenant (or an affiliate thereof) is the former owner of the Premises; as a result, Tenant is familiar with the condition   10 -------------------------------------------------------------------------------- of the Premises, and Tenant hereby accepts the foregoing on an “AS-IS,” “WHERE-IS” basis. Tenant acknowledges that neither Landlord nor Agent, nor any representative of Landlord, has made any representation as to the condition of the foregoing or the suitability of the foregoing for Tenant’s intended use. Tenant represents and warrants that Tenant has made its own inspection of the foregoing. Neither Landlord nor Agent shall be obligated to make any repairs, replacements or improvements (whether structural or otherwise) of any kind or nature to the foregoing in connection with, or in consideration of, this Lease.   6. SUBORDINATION; ESTOPPEL CERTIFICATES; ATTORNMENT. 6.1.          Subordination and Attornment. This Lease is and shall be subject and subordinate at all times to (a) all ground leases or underlying leases that may now exist or hereafter be executed affecting the Premises and (b) any mortgage or deed of trust that may now exist or hereafter be placed upon, and encumber, any or all of (x) the Premises; (y) any ground leases or underlying leases for the benefit of the Premises; and (z) all or any portion of Landlord’s interest or estate in any of said items; provided, however, that the foregoing provision shall only be applicable with respect to those mortgages, deeds of trust, and leases as to which Tenant has been provided a reasonable, normal and customary Subordination, Non Disturbance and Attornment Agreement (the “SNDA”). No SNDA shall impose any economic obligations on Tenant in addition to those economic obligations imposed under this Lease, nor may any SNDA require any change in, or modification of, this Lease that shall impose any obligation or responsibility on Tenant. Tenant shall join with any such lessor, mortgagee or trustee and execute promptly (and, in any event, within ten (10) business days after receipt of a written request therefor) an SNDA. 6.2.          Estoppel Certificate. Tenant agrees, from time to time and within 10 business days after request by the Landlord, to deliver to the Landlord, or the Landlord’s designee, an estoppel certificate in reasonable, normal and customary form, as requested by Landlord, with such modifications as may be necessary to make such certificate factually accurate. Failure by Tenant to timely execute and deliver such certificate shall automatically constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included therein are true and correct without exception. 6.3.          Transfer by Landlord. In the event of a sale or conveyance by Landlord of the Premises, the same shall operate to release Landlord from any future liability for any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to Landlord’s successor in interest (“Successor Landlord”) with respect thereto and agrees to attorn to such successor. 7.             QUIET ENJOYMENT; COVENANTS OF LANDLORD. Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, subject to applicable notice and cure periods and the other provisions hereof, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent, Successor Landlord or any other person lawfully claiming through or under Landlord. Landlord hereby covenants and agrees not to subdivide the Premises, construct additional improvements thereon, or add on to the Building without the prior written consent of Tenant, which may be granted or withheld in Tenant’s sole discretion.   11 --------------------------------------------------------------------------------   8. ASSIGNMENT AND SUBLETTING; LEASEHOLD MORTGAGE. 8.1.          Prohibition. Tenant acknowledges that this Lease and the Rent due under this Lease have been agreed to by Landlord in reliance upon Tenant’s reputation and creditworthiness and upon the continued operation of the Premises by Tenant for the particular use set forth in Section 1.7 above; therefore, Tenant shall not, whether voluntarily, or by operation of law, or otherwise: (a) assign or otherwise transfer this Lease; (b) sublet the Premises or any part thereof, other than subleases to any party controlling, controlled by or under common control with Tenant, or allow the same to be used or occupied by anyone other than Tenant (or any other party controlling, controlled by or under common control with Tenant); or (c) mortgage, pledge, encumber, or otherwise hypothecate this Lease or the Premises, or any part thereof, in any manner whatsoever, without in each instance obtaining the prior written consent of Landlord, which consent as to assignments and subleases shall not be unreasonably withheld, conditioned or delayed, and as to mortgages and other matters described in clause (c) above may be given or withheld in Landlord’s sole, but reasonable, discretion. Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord shall be absolutely null and void. No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee’s assumption of all obligations of Tenant hereunder. Any consent by Landlord to a particular assignment, sublease or mortgage shall not constitute consent or approval of any subsequent assignment, sublease or mortgage, and Landlord’s written approval shall be required in all such instances. No consent by Landlord to any assignment or sublease shall be deemed to release Tenant from its obligations hereunder and Tenant shall remain fully liable for performance of all obligations under this Lease. 8.2.          Rights of Landlord. If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord or Agent may (without prejudice to, or waiver of its rights), after default by Tenant under this Lease which continues beyond applicable notice and cure periods, collect Rent from the assignee or, from the subtenant or occupant, and all amounts so collected shall be credited to any amounts due from Tenant hereunder. 8.3.          Permitted Transfers. Notwithstanding anything in this Section 8 to the contrary, Tenant shall have the right, without Landlord’s consent and without causing a default of Tenant under this Lease, to assign this Lease to any parent entity or wholly-owned or substantially wholly-owned direct or indirect subsidiary entity of Tenant or Guarantor, in each of which events Tenant shall give prompt written notice of such fact to Landlord and, further, Tenant shall remain fully liable for performance of all obligations and liabilities under this Lease and the assignee shall be automatically deemed to have assumed all of Tenant’s obligations and liabilities under this Lease for the benefit of Landlord. Tenant may also assign this Lease, without Landlord’s consent and without causing a default hereunder to any entity acquiring a majority of the voting stock of Tenant, or to any other change in voting control of Tenant (if Tenant is a corporation), or to a transfer of a majority (i.e., greater than 50% interest) of the general partnership or membership interests in Tenant (if Tenant is a partnership or a limited liability company) or managerial control of Tenant, or to any comparable transaction involving any other form of business entity, whether effectuated in one (1) or more transactions; or to any entity in connection with the sale of substantially all the Tenant’s assets (where such sale of assets is for a bona fide business purpose and not primarily to transfer Tenant’s interest in this Lease), and, in the case of a sale of all or substantially all of Tenant assets only, Tenant shall no   12 -------------------------------------------------------------------------------- longer be liable for the obligations under this Lease arising from and after the date of transfer (such assigning Tenant remaining liable for all obligations arising prior to the date of transfer), provided, in any of such events, the successor to Tenant (or any party remaining liable for the obligations of Tenant hereunder): (i) has a net worth at least equal to the net worth of Tenant as of the Commencement Date, or (ii) if (i) above is not satisfied, such successor is capable of satisfying Tenant’s obligations hereunder, in Landlord’s reasonable judgment. Any such permitted transferee shall execute and deliver to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee’s assumption of all obligations of Tenant hereunder. Notwithstanding anything to the contrary contained in this Section 8.3, in no event may Tenant assign, mortgage, transfer, pledge or sublease this Lease to any entity whatsoever if, at the time of such assignment, mortgage, transfer, pledge or sublease, Tenant is in default under this Lease beyond applicable notice and cure periods, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion for as long as such default remains uncured.   9. COMPLIANCE WITH LAWS. 9.1.          Compliance with Laws. During the Term, Tenant shall, at its sole expense (regardless of the cost thereof), comply with all local, state and federal laws, rules, regulations and requirements now or hereafter in force, and all judicial and administrative decisions in connection with the enforcement thereof pertaining to either or both of the Premises and Tenant’s use and occupancy thereof (collectively, “Laws”), whether such Laws (a) concern or address matters of an environmental nature; (b) require the making of any structural, unforeseen or extraordinary changes; and (c) involve a change of policy on the part of the body enacting the same, including, in all instances described in (a) through (c), but not limited to, the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.). If any license or permit is required for the conduct of Tenant’s business in the Premises, Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain such license or permit in good standing throughout the Term. Tenant shall give prompt notice to Landlord of any written notice it receives of the alleged violation of any Law or requirement of any governmental or administrative authority with respect to either or both of the Premises and the use or occupation thereof. 9.2.          Hazardous Materials. If, at any time or from time to time prior to or during the Term (or any extension thereof), any Hazardous Material (defined below) is (or was, as the case may be) generated, transported, stored, used, treated or disposed of at, to, from, on or in the Premises: (i) Tenant shall, at its own cost, at all times comply (and cause Tenant’s Parties to comply) with all Laws relating to Hazardous Materials, and Tenant shall further, at its own cost, obtain and maintain in full force and effect at all times all permits and other approvals required in connection therewith; (ii) Tenant shall promptly provide Landlord or Agent with complete copies of all communications, permits or agreements with, from or issued by any governmental authority or agency (federal, state or local) or any private entity relating in any way to the past or current (from time to time throughout the Term) presence, release, threat of release, or placement of Hazardous Materials on or in the Premises or any portion of the Premises, or the generation, transportation, storage, use, treatment, or disposal at, on, in or from the Premises, of any Hazardous Materials; (iii) Landlord, Agent and their respective agents and employees shall have the right to either or both (x) enter the Premises (with such notice as may be required under Section 16, except in the event of an emergency presenting an imminent threat of bodily injury, death, or destruction of property) and (y) conduct appropriate tests for the purposes of ascertaining Tenant’s compliance with all applicable Laws or permits relating in any way to the   13 -------------------------------------------------------------------------------- generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises; and (iv) upon written request by Landlord or Agent if Landlord or Agent has reasonable reason to believe that Tenant is in violation of this Section 9.2, Tenant shall provide Landlord with the results of reasonably appropriate tests of air, water or soil to demonstrate that Tenant complies with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises. This Section 9.2 does not authorize the generation, transportation, storage, use, treatment or disposal of any Hazardous Materials at, to, from, on or in the Premises in contravention of this Section 9. Nothing herein is intended to or shall be deemed to prohibit Tenant from using Hazardous Materials on the Premises in quantities reasonably necessary for Tenant to conduct its business therein in compliance with Laws. Tenant covenants to investigate, clean up and otherwise remediate, at Tenant’s sole expense, any release of Hazardous Materials occurring in, at, on and under the Premises during the Term, as well as any release of Hazardous Materials that occurred in, at, on and under the Premises prior to the Term, but which release is identified, cited, or determined to exist at any time during the Term, unless caused by Landlord or a third party who has been determined to be responsible for such contamination by agreement or governing authority. Such investigation and remediation shall be performed only after Tenant has obtained Landlord’s prior written consent, which consent shall not be unreasonably withheld. All remediation shall be performed in material compliance with Laws and to the reasonable satisfaction of Landlord (provided Landlord shall not require any remediation that is not required by applicable Laws). Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first obtaining Landlord’s written consent (which consent shall not be unreasonably withheld) and affording Landlord the reasonable opportunity to participate in any such proceedings. As used herein, the term, “Hazardous Materials,” shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not airborne) that is or may be deemed to be or include a pesticide, petroleum, asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant that is or may hereafter be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or that presents a risk to public health or to the environment and that is or becomes regulated by any Law. The undertakings, covenants and obligations imposed on Tenant under this Section 9.2 shall survive the termination or expiration of this Lease for events arising during the Term.   10. INSURANCE. 10.1.        Policies. Tenant shall purchase, at its own expense, and keep in force at all times during this Lease the policies of insurance set forth below (collectively, “Tenant’s Policies”). All Tenant’s Policies shall (a) be issued by an insurance company with a Best rating of A or better and otherwise reasonably acceptable to Landlord and shall be licensed to do business in the state in which the Premises is located; (b) provide that said insurance shall not be canceled or materially modified unless 30 days’ prior written notice shall have been given to Landlord; (c) provide for deductible amounts that are reasonably acceptable to Landlord (and its lender, if applicable); and (d) otherwise be in such form, and include such coverages, as Landlord may reasonably require provided the same are normally and customarily required by prudent owners of industrial property or their lenders. The Tenant’s Policies described in Sections 10.2(i) and 10.2(ii) below shall (1) provide coverage on an occurrence basis; (2) except as otherwise specifically provided below, name Landlord and First Industrial, L.P. (and Landlord’s lender, if applicable) as additional insureds; (3) provide coverage, to   14 -------------------------------------------------------------------------------- the extent insurable, for the indemnity obligations of Tenant under this Lease; (4) contain a separation of insured parties provision (under Tenant’s commercial general or excess liability policy, but not under Tenant’s commercial property insurance policy); (5) be primary, not contributing with, and not in excess of, coverage that Landlord may carry; and (6) provide coverage with no exclusion for a pollution incident arising from a hostile fire. All Tenant’s Policies (or, at Landlord’s option, Certificates of Insurance and applicable endorsements, including, without limitation, an “Additional Insured-Managers or Landlords of Premises” endorsement) shall be delivered to Landlord prior to the Commencement Date and renewals thereof shall be delivered to Landlord’s Corporate and Regional Notice Addresses at least 30 days prior to the applicable expiration date of each Tenant’s Policy. In the event that Tenant fails, at any time or from time to time, to comply with the requirements of the preceding sentence, Landlord may (i) order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand, as Additional Rent or (ii) impose on Tenant, as Additional Rent, a monthly delinquency fee, for each month during which Tenant fails to comply with the foregoing obligation, in an amount equal to three percent (3%) of the Base Rent then in effect. Tenant shall give prompt notice to Landlord and Agent of any bodily injury, death, personal injury, advertising injury or property damage occurring in and about the Premises. 10.2.        Coverages. Tenant shall purchase and maintain throughout the Term, a Tenant’s Policy(ies) of:   (i) commercial property insurance covering the improvements constructed, installed or located on the Premises (but excluding Tenant’s personal property). Such property insurance policy: (A) shall name Landlord (and its lender(s), if applicable) as mortgagee/loss payee, as its (their respective) interest(s) may appear; (B) shall, at a minimum, cover both (x) the Building and (y) all other improvements, of any nature, situated on the Premises at any time, or from time to time during the Term, including, but not limited to, parking areas and landscaping (collectively, the “Insured Improvements”), against direct physical loss, as would be insured against under a standard ISO Special Form (“all risk” coverage); (C) shall be for no less than 100% of the full replacement cost value of the Building and the Insured Improvements, with an “agreed amount” endorsement; (D) shall include, at a minimum, the following extensions of coverage; building ordinance, inclusive of demolition and increased cost of construction; terrorism; earthquake/earth movement; wind; flood; and boiler and machinery/equipment breakdown; (E) shall include rental interruption insurance for twelve (12) months of rent and operating expense reimbursement for that same twelve (12) month period; and (F) shall provide for a per occurrence deductible that is no greater than $100,000.00. The policy limits and sublimits shall be acceptable to Landlord, in its reasonable discretion. For purposes of this Section 10.2, “full replacement cost value” shall be interpreted to mean the cost of replacing the Premises without deduction for depreciation or wear and tear, less the cost of footings, foundations and other structures below grade, which value shall be memorialized in a letter agreement (including an ACORD Certificate evidencing such required insurance), to be executed by Landlord and Tenant not later than thirty (30) days   15 -------------------------------------------------------------------------------- after the Commencement Date, and which value shall be trended-forward on each anniversary of the Commencement Date using the trending criteria generally applied by Factory Mutual or other recognized insurance consultants;   (ii) commercial general or excess liability insurance, including personal injury and property damage, in the amount of not less than $2,000,000.00 per occurrence, and $5,000,000.00 annual general aggregate;   (iii) comprehensive automobile liability insurance covering Tenant against any personal injuries or deaths of persons and property damage based upon or arising out of the ownership, use, occupancy or maintenance of a motor vehicle at the Premises and all areas appurtenant thereto in the amount of not less than $1,000,000, combined single limit;   (iv) commercial property insurance covering Tenant’s personal property in amounts reasonably determined by Tenant;   (v) workers’ compensation insurance per the applicable state statutes covering all employees of Tenant (it being agreed that Tenant shall have the right to self-insure its obligations under this item (v));   (vi) if Tenant handles, stores or utilizes Hazardous Materials in its business operations, pollution legal liability insurance; and   (vii) during any period of construction or during which any Alterations costing in excess of $150,000.00 are being made, builder’s risk coverage in an amount sufficient for such Alterations or other work or improvements performed on the Premises by Tenant; provided, however, that in the event that such builder’s risk coverage is required, such coverage may be provided through the so-called “course of construction” coverage provided in the property insurance policy described in Section 10.2(i) above, and Tenant shall cause such “course of construction” coverage to provide coverage in an amount equal to or greater than $3,000,000.00. Notwithstanding anything to the contrary contained in this Section 10, upon the occurrence of a Default, Landlord shall have the right to, upon written notice to Tenant, purchase the aforementioned Tenant’s Policies on Tenant’s behalf and charge the cost thereof to Tenant, which amounts shall be payable by Tenant to Landlord, upon demand as Additional Rent. 10.3.        Blanket Policies. Notwithstanding anything to the contrary contained in this Section 10, Tenant’s obligation to carry insurance may be satisfied by coverage under a so-called “blanket policy” or policies of insurance; provided, however, that all insurance certificates provided by Tenant to Landlord pursuant to Section 10.1 above shall reflect that Tenant has been afforded coverage specifically with respect to the Premises. At Tenant’s option but no more than once per calendar year, Tenant may request that Landlord carry, for the benefit of Tenant, the casualty insurance required by   16 -------------------------------------------------------------------------------- this Section 10 at Tenant’s expense for the following calendar year provided such request is made not later than October 1 of the preceding calendar year. If Tenant makes such request, Landlord shall promptly increase its coverage accordingly, and Tenant shall pay the premiums attributable to the coverage required hereby within thirty (30) days after demand therefor.   11. ALTERATIONS. 11.1.        Non-Structural Alterations. Tenant may, from time to time at its sole expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as “Alterations”) provided that:   (i) such Alterations are non-structural and, if the cost of such Alterations (whether on a single occurrence basis, or a series of two or more related occurrences or items occurring within a six (6) month period) exceeds $150,000.00, Tenant delivers prior written notice thereof to Landlord (except that notice of de minimus Alterations (costing less than $50,000.00) will not be required); and   (ii) Tenant, in every instance, complies with the terms and conditions of Section 11.3 below. 11.2.        Consent to Alterations. Landlord’s consent to Alterations, when required, shall not be unreasonably withheld, conditioned or delayed, provided that: (a) the structural integrity of the Premises shall not be adversely affected; (b) the proper functioning of the mechanical, electrical, heating, ventilating, air-conditioning (“HVAC”), sanitary and other service systems of the Premises shall not be adversely affected and the usage of such systems by Tenant shall not be materially increased; (c) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations; and (d) Tenant shall have provided Landlord with reasonably detailed plans for such Alterations in advance of requesting Landlord’s consent. Additionally, but subject to (a) through (d) above, Landlord shall not unreasonably withhold its consent to any Alterations: (i) reasonably required in order to accommodate a sublease or an assignment of this Lease (provided such assignment or sublease is executed in compliance with Section 8); or (ii) reasonably required in order to accommodate Tenant’s business operations at the Premises. In each and every instance involving Alterations, the performance of the Alterations in question shall not have a material, adverse effect on the value of the Premises. 11.3.        Other Requirements. Before proceeding with any Alterations, Tenant shall (i) at Tenant’s expense, obtain all necessary governmental permits and certificates for the commencement and prosecution of Alterations; (ii) if Landlord’s consent is required for the planned Alteration, submit to Landlord, for its written approval, working drawings, preliminary plans and specifications and all permits for the work to be done and Tenant shall not proceed with such Alterations until it has received Landlord’s approval (if required), which must be delivered or specifically denied within ten (10) business days after request therefor, or will be deemed granted if Landlord’s consent is not expressly denied within five (5) business days after an additional written request from Tenant; and (iii) cause those contractors, materialmen and suppliers engaged to perform the Alterations to deliver to Landlord certificates of insurance (in a form reasonably acceptable to Landlord) evidencing policies of builders risk (but only if the cost of such Alterations exceeds $150,000), commercial general liability insurance   17 -------------------------------------------------------------------------------- (providing the same coverages as required in Section 10 above) and workers’ compensation insurance. Such insurance policies shall satisfy the obligations imposed under Section 10. Tenant shall cause the Alterations to be performed in compliance with all applicable permits, Laws and requirements of public authorities. Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to those existing as of the date of this Agreement. Upon the substantial completion of any Alterations, Tenant shall provide Landlord with “as built” plans, copies of all construction contracts, governmental permits and certificates and proof of payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers, subject to Tenant’s right to contest any liens as provided above. Landlord shall have the right to require that Tenant remove from the Premises, at the expiration or termination of this Lease, and at Tenant’s sole cost and expense, any Alterations for which Landlord’s consent is required under this Section 11, provided that Landlord advises Tenant, in writing, of this requirement at the time that Landlord consents to the applicable Alteration. The parties do not intend that the making of Alterations shall: (A) constitute income to Landlord; or (B) result in a deferral or denial of some or all of the federal, state or municipal income tax deductions that Landlord would otherwise be permitted to report with respect to the Premises or this Lease; or (C) cause this Lease not to be a true lease for federal income tax purposes. 12.           LANDLORD’S AND TENANT’S PREMISES. All trade fixtures, machinery and equipment (collectively, the “Tenant’s Property”) attached to, or built into, the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, shall remain Tenant’s Property and shall be removed by Tenant at the Expiration Date. At or before the Expiration Date, or the date of any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant’s personal property, Tenant’s Property and any Alterations that Landlord requires be removed pursuant to Section 11, and Tenant shall repair (to Landlord’s reasonable satisfaction) any damage to the Premises resulting from such installation and/or removal. Any other items of Tenant’s personal property that shall remain in the Premises for more than ten (10) days after the Expiration Date, or following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items may be retained by Landlord as its property or be disposed of by Landlord, in Landlord’s sole and absolute discretion and without accountability, at Tenant’s expense. Notwithstanding the foregoing provisions of this Section 12 or any other provision of this Lease to the contrary (including, without limitation, Section 21.2), if Landlord or Tenant terminates this Lease prior to the Expiration Date, then, provided that Tenant has paid and continues to pay, on a timely basis, all Rent due under this Lease (if any), Tenant shall have thirty (30) days from the accelerated termination date in which to remove Tenant’s personal property and any Alterations that Landlord requires be removed pursuant to Section 11. If the foregoing sentence is applicable, then none of Tenant’s personal property and equipment may be considered abandoned, nor may Landlord retain and dispose of any of such personal property and equipment until such thirty (30) day period expires. 13.           REPAIRS AND MAINTENANCE. Tenant acknowledges that, with full awareness of its obligations under this Lease, and in light of the fact that Landlord acquired the Premises from Tenant (or an affiliate of Tenant) as of the Commencement Date, Tenant has accepted the condition, state of repair and appearance of the Premises. Except for normal wear and tear and events of damage, destruction or casualty to the Premises (as addressed in Section 18 below), Tenant agrees that, at its sole expense and throughout the Term, it shall put, keep and maintain the Premises, including any Alterations and any altered, rebuilt, additional or substituted building, structures and other   18 -------------------------------------------------------------------------------- improvements thereto or thereon, in good order, condition, repair and appearance (allowing for normal wear and tear), and in a safe condition, repair and appearance (collectively, the “Required Condition”) and shall make all repairs and replacements necessary to ensure compliance with the Required Condition. Without limiting the foregoing, Tenant shall promptly make all structural and nonstructural, foreseen and unforeseen, ordinary and extraordinary changes, replacements and repairs of every kind and nature, and correct any patent or latent defects in the Premises, which may be required to put, keep and maintain the Premises in the Required Condition. Tenant will keep the Premises orderly and free and clear of rubbish. Tenant covenants to perform or observe all terms, covenants and conditions of any easement, restriction, covenant, declaration or maintenance covenants of record (collectively, “Easements”) to which the Premises are currently subject or become subject pursuant to this Lease (it being agreed that Landlord shall not amend any Easement or agree to any additional Easement in any manner that will either limit, in any adverse respect, Tenant’s rights under this Lease or impose any new or increased burden, economic or otherwise, on Tenant, without Tenant’s prior written consent, which consent may be withheld in Tenant’s sole, but reasonable, discretion), whether or not such performance is required of Landlord under such Easements, including, without limitation, payment of all amounts due from Landlord or Tenant (whether as assessments, service fees or other charges) under such Easements. Tenant shall deliver to Landlord promptly, but in no event later than five (5) business days after receipt thereof, copies of all written notices received from any party thereto regarding the non-compliance of the Premises or Landlord’s or Tenant’s performance of obligations under any Easements. Tenant shall, at its expense, use reasonable efforts to enforce compliance with any Easements benefiting the Premises by any other person or entity or property subject to such Easements. Landlord shall not be required to maintain, repair or rebuild, or to make any alterations, replacements or renewals of any nature to the Premises, or any part thereof, whether ordinary or extraordinary, structural or nonstructural, foreseen or not foreseen, or to maintain the Premises or any part thereof in any way or to correct any patent or latent defect therein except to the extent such action is necessitated by Landlord’s or Agent’s negligence or willful misconduct or by actions taken by or on behalf of Landlord in connection with Landlord’s inspection of the Premises prior to Landlord’s acquisition of title thereto. Tenant hereby expressly waives any right to make repairs at the expense of Landlord which may be provided for in any Law in effect at the Commencement Date or that may thereafter be enacted. If Tenant shall abandon the Premises, it shall give Landlord immediate written notice thereof. 14.           UTILITIES. Tenant shall purchase all utility services and shall provide for garbage, cleaning and extermination services for service to the Premises. Tenant shall pay the utility charges for the Premises directly to the utility or municipality providing such service, all charges shall be paid by Tenant before they become delinquent. Tenant shall be solely responsible for the repair and maintenance of any meters necessary in connection with such services. 15.           INVOLUNTARY CESSATION OF SERVICES. If and to the extent Landlord directly provides any such services to Tenant, Landlord reserves the right, without any liability to Tenant and without affecting Tenant’s covenants and obligations hereunder, to stop service of any or all of the HVAC, electric, sanitary, elevator (if any), and other systems serving the Premises, or to stop any other services provided by Landlord under this Lease, whenever and for so long as may be necessary by reason of (i) accidents, emergencies, strikes, or (ii) any other cause beyond Landlord’s reasonable control. Further, it is also understood and agreed that Landlord or Agent shall have no liability or responsibility for a cessation of any services to the Premises that occurs as a result of causes beyond Landlord’s or Agent’s reasonable control. No such interruption of any service shall be deemed   19 -------------------------------------------------------------------------------- an eviction or disturbance of Tenant’s use and possession of the Premises or any part thereof, or render Landlord or Agent liable to Tenant for damages, or relieve Tenant from performance of Tenant’s obligations under this Lease, including, but not limited to, the obligation to pay Rent. 16.           LANDLORD’S RIGHTS. Upon reasonable prior notice to Tenant (which may be delivered telephonically), and as long as Landlord does not unreasonably interfere with Tenant’s operations, Landlord, Agent and their respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times (except in the event of emergency for which no prior notice is required) to examine and inspect the Premises and to show it to actual and prospective lenders, prospective purchasers or mortgagees of the Premises or providers of capital to Landlord and its affiliates; and in connection with the foregoing, to install a sign at or on the Premises to advertise the Premises for sale. During the period of six months prior to the Expiration Date, unless a Renewal Option has been exercised (or at any time, if Tenant has abandoned the Premises or is otherwise in default beyond applicable notice and cure periods under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants. Additionally, Landlord and Agent shall have the following rights with respect to the Premises, without being deemed an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) to have pass keys, access cards, or both, to the Premises; and (ii) to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant abandons the Premises for more than 30 consecutive days.   17. NON-LIABILITY AND INDEMNIFICATION. 17.1.        Non-Liability. Except (and only if and) to the extent caused by the willful misconduct or negligence of Landlord or Agent, Landlord and Agent shall not be liable to Tenant for any loss, injury, or damage, to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss and, in no event shall any affiliates, owners, partners, directors, officers, agents or employees of Landlord or Agent ever be liable hereunder. Further, except (and only if and) to the extent caused by the willful misconduct or negligence of Landlord or Agent, none of Landlord, Agent, any other managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant (a) for any damage caused by other persons in, upon or about the Premises, or caused by operations in construction of any public or quasi-public work; (b) with respect to matters for which Landlord is liable, for consequential or indirect damages purportedly arising out of any loss of use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant; (c) for any defect in the Premises; (d) for injury or damage to person or property caused by fire, or theft, or resulting from the operation of heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow from any part of the Premises, or from the pipes, appliances or plumbing work of the same. 17.2.        Tenant Indemnification. Except (and only if and to the extent of) Landlord’s or Agent’s negligence or willful misconduct, Tenant hereby indemnifies, defends, and holds Landlord, Agent and the Indemnitees (collectively, “Landlord Indemnified Parties”) harmless from and against any and all Losses arising from or in connection with any or all of: (a) Tenant’s operation of the Premises during the Term; (b) Tenant’s conduct or management of the Premises or any business therein, or any work or Alterations done, or any condition created by any or all of Tenant and any or all of its member, partners, officers, directors, employees, invitees, managers, contractors, and   20 -------------------------------------------------------------------------------- representatives (collectively, “Tenant’s Parties”), in or about the Premises during the Term; (c) any act, omission or negligence during the Term of any or all of Tenant and Tenant’s Parties; (d) any accident, injury or damage whatsoever occurring during the Term in, at or upon the Premises and caused by any or all of Tenant and Tenant’s Parties; (e) any breach by Tenant of any or all of its warranties, representations and covenants under this Lease; (f) any actions necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code relating to this Lease or Tenant; (g) Tenant’s failure to comply with Section 9.2; and (h) any violation or alleged violation by any or all of Tenant and Tenant’s Parties of any Law; and (i) any claims made against Landlord by any third party contractor engaged by Tenant (collectively, “Tenant’s Indemnified Matters”). In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant’s Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. The term “Losses” shall mean all claims, demands, expenses, actions, judgments, damages (actual, but not consequential or punitive), penalties or fines imposed by any Law, liabilities, losses of every kind and nature (other than consequential or punitive damages), suits, administrative proceedings, costs and fees, including, without limitation, attorneys’ and consultants’ reasonable fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. The provisions of this Section 17.2 shall survive the expiration or termination of this Lease. 17.3.        Landlord Indemnification. Landlord hereby indemnifies, defends, and holds Tenant, Guarantor, and any of their affiliates (collectively, “Tenant Indemnified Parties”) harmless from and against any and all Losses arising from or in connection with any negligence or willful misconduct of Landlord and any or all of its member, partners, officers, directors, employees, invitees, managers, contractors, and representatives (collectively, “Landlord’s Parties”), in or about the Premises during the Term (collectively, “Landlord’s Indemnified Matters”). In case any action or proceeding is brought against any or all of Tenant and the Tenant Indemnified Parties by reason of any of Landlord’s Indemnified Matters, Landlord, upon notice from any or all of Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant, whether under this Section Error! Reference source not found. or any other provision of this Lease, shall be limited to the interest of Landlord in the Premises, and Tenant agrees to look solely to Landlord’s interest in the Premises (and the profits and proceeds thereof) for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency. The provisions of this Section 17.3 shall survive the expiration or termination of this Lease.   18. CASUALTY AND CONDEMNATION. 18.1.        Casualty. If the Building and/or other improvements on the Premises shall be damaged or destroyed by fire or other casualty (each, a “Casualty”), Tenant, at Tenant’s sole cost and expense, shall promptly and diligently repair, rebuild or replace such Building and other improvements, so as to restore the Premises to the condition in which they were immediately prior to such damage or destruction, irrespective of whether any insurance proceeds are adequate or available to repair, rebuild or replace such Building. The net proceeds of any insurance (other than rent loss insurance) recovered by reason of such damage to, or such destruction of, the Building and/or other   21 -------------------------------------------------------------------------------- improvements on the Premises in excess of the cost of adjusting the insurance claim and collecting the insurance proceeds (such excess being hereinafter called the “net insurance proceeds”) shall be held in trust by Landlord as loss payee or held by any holder of an interest in the Premises which may be superior to Tenant’s interest under this Lease (a “Holder”) and released for the purpose of paying the cost of restoring such Building and other improvements. Such net insurance proceeds shall be released to Tenant or Tenant’s contractors from time to time as the work progresses in accordance with the terms of a commercially reasonable construction contract requiring progress payments or payments on a monthly basis. Prior to the commencement of the work, Tenant shall deliver to Landlord reasonable proof that such net insurance proceeds are adequate to pay the cost of such restoration. If such net insurance proceeds are not adequate, Tenant shall pay, out of funds other than such net insurance proceeds, the amount by which such cost will exceed such net insurance proceeds. Notwithstanding anything to the contrary herein, no insurance proceeds paid to Tenant due to loss or damage of Tenant’s furniture, fixtures, equipment or other personal property, or properly allocable to loss or damage of the same shall be paid to Landlord.   18.2. Condemnation. 18.2.1      Condemnation of Entire Premises. If all or substantially all of the Premises is taken or condemned for a public or quasi-public use (“Condemnation”), the provisions of Section 18.3 shall apply. 18.2.2      Partial Condemnation. If less than all or substantially all of the Premises is subject to a Condemnation, Tenant shall restore the Building and other improvements upon the Premises to a condition and size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the Condemnation, and there shall be an equitable abatement of the Base Rent according to the value of the Premises before and after the Condemnation. In the event that the parties fail to agree upon the amount of such abatement, either party may submit the issue for arbitration pursuant to the rules of the American Arbitration Association and the determination or award rendered by the arbitrator(s) shall be final, conclusive and binding upon the parties and not subject to appeal, and judgment thereon may be entered in any court of competent jurisdiction. 18.2.3      Award. Tenant shall have the right to make a claim against the condemnor for moving and related expenses that are payable to tenants under applicable law without reducing the awards otherwise payable to Landlord and the Holders. Except as aforesaid, Tenant hereby waives all claims against Landlord and all claims against the condemnor, and Tenant hereby assigns to Landlord all claims against the condemnor including, without limitation, all claims for leasehold damages and diminution in the value of Tenant’s leasehold interest, subject to the provisions of this Section 18.2.3. If only part of the Premises is Condemned, the net proceeds of any Condemnation award recovered by reason of any taking or Condemnation of the Premises in excess of the cost of collecting the award and in excess of any portion thereof attributable to the then-current market value of the land taken or Condemned (such excess being hereinafter called the “net condemnation proceeds”) shall be held in trust by Landlord or any Holder and released for the purpose of paying the cost of restoring the Building and other improvements damaged by reason of the taking or Condemnation. Tenant shall perform such restoration, and such net Condemnation proceeds shall be released to Tenant or Tenant’s contractors from time to time as the work progresses. Prior to the commencement of the work, Tenant shall deliver to Landlord reasonable proof that such net condemnation proceeds are adequate to pay the cost of such restoration. If such net condemnation   22 -------------------------------------------------------------------------------- proceeds are not adequate, Tenant shall pay, out of funds other than such net condemnation proceeds, the amount by which such cost will exceed such net condemnation proceeds and shall furnish proof to Landlord of the payment of such excess for work performed. If such net condemnation proceeds are more than adequate, the amount by which such net condemnation proceeds exceed the cost of restoration will be retained by Landlord or applied to repayment of any mortgage loan secured by the Premises. In the event that the parties fail to agree upon the portion of the award attributable to the then-current market value of the land taken or Condemned, either party may submit the issue for arbitration pursuant to the rules then obtaining of the American Arbitration Association and the determination or award rendered by the arbitrator(s) shall be final, conclusive and binding upon the parties and not subject to appeal, and judgment thereon may be entered in any court of competent jurisdiction. Notwithstanding anything to the contrary herein, no condemnation proceeds paid to Tenant due to loss or damage of Tenant’s furniture, fixtures, equipment or other personal property, or properly allocable to loss or damage of the same shall be paid to Landlord. 18.2.4      Temporary Taking. If the condemnor should take only the right to possession for a fixed period of time or for the duration of an emergency or other temporary condition (a “Temporary Taking”), then, notwithstanding anything hereinabove provided, this Lease shall continue in full force and effect without any abatement of rent, but the amounts payable by the condemnor with respect to any period of time prior to the expiration or sooner termination of this Lease shall be paid by the condemnor to Landlord and all such amounts shall be credited to Tenant’s account up to the portion of the Rent allocable to the area that is subject to the Temporary Taking only. If the amounts payable hereunder by the condemnor are paid in monthly installments, Landlord shall apply the amount of such installments, or as much thereof as may be necessary for the purpose, toward the amount of Rent due from Tenant as rent for that period, and Tenant shall pay to Landlord any deficiency between the monthly amount thus paid by the condemnor and the amount of the Rent, while Landlord shall pay over to Tenant any excess of the amount of the award over the amount of the Rent.   18.3. Termination of Lease Following Major Casualty of Major Condemnation. 18.3.1      If a Casualty or Condemnation shall affect all or a substantial portion of the Premises, and: 18.3.1.1.                in the case of a Casualty, (a) if such Casualty (i) occurs during the final twenty-four (24) months of the Term (as it may have been extended prior to the occurrence of the Casualty; or (ii) shall be deemed a “total loss” for insurance purposes or shall be determined to be a loss of such dimension that the Premises cannot be completely restored or rebuilt within two hundred seventy (270) days computed from the hypothetical date of the commencement of construction; or (b) under then-applicable Laws, the Premises cannot be restored to substantially the same condition as existed immediately prior to the Casualty; or (c) in the event that Landlord maintains the property insurance, rather than Tenant, and the net insurance proceeds (exclusive of the deductible, which shall be paid by Tenant) are not sufficient, in the mutual and reasonable opinions of Landlord and Tenant to restore the Premises to substantially the same condition as existed immediately prior to the Casualty (any of (a), (b) or (c), a “Major Casualty”); or   23 -------------------------------------------------------------------------------- 18.3.1.2.                in the case of a Condemnation (other than a Temporary Taking): (a) such Condemnation shall, in Tenant’s and Landlord’s mutual and reasonable judgment, render the Premises unsuitable for restoration for continued use and occupancy of Tenant’s business; or (b) under then-applicable Laws, the Premises cannot be restored to substantially the same condition as existed immediately prior to the Condemnation; or (c) in the mutual and reasonable opinion of Landlord and Tenant, the net condemnation proceeds are insufficient to restore the Premises to a condition that will permit Tenant to continue to operate its business in the Premises in substantially the same fashion as Tenant operated immediately prior to the Condemnation (any of (a), (b) or (c), a “Major Condemnation”); then Tenant may, at its option, exercisable not later than sixty (60) days after the date on which the casualty or condemnation proceeds are known, deliver to Landlord each of the following: (A) notice (a “Termination Notice”) of its intention to terminate this Lease on the next rental payment date that occurs not less than sixty (60) days after the delivery of such notice (the “Termination Date”); (B) in the case of a Major Condemnation, a certificate of an authorized officer of Tenant describing the event giving rise to such termination; or in the case of a Major Casualty, (x) the certificate of an architect licensed in the state in which the Premises is located stating that the architect has determined, in its good faith judgment, that the Premises cannot be completely restored or rebuilt for continued use and occupancy in Tenant’s business in a manner consistent with the operation of Tenant’s business immediately prior to the occurrence of the Major Casualty within two hundred seventy (270) days computed from the hypothetical date of commencement of such construction or (y) written confirmation from the issuer of the applicable insurance policy that it will treat the damage to the Building as a “total loss”; and (C) an irrevocable offer (an “Event of Loss Purchase Offer”) by Tenant to Landlord to purchase the Premises on the Termination Date. 18.4.        Acceptance or Rejection of Event of Loss Purchase Offer. If Landlord shall reject the Event of Loss Purchase Offer by written notice given to Tenant not later than fifteen (15) days prior to the Termination Date, this Lease shall terminate on the Termination Date, except with respect to obligations and liabilities of Tenant or Landlord hereunder, actual or contingent, which have arisen on or prior to the Termination Date, upon payment by Tenant of all of the Base Rent, Additional Rent and other sums then due and payable or accrued hereunder to and including the Termination Date, and the net condemnation proceeds or net insurance proceeds (as the case may be) shall belong to Landlord. Tenant shall, on or before the Termination Date, execute and deliver to Landlord an outright assignment of such proceeds in form and substance reasonably acceptable to Landlord and pay to Landlord an amount equal to any applicable insurance deductible or self-insurance amounts. Unless Landlord shall have rejected the Event of Loss Purchase Offer in accordance with this Section 18.4, Landlord shall be conclusively considered to have accepted the Event of Loss Purchase Offer. In the event Landlord accepts (or is deemed to have accepted) the Event of Loss Purchase Offer, then, on the Termination Date (1) Tenant shall pay to Landlord a purchase price determined pursuant to Exhibit D attached hereto, (2) Landlord shall convey the Premises to Tenant or its designee, and (3) Landlord shall assign to Tenant or its designee all of Landlord’s interest in the net condemnation proceeds or net insurance proceeds (as the case may be), by assignment in form and substance reasonably acceptable to Tenant or, if Landlord has already received all or a portion of such net condemnation proceeds or net insurance proceeds (as the case may be), then Landlord shall pay the same to Tenant or Tenant’s designee after deducting Landlord’s costs payable by Tenant hereunder. Such sale shall otherwise be consummated in accordance with the terms set forth in Section 18.5 below. In the event Tenant fails   24 -------------------------------------------------------------------------------- to deliver the Termination Notice and the Event of Loss Purchase Offer in accordance with the time deadlines set forth in this Section 18, then, at Landlord’s election, Tenant shall have no right to terminate this Lease or right to make an offer to purchase the Premises, and the Lease will continue in full force and effect. 18.5.        Closing/Conveyance Procedures. In the event, pursuant to the terms and conditions of Section 18.4 above, Landlord is to convey its interest in the Premises to Tenant as a result of an Event of Loss Purchase Offer, the following provisions shall apply: 18.5.1.     The purchase of the Premises contemplated herein shall be consummated at a closing (“Loss Closing”) to take place at the offices of Landlord or Landlord’s counsel. The Loss Closing shall occur on the date (the “Loss Closing Date”) which is no later than sixty (60) days after Landlord’s receipt of a timely Termination Notice or such other date as the parties shall mutually agree in writing. The Loss Closing shall be effective as of 11:59 p.m. on the Loss Closing Date. Time is of the essence. 18.5.2.     The total purchase price to be paid to Landlord by Tenant at the Loss Closing for the sale hereunder shall be an amount equal to the applicable purchase price set forth on Exhibit D attached hereto. In the event of a Loss Closing hereunder, Tenant shall not have the right to escrow or hold back any portion of the purchase price hereunder. The purchase price shall be paid to Landlord at the Loss Closing, by federal wire transfer of immediately available funds. 18.5.3.     At the Loss Closing, Landlord shall convey fee simple title to the Premises to Tenant (or its assignee or designee) pursuant to a quitclaim deed, subject to (a) Taxes; (b) those matters and exceptions shown in Landlord’s existing owner’s policy of title insurance dated ___________, 2006, issued by _____________ Title Insurance Company (File No. [_________________]) and the survey prepared by [_________________] dated [_________________] as Project Number [_________________]; (c) those matters that may be otherwise specifically approved, in writing, by Tenant, such approval not to be unreasonably withheld, delayed or denied, or otherwise deemed approved or accepted by Tenant, or that otherwise result from the construction of any improvements or Alterations by Tenant or the construction of any Expansion Improvements by Landlord; (d) matters arising out of any act of Tenant or any or all of its affiliates, representatives, lenders, agents, contractors, employees or invitees; and (e) any lien (including, without limitation, any mortgages or deeds of trust), claim or encumbrance or other matter, except liens, claims, adverse encumbrances directly caused by any act of Landlord or its affiliates, representatives, lenders, agents, contractors or employees. 18.5.4.     The sale of the Premises as provided for herein shall be made on a strictly “AS IS,” “WHERE-IS” basis as of the Loss Closing Date, without any representations or warranties, of any nature whatsoever from Landlord. Landlord hereby specifically disclaims any warranty (oral or written) concerning: (i) the nature and condition of the Premises and the suitability thereof for any and all activities and uses that Tenant may elect to conduct thereon, (ii) the manner, construction, condition and state of repair or lack of repair of any improvements located thereon, (iii) the nature and extent of any right-of-way, lien, encumbrance, license, reservation, condition or otherwise, (iv) the compliance of the Premises or its operation with any laws, rules, ordinances, or regulations of any government or other body; and (v) any other matter whatsoever. Tenant expressly acknowledges that, in consideration of the agreements of Landlord herein, LANDLORD MAKES NO   25 -------------------------------------------------------------------------------- WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF QUANTITY, QUALITY, CONDITION, HABITABILITY, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PREMISES, ANY IMPROVEMENTS LOCATED THEREON, OR ANY SOIL CONDITIONS RELATED THERETO. TENANT SPECIFICALLY ACKNOWLEDGES THAT TENANT IS NOT RELYING ON (AND LANDLORD HEREBY DISCLAIMS AND RENOUNCES) ANY REPRESENTATIONS OR WARRANTIES MADE BY OR ON BEHALF OF LANDLORD OF ANY KIND OR NATURE WHATSOEVER. 18.5.5.     If Tenant fails to timely perform or satisfy any of its obligations imposed under this Section 18, including its obligation to timely close on the purchase of the Premises, then such failure shall constitute a default by Tenant under this Lease (for which there is no cure period), and Landlord shall have all rights and remedies available to it under this Lease, at law or in equity (including, without limitation the right to file an action to specifically enforce the terms of this Section 18), with respect to such default. 18.5.6.     Upon the purchase of the Premises pursuant to the provisions of this Section 18, this Lease shall terminate except for provisions under this Lease that by their terms specifically survive. 18.5.7.     Landlord and Tenant each hereby indemnify, protect and defend and hold the other harmless from and against all Losses resulting from the claims of any broker, finder, or other such party claiming by, through or under the acts or agreements of the indemnifying party. The obligations of the parties pursuant to this Section 18 shall survive any termination of this Lease. 18.5.8.     There shall be no prorations of any cost items relating to the Premises, whether Taxes, Operating Expenses or otherwise; provided, however, that if and to the extent that, as of the Loss Closing, Landlord has paid any bills for any ownership expenses incurred (prior to the Loss Closing) in connection with the ownership and operation of the Premises and, under the terms of this Lease, Tenant would be required to reimburse Landlord for some or all of such expenses, then at the Loss Closing, Tenant shall be required to pay to Landlord, in addition to the purchase price set forth above, any such accrued Operating Expenses (including, but not limited to, Taxes). 18.5.9.     Provided the Loss Closing is consummated in accordance with this Section 18, Tenant shall pay for all closing costs, including, but not limited to, the cost to record the deed, any transfer taxes, any closing escrow fees, the costs of any title insurance policy, and the cost of the survey. Tenant shall be solely responsible for procuring the title insurance policy and the survey and in no event shall the procurement of those items be a condition precedent to Tenant’s obligation to acquire the Premises. All other costs shall be paid in accordance with local custom. Each of Landlord and Tenant shall be responsible for their respective attorneys’ fees. 19.           SURRENDER AND HOLDOVER. On the last day of the Term, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Premises: (a) Tenant shall quit and surrender the Premises to Landlord “broom-clean” (as defined by Exhibit C, attached hereto and incorporated herein by reference), and in a condition that would reasonably be expected with normal and customary use in accordance with prudent operating practices and in accordance with the covenants and requirements imposed under this Lease, subject only to ordinary wear and tear (as is   26 -------------------------------------------------------------------------------- attributable to deterioration by reason of time and use, in spite of Tenant’s reasonable care) and losses by casualty or condemnation not required to be repaired or restored by Tenant pursuant to the provisions hereof; (b) Tenant shall remove all of Tenant’s personal property therefrom, except as otherwise expressly provided in this Lease, and (c) Tenant shall surrender to Landlord any and all keys, access cards, computer codes or any other items used to access the Premises. Upon prior notice (which may be delivered telephonically), Landlord shall be permitted to inspect the Premises in order to verify compliance with this Section 19 at any time prior to (x) the Expiration Date, (y) the effective date of any earlier termination of this Lease, or (z) the surrender date otherwise agreed to in writing by Landlord and Tenant. The obligations imposed under the first sentence of this Section 19 shall survive the termination or expiration of this Lease. If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant’s right to possession: (i) Tenant shall be deemed a tenant-at-will; (ii) Tenant shall pay 125% of the Base Rent last prevailing hereunder, and also shall pay all actual damages (other than consequential or punitive damages) sustained by Landlord, directly by reason of Tenant’s remaining in possession after the expiration or termination of this Lease; (iii) there shall be no renewal or extension of this Lease by operation of law; and (iv) the tenancy-at-will may be terminated by either party hereto upon 30 days’ prior written notice given by the terminating party to the non-terminating party. The provisions of this Section 19 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by law.   20. EVENTS OF DEFAULT. 20.1.        Bankruptcy of Tenant. It shall be a default by Tenant under this Lease (“Default” or “Event of Default”) if Tenant or Guarantor makes an assignment for the benefit of creditors, or files a voluntary petition under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law, or an involuntary petition is filed against Tenant or Guarantor under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law that is not dismissed within 90 days after filing, or whenever a receiver of Tenant or Guarantor, or of, or for, the property of Tenant or Guarantor shall be appointed (and, in the case of an involuntary receivership, such receivership has not been vacated or set aside within sixty (60) days thereafter), or Tenant or Guarantor admits it is insolvent or is not able to pay its debts as they mature. 20.2.        Default Provisions. In addition to any Default arising under Section 20.1 above, each of the following shall constitute a Default: (a) if Tenant fails to pay Rent or any other payment when due hereunder within ten (10) days after written notice from Landlord of such failure to pay on the due date; provided, however, that if in any consecutive 12 month period, Tenant shall, on two (2) separate occasions, fail to pay any installment of Rent on the date such installment of Rent is due, then, on the third such occasion and on each occasion thereafter on which Tenant shall fail to pay an installment of Rent on the date such installment of Rent is due, Landlord shall be relieved from any obligation to provide notice to Tenant, and Tenant shall then no longer have a ten day period in which to cure any such failure; (b) if Tenant fails, whether by action or inaction, to timely comply with, or satisfy, any or all of the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of 30 days after Landlord’s delivery to Tenant of written notice of such default under this Section 20.2(b); provided, however, that if the default cannot, by its nature, be cured within such 30 day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial 30 day cure period, then, as long as Tenant continues to diligently pursue such a cure, Landlord shall not exercise its remedies under Section 21 unless such default remains uncured for more than 120 days after the initial delivery of Landlord’s original default notice; and, at Landlord’s   27 -------------------------------------------------------------------------------- election; (c) if Tenant abandons the Premises during the Term; or (d) if Guarantor defaults under the Guaranty Agreement.   20.3.          Landlord’s Default. In the event that Landlord defaults in the observance or performance of any term or condition required to be performed by Landlord hereunder, Tenant may elect either to (i) act to cure and remedy such default hereunder by Landlord or (ii) commence an action in a court of competent jurisdiction to compel performance by Landlord hereunder; provided, however, that Tenant may not exercise either of such remedies without first providing written notice of the alleged default to Landlord, setting forth, with reasonable specificity and detail, the nature of such default, and thereafter permitting Landlord a 30 day period to cure such default (which cure period may be extended if Landlord is diligently pursuing performance of the applicable cure, but such cure is not completed within the 30 day period). Upon expiration of Landlord’s cure period, Tenant shall deliver written notice to Landlord advising of Tenant’s election of (i) or (ii) above. The remedies provided in (i) and (ii) are Tenant’s sole and exclusive remedies, whether at law or in equity. In the event that Tenant elects alternative (i), Landlord shall reimburse Tenant for all reasonable third-party costs and expenses actually expended by Tenant to perform any obligation of Landlord actually and properly owing hereunder. In connection with the exercise of the foregoing remedies or otherwise, Tenant shall not be entitled to any abatement, deduction or set off against the Rent payable hereunder.   21. RIGHTS AND REMEDIES. 21.1.        Landlord’s Cure Rights Upon Default of Tenant. If a Default occurs, then Landlord may (but shall not be obligated to) cure or remedy the Default for the account of, and at the expense of, Tenant, but without waiving such Default. 21.2.        Landlord’s Remedies. In the event of any Default by Tenant under this Lease, Landlord, at its option, may, in addition to any and all other rights and remedies provided in this Lease or otherwise at law or in equity do or perform any or all of the following: 21.2.1.     Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession to Landlord. In such event, Landlord shall be entitled to recover from Tenant all of: (i) the unpaid Rent that is accrued and unpaid as of the date on which this Lease is terminated; (ii) the worth, at the time of award, of the amount by which (x) the unpaid Rent that would otherwise be due and payable under this Lease (had this Lease not been terminated) for the period of time from the date on which this Lease is terminated through the Expiration Date exceeds (y) the amount of such rental loss that could have been reasonably avoided; and (iii) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of events, would be likely to result therefrom, including but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Landlord in connection with this Lease applicable to the unexpired Term (as of the date on which this Lease is terminated). The worth, at the time of award, of the amount referred to in provision (ii) of the immediately preceding sentence shall be computed by discounting such amount at the per annum discount rate of the Federal Reserve Bank of the District within which the Premises are located at the   28 -------------------------------------------------------------------------------- time of award, plus one percent (1.0%) per annum. Efforts by Landlord to mitigate damages caused by Tenant’s Default shall not waive Landlord’s right to recover damages under this Section 21.2. If this Lease is terminated through any unlawful entry and detainer action, Landlord shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable in such action, or Landlord may reserve the right to recover all or any part of such Rent and damages in a separate suit; or 21.2.2.     Continue the Lease and Tenant’s right to possession and recover the Rent as it becomes due. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Landlord’s interests shall not constitute a termination of the Tenant’s right to possession; or 21.2.3.     Pursue any other remedy now or hereafter available under the laws of the state in which the Premises are located. 21.2.4.     Without limitation of any of Landlord’s rights in the event of a Default by Tenant, Landlord may also exercise its rights and remedies with respect to any security held or maintained by Landlord. Any and all personal property of Tenant that may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law may be handled, removed or stored by Landlord at the sole risk, cost and expense of Tenant, and in no event or circumstance shall Landlord be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges for such property of Tenant so long as the same shall be in Landlord’s possession or under Landlord’s control. Any such property of Tenant not removed from the Premises as of the Expiration Date or any other earlier date on which this Lease is terminated shall be conclusively presumed to have been conveyed by Tenant to Landlord under this Lease as in a bill of sale, without further payment or credit by Landlord to Tenant. Neither expiration or termination of this Lease nor the termination of Tenant’s right to possession shall relieve Tenant from its liability under the indemnity provisions of this Lease. 21.3.        Additional Rights of Landlord. All sums advanced by Landlord or Agent on account of Tenant under this Section, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if delinquent or not paid by Tenant and received by Landlord when due hereunder, shall bear interest at the rate of 2% per annum above the “prime” or “reference” or “base” rate (on a per annum basis) of interest publicly announced as such, from time to time, by the JPMorgan Chase Bank NA, or its successor (“Default Interest”), from the due date thereof (provided, however, that if Tenant is entitled to notice and opportunity to cure a monetary default under Section 20.2, then such interest shall not accrue until expiration of such cure period) until paid, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord’s or Agent’s submission of an invoice therefor. The various rights, remedies and elections of Landlord reserved, expressed or contained herein are cumulative and no one of them shall be deemed to be exclusive of the others or of such other rights, remedies, options or elections as are now or may hereafter be conferred upon Landlord by law. 21.4.        Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the   29 -------------------------------------------------------------------------------- federal bankruptcy laws, as now enacted or hereinafter amended, then: (a) “adequate assurance of future performance” by Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new security deposit in the amount of three times the then current monthly Base Rent payable hereunder; (b) any person or entity to which this Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment, and any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability; (c) notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as “Rent”, shall constitute “rent” for the purposes of Section 502(b)(6) of the Bankruptcy Code; and (d) if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord or Agent (including Base Rent, Additional Rent and other amounts hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord or Agent shall be held in trust by Tenant or Tenant’s bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. 22.           BROKER. Each party agrees to and hereby does defend, indemnify and hold the other harmless against and from any brokerage commissions or finder’s fees or claims therefor by a party claiming to have dealt with the indemnifying party and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses, for any breach of the foregoing. The foregoing indemnification shall survive the termination or expiration of this Lease.   23. MISCELLANEOUS. 23.1.        Merger. All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties. No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought. 23.2.        Notices. Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if personally delivered, or if sent by Federal Express or other comparable commercial overnight delivery service, addressed to the other party at the addresses set forth below each party’s respective signature block (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made on the day so delivered or on the first business day after having been deposited with the courier service. 23.3.        Non-Waiver. The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt and acceptance by Landlord or Agent of Base Rent or Additional Rent with   30 -------------------------------------------------------------------------------- knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. 23.4.        Advances by Landlord. If Tenant shall fail to make or perform any payment or act required by this Lease within any applicable cure period, then Landlord may at its option make such payment or perform such act for the account of Tenant, and Landlord shall not thereby be deemed to have waived any default or released Tenant from any obligation hereunder. Landlord shall give Tenant thirty (30) days written notice (except in the case of an emergency) prior to Landlord making such payment or protective advance. All amounts so paid by Landlord and all incidental costs and expenses (including reasonable attorneys’ fees and expenses) actually incurred in connection with such payment or performance, together with interest at the Default Interest rate (or at the highest rate not prohibited by applicable law, whichever is less) from and including the date of the making of such payment or of the incurring of such costs and expenses to and including the date of repayment, shall be paid by Tenant to Landlord on demand. 23.5.        Parties Bound. Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto. Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord’s ownership interest in the Premises. In the event of such conveyance and transfer, Landlord’s obligations shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise). No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant. 23.6.        Recordation of Lease. Landlord and Tenant agree to execute a recordable memorandum of this Lease setting forth the names and addresses of the parties, a reference to this Lease with its date of execution, specific legal descriptions of the Premises, the actual Commencement Date, the term of the Lease and any Renewal Term(s), Tenant’s Right of First Offer, Tenant’s Expansion Option, and Landlord’s Covenants as described in Section 7 above. Such memorandum may be recorded by Tenant at Tenant’s expense or by Landlord at Landlord’s expense in the real property records of the county in which the Premises are situated. 23.7.        Governing Law; Construction. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises is located. If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by law. The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation, or other provision of this Lease to be performed by Tenant, shall be construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. This Lease may be executed in counterpart and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. 23.8.        Time. Time is of the essence for this Lease. If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the   31 -------------------------------------------------------------------------------- Premises is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state. 23.9.        Authority of Tenant. Tenant and the person(s) executing this Lease on behalf of Tenant hereby represent, warrant, and covenant with and to Landlord as follows: the individual(s) acting as signatory on behalf of Tenant is(are) duly authorized to execute this Lease; Tenant has procured (whether from its members, partners or board of directors, as the case may be), the requisite authority to enter into this Lease; this Lease is and shall be fully and completely binding upon Tenant; and Tenant shall timely and completely perform all of its obligations hereunder. 23.10.      Authority of Landlord. Landlord and the person(s) executing this Lease on behalf of Landlord hereby represent, warrant, and covenant with and to Tenant as follows: the individual(s) acting as signatory on behalf of Landlord is(are) duly authorized to execute this Lease; Landlord has procured (whether from its members, partners or board of directors, as the case may be), the requisite authority to enter into this Lease; this Lease is and shall be fully and completely binding upon Landlord; and Landlord shall timely and completely perform all of its obligations hereunder. 23.11.      WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES. 23.12.      Financial Information. From time to time during the Term but not more frequently than once in any consecutive twelve month period (except in the event that Tenant is in Default hereunder or in the event that Landlord is pursuing a potential sale or refinancing of the Premises), Tenant shall deliver to Landlord, within ten (10) days following Landlord’s written request therefor, the most currently available audited financial statement of Tenant; and if no such audited financial statement is available, then Tenant shall instead deliver to Landlord its most currently available balance sheet, operating statement, income statement and statements of cash flow and equity. Furthermore, upon the delivery of any such financial information from time to time during the Term, Tenant shall be deemed (unless Tenant specifically states otherwise in writing) to automatically represent and warrant to Landlord that the financial information delivered to Landlord is true, accurate and complete, and at that there has been no material adverse change in the financial condition of Tenant since the date of the then applicable financial information. 23.13.      Submission of Lease. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Landlord and Tenant. 23.14.      Counterparts. This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all such counterparts shall together constitute a single, complete and fully-executed document. 23.15.      Right of First Offer. Tenant shall have a one time “Right of First Offer” to purchase the Premises on and subject to the terms, conditions and limitations set forth in Exhibit F attached hereto   32 -------------------------------------------------------------------------------- 23.16.      Expansion. Tenant shall have the one time to expand the Premises on and subject to the terms, conditions and limitations set forth in “Rider 1” to this Lease. [Signature Page Follows]   33 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.     LANDLORD: [                                                                        ], a Delaware limited partnership       By:          Its:          TENANT: LENOX, INCORPORATED, a New Jersey corporation       By:          Its:        Landlord’s Addresses for Notices: Tenant’s Addresses for Notices: c/o First Industrial Realty Trust, Inc. 311 South Wacker Drive, Suite 4000 Chicago, Illinois 60606   Attn: Executive Vice President-Operations Lenox, Incorporated 6436 City West Parkway Eden Prairie, MN 55344 Attn:    Tim Schugel   With a copy to: First Industrial Realty Trust, Inc. [Regional Office Address] Attn: ________________________ With copies to: Lenox Group, Inc. 1414 Radcliffe Street Bristol, PA 19007-5496 Attn: L.A. Fantin   and   Dorsey & Whitney LLP 50 South Sixth Street Suite 1500 Minneapolis, MN 55402 Attn: Robert J. Olson     S-1 -------------------------------------------------------------------------------- With a copy to:   (On or prior to June 30, 2007): Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP 333 West Wacker Drive Suite 2700 Chicago, Illinois 60606 Attn: Mark J. Beaubien   (After June 30, 2007): Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP 200 West Madison Street Suite 3900 Chicago, Illinois 60606 Attn: Mark J. Beaubien         S-2 -------------------------------------------------------------------------------- EXHIBIT A PREMISES   All of those lots or parcels of land located in Washington County, Maryland and more particularly described as follows:   Beginning at an iron pin and cap along the existing right of way for the cul-de-sac at Hunter’s-Green Parkway, said point also being located S 2326°32” W 64.91 feet form the most southeastern corner of the lands of Lot 1 as recorded in Washington County Plat folio 5724, thence running   1. N 61°52’12” W 357.43 feet to a point, thence 2. N 73°57’41” W 311.22 feet to a point, thence with a curve to the left having a radius of 130.00 feet, an arc length of 176.77 feet and a chord bearing and distance of 3. S 67°05’05” W 163.46 feet to a point; thence 4. S 28°07’48” W 294.58 feet to a point, thence with a curve to the left having a radius of 30 feet, an arc length of 47.12 feet and a chord bearing and distance of 5. S 16°52’12” E 42.43 feet to a point, thence 6. S 61°52’12” E 45.24 feet to a point, thence 7. S 28°07’48” W 212.00 feet to a point, thence 8. N 61°52’12” W 842.09 feet to a point, thence 9. N 33°41’02” E 554.60 feet to a point, thence 10. S 61°52’12” E 642.53 feet to a point, thence 11. N 30°14’06” E 218.22 feet to a point, thence 12. N 59°44’09” W 677.59 feet to a point, thence 13. N 26°32’54” E 251.87 feet to a point, thence 14. N 67°56’10” W 332.65 feet to a point, thence 15. S 22°03’50” W 300.00 feet to a point, thence 16. N 54°58’15” W 142.05 feet to a point, thence 17. S 70°14’47” W 24.81 feet to a point, thence 18. S 20°56’55” W 118.29 feet to a point, thence 19. S 09°59’56” W 210.79 feet to a point, thence 20. S 18°00’23” W 18.67 feet to a point, thence 21. S 56°19’00” W 287.69 feet to a point, thence 22. N 33°41’04” E 425.87 feet to a point, thence 23. S 59°44’08” W 100.18 feet to a point, thence 24. S 33°41’02” W 185.64 feet to a point, thence 25. S 85°18’25” W 31.89 feet to a point, thence 26. S 33°41’02” W 591.12 feet to a point along the northern right-of-way line of Interstate 70, thence with said right-of-way line S 61°42’34” E 2724.62 feet to a point, thence leaving said right of way and running along the remaining lands of Grace Litton, et al, N 28°17’26” E 382.02 feet to a point, thence with said southern right-of-way line and with a curve to the right having a radius of 530.00 feet, an arc length of 279.97 feet and a chord bearing and distance of 27. N 22°34’01” W 276.73 feet to a point, thence with a curve to the left having a radius of 470.00 feet, an arc length of 400.99 feet and a chord bearing and distance of 28. N 31°52’32” W 388.94 feet to a point; thence A-1 -------------------------------------------------------------------------------- 29. N 56°19’02” W 445.43 feet to a point, thence running with the cul-de-sac at the end of Hunter’s Green Parkway and with a curve to the left having a radius of 50 feet, an arc length of 61.51 feet and a chord bearing and distance of 30. S 88°25’06” W 57.743 feet to a point, thence running with a curve to the right having a radius of 70 feet, an arc length of 149.87 feet and a chord bearing and distance of 31. N 65°30’43” W 122.84 feet to the place of beginning.   Containing 40.00 acres of land, more or less.   Being Lot 5 as shown on a plat entitled “Final Plat of Subdivision of Lots 5 and 6 and Simplified Plat of Parcels B and C of Hunter’s Green Business Park for Tiger Development 11, LP”, said plat being recorded at Plat folio 6647, et seq, one of the plat records in the office of the Clerk of the Circuit Court for Washington County, Maryland. A-2 -------------------------------------------------------------------------------- EXHIBIT B TENANT OPERATIONS INQUIRY FORM 1. Name of         Company/Contact     2. Address/Phone           3. Provide a brief description of your business and operations:                                   4. Will you be required to make filings and notices or obtain permits as required by Federal and/or State regulations for the operations at the proposed facility? Specifically:     a. SARA Title III Section 312 (Tier II) reports YES NO   (> 10,000lbs. of hazardous materials STORED at any one time)   b. SARA Title III Section 313 (Tier III) Form R reports YES NO   (> 10,000lbs. of hazardous materials USED per year)   c. NPDES or SPDES Stormwater Discharge permit YES NO   (answer “No” if “No-Exposure Certification” filed)   d. EPA Hazardous Waste Generator ID Number YES NO   5. Provide a list of chemicals and wastes that will be used and/or generated at the proposed location. Routine office and cleaning supplies are not included. Make additional copies if required.     B-1 -------------------------------------------------------------------------------- Chemical/Waste Approximate Annual Quantity Used or Generated Storage Container(s) (i.e. Drums, Cartons, Totes, Bags, ASTs, USTs, etc)                       B-2 -------------------------------------------------------------------------------- EXHIBIT C BROOM CLEAN CONDITION AND REPAIR REQUIREMENTS • All lighting is to be placed into good working order. This includes replacement of bulbs, ballasts, and lenses as needed. • All truck doors and dock levelers should be serviced and placed in good operating order (including, but not limited to, overhead door springs, rollers, tracks and motorized door operator). This would include the necessary (a) repair or replacement of any significantly dented truck door panels (dents more than 1 inch deep), broken panels and cracked lumber, and (b) adjustment of door tension to insure proper operation. All door panels that are replaced shall be painted to match the building standard. • All structural steel columns in the warehouse and office should be inspected for structural damage, and must be repaired. Repairs of this nature shall be pre-approved by the Landlord prior to implementation. • HVAC system shall be in good working order, including the necessary replacement of any parts to return the unit to operational condition given the age of the units. Tenant shall maintain, throughout the term of the Lease and any renewals, a preventative maintenance contract on all HVAC units. The contract shall be with a reputable mechanic company, reasonably acceptable to the Landlord, and shall consist at a minimum of semiannual inspections with filter changes, twice yearly complete cleaning of fins and coils, complete cleaning of all evaporators at least once every four years, and all other necessary adjustments. Working order shall include, but is not limited to, filters, thermostats, warehouse heaters and exhaust fans. Upon move-out, Landlord will have an exit inspection performed by a certified mechanical contractor mutually and reasonably agreeable to both parties to determine the condition of the HVAC systems. • All holes over 1/4” in diameter in the office space and in the sheet rock walls shall be repaired prior to move-out. All walls shall be clean. • The carpets and vinyl tiles shall be in a clean condition and shall not have any holes or chips in them. Flooring shall be free of excessive dust, dirt, grease, oil and stains. Cracks in concrete and asphalt shall be acceptable as long as they are ordinary wear and tear, and are not the result of misuse. • Facilities shall be returned in a clean condition, including, but not limited to, the cleaning of the coffee bar, restroom areas, windows, and other portions of the Premises. • There shall be no protrusion of anchors from the warehouse floor and all holes shall be appropriately patched. If machinery/equipment is removed, the electrical lines shall be properly terminated at the nearest junction box. • All exterior windows with cracks or breakage shall be replaced. All interior windows shall be clean.   C-1 -------------------------------------------------------------------------------- • Tenant shall provide keys for all locks on the Premises, including front doors, rear doors, and interior doors. • All mechanical and electrical systems shall be left in a safe condition that conforms to all codes applicable to Tenant and the Premises as of the termination of the Lease. Bare wires shall be clipped to the nearest junction box and dangerous installations shall be corrected to Landlord’s reasonable satisfaction. • All plumbing fixtures shall be in good working order, including, but not limited to, the water heater. Faucets and toilets shall not leak. • All dock bumpers shall be left in place and well-secured. • Drop grid ceiling shall be free of excessive dust from lack of changing filters. No ceiling tiles may be missing or damaged • All trash shall be removed from both inside and outside of the Building. • All signs in front of the Building and on glass entry door and rear door shall be removed. Remove all pads for machinery and repair and seal any roof penetrations.       C-2 -------------------------------------------------------------------------------- EXHIBIT D TERMINATION FEE   In the event Tenant has the right to purchase the Premises pursuant to Section 18, the purchase price shall be an amount equal to the sum of (A) 1.10, multiplied by the amount of the current Landlord’s equity investment in the Premises (including all related acquisition costs, including, but not limited to, legal fees, brokerage commissions, environmental consultants and engineering consultants and any unreimbursed improvements and capital expenditures), plus (B) (i) the amount of any then-outstanding debt on the Premises, and (ii) the amount of any yield maintenance or defeasance fees, costs or other fees or premiums due in connection with the pre-payment of any then-outstanding debt (the “Debt Premium”). Landlord shall provide a good faith, non-binding estimate of the Debt Premium, if any, in anticipation of the Loss Closing Date promptly after the occurrence of a Casualty or Condemnation, except Tenant acknowledges that Landlord’s lender will calculate the actual Debt Premium, if any, to be paid by Tenant at the Loss Closing Date closer to such date (which lender’s calculation shall be binding on Tenant). The determination of the purchase price under this Exhibit D shall be determined by Landlord in its sole, but reasonable, discretion and shall be conclusive absent manifest error.   D-1 -------------------------------------------------------------------------------- EXHIBIT E GUARANTY OF LEASE GUARANTY OF LEASE (this “Guaranty”) made as of ___________ ____, 2006, by LENOX GROUP INC, a Delaware corporation, with an address at 1414 Radcliffe Street, Bristol, PA 19007-5496 (“Guarantor”), to _______________________________, a(n) ______________________, having an office at 311 South Wacker Drive, Suite 4000, Chicago, Illinois 60606 (“Landlord”). W I T N E S S E T H : WHEREAS: A.            Landlord has been requested by Lenox, Incorporated, a New Jersey corporation, with an office at 6436 City West Parkway, Eden Prairie, MN 55344 (“Tenant”), to enter into an Industrial Building Lease dated as of the date hereof (the “Lease”), whereby Landlord would lease to Tenant, and Tenant would rent from Landlord, all of the premises commonly known as 16507 Hunters Green Parkway, Hagerstown, Maryland, as more particularly described in the Lease (the “Premises”). B.            Guarantor is the parent of Tenant and will derive substantial economic benefit from the execution and delivery of the Lease. C.            Guarantor acknowledges that Landlord would not enter into the Lease unless this Guaranty accompanied the execution and delivery of the Lease.   D. Guarantor hereby acknowledges receipt of a copy of the Lease. NOW, THEREFORE, in consideration of the execution and delivery of the Lease and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor covenants and agrees as follows: DEFINITIONS. Defined terms used in this Guaranty and not otherwise defined herein have the meanings assigned to them in the Lease. COVENANTS OF GUARANTOR. Guarantor absolutely, unconditionally and irrevocably guarantees, as a primary obligor and not merely as a surety: (i) the full and prompt payment of all Base Rent and Additional Rent and all other rent, sums and charges of every type and nature payable by Tenant under the Lease, and (ii) the full, timely and complete performance of all covenants, terms, conditions, obligations and agreements to be performed by Tenant under the Lease (all of the obligations described in clauses (i) and (ii), collectively, the “Obligations”), which Obligations shall not exceed the liabilities and obligations of Tenant under the Lease. If Tenant defaults under the Lease, Guarantor will, within the notice and cure periods provided in the Lease, pay and perform all of the Obligations, and pay to Landlord, when and as due, all Base Rent and Additional Rent payable by Tenant under the Lease, together with all damages, costs and expenses to which Landlord is entitled pursuant to the Lease. Guarantor agrees with Landlord that (i) any action, suit or proceeding of any kind or nature whatsoever (an “Action”) commenced by Landlord against Guarantor to collect Base Rent and Additional Rent and any other rent, sums and charges due under the Lease for any month or months shall not prejudice in any way Landlord’s rights to collect any such amounts due for any subsequent month or months throughout the Term in any subsequent Action, (ii) Landlord may, at its option, without prior notice or demand, join Guarantor in any Action against Tenant in connection with or based upon either or both of the Lease and any of the Obligations, (iii) Landlord may seek and obtain recovery against Guarantor in an Action against Tenant or in any independent Action     -------------------------------------------------------------------------------- against Guarantor without Landlord first asserting, prosecuting, or exhausting any remedy or claim against Tenant or against any security of Tenant held by Landlord under the Lease, and (iv) Guarantor will be conclusively bound by a judgment entered in any Action in favor of Landlord against Tenant, as if Guarantor were a party to such Action, irrespective of whether or not Guarantor is entered as a party or participates in such Action. Any default or failure by the Guarantor to perform any of its Obligations under this Guaranty shall be deemed an immediate default by Tenant under the Lease. GUARANTOR’S OBLIGATIONS UNCONDITIONAL. This Guaranty is an absolute and unconditional guaranty of payment and of performance, and not of collection, and shall be enforceable against Guarantor without the necessity of the commencement by Landlord of any Action against Tenant, and without the necessity of any notice of nonpayment, nonperformance or nonobservance, or any notice of acceptance of this Guaranty, or of any other notice or demand to which Guarantor might otherwise be entitled, all of which Guarantor hereby expressly waives in advance. The obligations of Guarantor hereunder are independent of the obligations of Tenant. If the Lease is renewed, or the Term extended, for any period beyond the Expiration Date, either pursuant to any option granted under the Lease or otherwise, or if Tenant holds over beyond the Expiration Date, the obligations of Guarantor hereunder shall extend and apply to the full and faithful performance and observance of all of the Obligations under the Lease accruing during any renewal, extension or holdover period. This Guaranty is a continuing guaranty and will remain in full force and effect notwithstanding, and the liability of Guarantor hereunder shall be absolute and unconditional irrespective of: (i) any modifications, alterations or amendments of the Lease (regardless of whether Guarantor consented to or had notice of same), (ii) any releases or discharges of Tenant other than the full release and complete discharge of all of the Obligations, (iii) Landlord’s failure or delay to assert any claim or demand or to enforce any of its rights against Tenant, (iv) any extension of time that may be granted by Landlord to Tenant, (v) any assignment or transfer of all of any part of Tenant’s interest under the Lease (whether by Tenant, by operation of law, or otherwise), (vi) any subletting, concession, franchising, licensing or permitting of the Premises, (vii) any changed or different use of the Premises, (viii) any other dealings or matters occurring between Landlord and Tenant, (ix) the taking by Landlord of any additional guarantees, or the receipt by Landlord of any collateral, from other persons or entities, (x) the release by Landlord of any other guarantor, (xi) Landlord’s release of any security provided under the Lease, or (xii) Landlord’s failure to perfect any landlord’s lien or other lien or security interest available under applicable Laws. Without limiting the foregoing, this Guaranty shall be applicable to any obligations of Tenant arising in connection with a termination of the Lease, whether voluntary or otherwise. Guarantor hereby consents, prospectively, to Landlord’s taking or entering into any or all of the foregoing actions or omissions. For purposes of this Guaranty and the obligations and liabilities of Guarantor hereunder, “Tenant” shall be deemed to include any and all concessionaires, licensees, franchisees, department operators, assignees, subtenants, permittees or others directly or indirectly operating or conducting a business in or from the Premises and/or the Property, as fully as if any of the same were the named Tenant under the Lease. Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected, diminished or impaired by reason of the assertion or the failure to assert by Landlord against Tenant, of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease or by relief of Tenant from any of Tenant’s obligations under the Lease or otherwise by (i) the release or discharge of Tenant in any state or federal creditors’ proceedings, receivership, bankruptcy or other proceeding; (ii) the impairment, limitation or modification of the liability of Tenant or the estate of Tenant in bankruptcy, or of any remedy for the enforcement of Tenant’s liability under the Lease, resulting from the operation of any present or future provision of the United States Bankruptcy Code (11 U.S.C. § 101 et seq., as amended), or from other statute, or from the order of any court; or (iii) the rejection, disaffirmance or other termination of the Lease in any such proceeding. This Guaranty shall continue to be effective if at any time the payment of any amount due under the Lease or this Guaranty is rescinded or must otherwise be returned by Landlord for any reason,   -3- -------------------------------------------------------------------------------- including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of Tenant, Guarantor or otherwise, all as though such payment had not been made, and, in such event, Guarantor shall pay to Landlord an amount equal to any such payment that has been rescinded or returned if equitable and permitted by applicable law. WAIVERS OF GUARANTOR. Without limitation of the foregoing, Guarantor waives (i) notice of acceptance of this Guaranty and notice of dishonor, (ii) notice of any actions taken by Landlord or Tenant under the Lease or any other agreement or instrument relating thereto, (iii) notice of any and all defaults by Tenant in the payment of Base Rent and Additional Rent or other rent, charges or amounts, or of any other defaults by Tenant under the Lease, (iv) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations, omission of or delay in which, but for the provisions of this Section 4, might constitute grounds for relieving Guarantor of its obligations hereunder, (v) any requirement that Landlord protect, secure, perfect, insure or proceed against any security interest or lien, or any property subject thereto, or exhaust any right or take any action against Tenant or any collateral, and (vi) the benefit of any statute of limitations affecting Guarantor’s liability under this Guaranty. GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PERSON OR ENTITY WITH RESPECT TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH: THIS GUARANTY; THE LEASE; ANY LIABILITY OR OBLIGATION OF TENANT IN ANY MANNER RELATED TO THE PREMISES AND/OR THE PROPERTY; ANY CLAIM OF INJURY OR DAMAGE IN ANY WAY RELATED TO THE LEASE, THE PREMISES AND/OR THE PROPERTY; ANY ACT OR OMISSION OF TENANT, ITS AGENTS, EMPLOYEES, CONTRACTORS, SUPPLIERS, SERVANTS, CUSTOMERS, CONCESSIONAIRES, FRANCHISEES, PERMITTEES OR LICENSEES; OR ANY ASPECT OF THE USE OR OCCUPANCY OF, OR THE CONDUCT OF BUSINESS IN, ON OR FROM THE PREMISES AND/OR THE PROPERTY. GUARANTOR SHALL NOT IMPOSE ANY COUNTERCLAIM OR COUNTERCLAIMS OR CLAIMS FOR SET-OFF, RECOUPMENT OR DEDUCTION OF RENT IN ANY ACTION BROUGHT BY LANDLORD AGAINST GUARANTOR UNDER THIS GUARANTY. GUARANTOR SHALL NOT BE ENTITLED TO MAKE, AND HEREBY WAIVES, ANY AND ALL DEFENSES AGAINST ANY CLAIM ASSERTED BY LANDLORD OR IN ANY SUIT OR ACTION INSTITUTED BY LANDLORD TO ENFORCE THIS GUARANTY OR THE LEASE, EXCEPT THE DEFENSE OF PAYMENT. IN ADDITION, GUARANTOR HEREBY WAIVES, BOTH WITH RESPECT TO THE LEASE AND WITH RESPECT TO THIS GUARANTY, ANY AND ALL RIGHTS WHICH ARE WAIVED BY TENANT UNDER THE LEASE, IN THE SAME MANNER AS IF ALL SUCH WAIVERS WERE FULLY RESTATED HEREIN. THE LIABILITY OF GUARANTOR UNDER THIS GUARANTY IS PRIMARY AND UNCONDITIONAL. SUBROGATION. Guarantor shall not be subrogated, and hereby waives and disclaims any claim or right against Tenant by way of subrogation or otherwise, to any of the rights of Landlord under the Lease or otherwise, or in either or both of the Premises and the Property, which may arise by any of the provisions of this Guaranty or by reason of the performance by Guarantor of any of its Obligations hereunder. Guarantor shall look solely to Tenant for any recoupment of any payments made or costs or expenses incurred by Guarantor pursuant to this Guaranty. If any amount shall be paid to Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid and performed in full, Guarantor shall hold such amount in trust for Landlord and shall pay such amount to Landlord immediately following receipt by Guarantor, to be applied against the Obligations, whether matured or unmatured, in such order as Landlord may determine. Guarantor hereby subordinates any liability or indebtedness of Tenant now or hereafter held by Guarantor to the obligations of Tenant to Landlord under the Lease.   -4- -------------------------------------------------------------------------------- REPRESENTATIONS AND WARRANTIES OF GUARANTOR. Guarantor represents and warrants that: Guarantor is a corporation; has all requisite power and authority to enter into and perform its obligations under this Guaranty; and this Guaranty is valid and binding upon and enforceable against Guarantor without the requirement of further action or condition. The execution, delivery and performance by Guarantor of this Guaranty does not and will not (i) contravene any applicable Laws or any contractual restriction binding on or affecting Guarantor or any of its properties, or (ii) result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. There is no action, suit or proceeding pending or threatened against or otherwise affecting Guarantor before any court or other governmental authority or any arbitrator that may materially adversely affect Guarantor’s ability to perform its obligations under this Guaranty. Guarantor’s principal place of business is 1414 Radcliffe Street, Bristol, PA 19007-5496. Guarantor is the parent company of Tenant. NOTICES. Any consents, notices, demands, requests, approvals or other communications given under this Guaranty shall be given as provided in the Lease, and as follows: if to Guarantor at Guarantor’s address set forth on the first page of this Guaranty, Attention: L.A. Fantin; and if to Landlord, at Landlord’s address set forth on the signature page of the Lease (with a copy to Landlord’s attorney as also set forth on the signature page to the Lease); or to such other addresses as either Landlord or Guarantor may designate by notice given to the other in accordance with the provisions of this Section 7. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. The undersigned hereby (a) consents and submits to the jurisdiction of the courts of the State of Maryland and the federal courts sitting in the State of Maryland and shall be subject to service of process in the State of Maryland with respect to any dispute there arising, directly or indirectly, out of this Guaranty, (b) waives any objections which the undersigned may have to the laying of venue in any such suit, action or proceeding in either such court, (c) agrees to join Landlord in any petition for removal to either such court, (d) agrees to join Landlord in any petition for removal to either and such court, and (e) irrevocably designates and appoints Tenant as its authorized agent to accept and acknowledge on its behalf service of process with respect to any disputes arising, directly or indirectly, out of this Guaranty. The undersigned hereby acknowledges and agrees that Landlord may obtain personal jurisdiction and perfect service of process through Tenant as the undersigned agent, or by any other means now or hereafter permitted by applicable law. Nothing above shall limit Landlord’s choice of forum for purposes of enforcing this Guaranty. MISCELLANEOUS. Guarantor further agrees that Landlord may, without notice, assign this Guaranty in whole or in part, at such time and contemporaneous with the assignment by Landlord of the Lease. If Landlord disposes of its interest in the Lease, “Landlord,” as used in this Guaranty, shall mean Landlord’s successors and assigns. This Guaranty may not be assigned by Guarantor without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion.   -5- -------------------------------------------------------------------------------- Guarantor promises to pay all of Landlord’s expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Landlord in enforcing the terms and conditions of either or both of the Lease and this Guaranty if Landlord prevails. Guarantor shall, from time to time within ten (10) business days after receipt of Landlord’s request, execute, acknowledge and deliver to Landlord a statement certifying that this Guaranty is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating such modifications). Such certificate may be relied upon by any prospective purchaser, lessor or lender of all or a portion of the Premises and/or Property. If any portion of this Guaranty shall be deemed invalid, unenforceable or illegal for any reason, such invalidity, unenforceability or illegality shall not affect the balance of this Guaranty, which shall remain in full force and effect to the maximum permitted extent. The provisions, covenants and guaranties of this Guaranty shall be binding upon Guarantor and its heirs, successors, legal representatives and assigns, and shall inure to the benefit of Landlord and its successors and assigns, and shall not be deemed waived or modified unless such waiver or modification is specifically set forth in writing, executed by Landlord or its successors and assigns, and delivered to Guarantor. Whenever the words “include”, “includes”, or “including” are used in this Guaranty, they shall be deemed to be followed by the words “without limitation”, and, whenever the circumstances or the context requires, the singular shall be construed as the plural, the masculine shall be construed as the feminine and/or the neuter and vice versa. This Guaranty shall be interpreted and enforced without the aid of any canon, custom or rule of law requiring or suggesting construction against the party drafting or causing the drafting of the provision in question. Each of the rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law or in the Lease or this Guaranty. The provisions of this Guaranty shall be governed by and interpreted solely in accordance with the internal laws of the State of Maryland, without giving effect to the principles of conflicts of law. The execution of this Guaranty prior to execution of the Lease shall not invalidate this Guaranty or lessen the Obligations of Guarantor hereunder. Guarantor shall deliver to Landlord, upon reasonable request by Landlord, financial statements for Guarantor prepared by an independent public accountant in the ordinary course of the business and in accordance with customary accounting practices applicable to business operations similar (in terms of the entity’s domicile and whether such entity is a privately held or a public company) to that of Guarantor. [Signature Page to Follow]   -6- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first above written.       GUARANTOR:           LENOX GROUP INC, a Delaware corporation           By:     Name:       Its:             E-1 -------------------------------------------------------------------------------- EXHIBIT F RIGHT OF FIRST OFFER 1.          Defined Terms. Capitalized terms used in this Addendum and not otherwise defined shall have the meanings respectively ascribed to such terms in the Lease. 2.          GRANT. Landlord hereby covenants and agrees that Tenant shall have, and Landlord hereby grants to Tenant, a one time “Right of First Offer” to purchase the Premises. 3.          OFFER NOTICE. If, when and as Landlord desires to actively market the Premises, or accepts an offer for the sale of the Premises (which acceptance by Landlord shall be contingent on Tenant’s rights under this Right of First Offer), Landlord shall first offer to Tenant the opportunity to purchase fee simple title to the Premises by advising Tenant, in writing (the “Offer Notice”), of Landlord’s desire to sell the Premises. For purposes of this Lease, a sale of the Premises to which this Right of First Offer applies shall include an indirect transfer of the Premises resulting from the transfer of all or substantially all of the beneficial ownership interests in Landlord to a third party undertaken for purposes of transferring beneficial ownership of the Premises (an “Indirect Sale”); provided, however, that an Indirect Sale of the Premises to which this Right of First Offer applies shall not include: (i) the direct or indirect transfer of, or issuance of beneficial ownership interest in, First Industrial Investment, Inc. (“FI”), First Industrial, L.P. (“FILP”), First Industrial Realty Trust, Inc. (“FR”) or any successor-in-interest to any of the foregoing; or (ii) the transfer of less than 50% of the ownership interests in Landlord; or (iii) the transfer of ownership interests in Landlord in connection with a joint venture involving Landlord, FILP, FR or FI or the sale of all or substantially all of the assets of such a joint venture. In the Offer Notice, Landlord shall describe, with reasonable specificity, the purchase price and other relevant terms and conditions upon which Landlord is prepared to sell its fee simple interest in the entire Premises (the “Offer Terms”). 4.          RESPONSE. Upon Landlord’s delivery of the Offer Notice and Offer Terms, Tenant shall have twelve (12) business days (the “Response Period”) in which to advise Landlord, in writing (the “Offer Response”), whether or not Tenant desires to exercise its Right of First Offer and acquire fee simple title to the Premises on all of the Offer Terms. If Tenant fails to timely deliver an Offer Response electing to exercise its Right of First Offer, then Tenant shall have automatically, unconditionally and permanently waived its Right of First Offer with respect to the Premises (subject to Section 6 hereof and the last sentence of this Section 4) such that the Right of First Offer no longer applies to the Premises. In that event, Landlord shall be free to pursue a sale of its fee simple interest in the Premises to a third party, including, but not limited to, an Indirect Sale (a “Sale”), on substantially the same Offer Terms as are set forth in the then-applicable Offer Notice. In the event (A) Landlord delivers an Offer Notice; (B) Tenant elects or is deemed to elect not to exercise its Right of First Offer; and (c) Landlord does not consummate a Sale within twelve (12) months after the expiration of the Response Period (such 12 month period, the “Offer Period”), Tenant’s waiver of its Right of First Offer shall be rescinded and Landlord shall not be free to pursue a Sale of the Premises without complying with the terms of this Exhibit F and Tenant’s Right of First Offer as to the Premises.   F-1 -------------------------------------------------------------------------------- 5.          PURCHASE CONTRACT. If Tenant timely delivers an Offer Response and advises Landlord of its desire to acquire Landlord’s fee simple interest in the Premises, the terms and provisions of this Section 5 shall apply. a.           General. Simultaneously with the delivery by Tenant to Landlord of an Offer Response, Tenant shall deposit with Landlord, as its earnest money deposit, the sum of $500,000 (the “Earnest Money”) and applied in accordance with this Exhibit. Tenant shall have no right to exercise this Right of First Offer if Tenant is in default of its obligation under the Lease to pay Base Rent or Additional Rent beyond the applicable cure period. If Tenant is and remains in default of its obligation under the Lease to pay Base Rent or Additional Rent as of the Closing (hereinafter defined), Landlord may elect, in its sole discretion, to void Tenant’s exercise of this Right of First Offer by delivery of written notice to Tenant, in which event this Right of First Offer shall thereafter be forever null and void and Landlord shall be entitled to retain the Earnest Money. Within ten (10) days after the delivery by Tenant to Landlord of an Offer Response, Tenant shall deliver to Landlord a title commitment, issued by a reputable, national title insurance company selected by Tenant (the “Title Company”), for an owner’s title insurance policy (the “Title Policy”) in the full amount of the Purchase Price (as hereinafter defined), together with copies of all recorded documents representing title exceptions. b.          Purchase Price. The total purchase price to be paid by Tenant to Landlord for the Premises shall be as set forth in the Offer Terms (the “Purchase Price”), plus or minus any adjustments contemplated in herein. The Earnest Money shall be held in escrow by the Title Company and applied against the Purchase Price. c.           Closing. The purchase of the Premises contemplated herein shall be consummated at a closing (the “Closing”) to take place by mail or at the offices of the Title Company. The Closing shall occur on the sooner to occur of: (i) such date as the parties shall mutually agree in writing; and (ii) thirty (30) days after the delivery by Tenant to Landlord of an Offer Response (the “Closing Date”). The Closing shall be effective as of 11:59 p.m. on the Closing Date. In the event of any conflict between the Offer Terms applicable to the sale of the Premises and the terms of this Section 5, the terms of this Section 5 shall control. d.          Landlord’s Closing Deliveries. At the Closing, Landlord shall deliver, or cause to be delivered, to Tenant the following duly executed by Landlord where appropriate: (i) a Special Warranty Deed, in recordable form, conveying the Premises to Tenant subject to the Permitted Exceptions (as hereinafter defined); (ii) a Quitclaim Bill of Sale conveying all of Landlord’s interest in and to any tangible personal property located on the Premises which is owned by Landlord and used by Landlord solely in connection with the Premises; (iii) an Affidavit of Title in form and substance reasonably acceptable to the Title Company; (iv) a closing statement (the “Closing Statement”) conforming to the prorations and other relevant provisions of this Addendum; (v) an Entity Transfer Certification confirming that Landlord is a “United States Person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended; (vi) such evidence of the authority and good standing of Landlord as the Title Company shall reasonably require as a condition to the issuance of the Title Policy, and (vii) an assignment of all leases, contracts, etc. on the or pertaining to the Premises that will survive the Closing or as otherwise requested by Tenant.   F-2 -------------------------------------------------------------------------------- e.          Tenant’s Closing Deliveries. At the Closing, Tenant shall deliver, or cause to be delivered, to Landlord the following duly executed by Tenant where appropriate: (i) the Closing Statement; and (ii) the Purchase Price, plus or minus prorations and other adjustments, in immediately available funds. f.           Title Condition. It shall be a condition precedent to Tenant’s obligation to proceed to the Closing that, at the Closing, the Title Company shall issue the Title Policy (or a “marked” title commitment) to Tenant insuring, in the full amount of the Purchase Price, Tenant as the fee simple owner of the Premises, subject only to the Permitted Exceptions. If the foregoing condition precedent fails for any reason other than the actions of Tenant, the exercise of this Right of First Offer by Tenant shall, at Tenant’s election, be null and void, in which event (i) the Earnest Money shall be returned to Tenant, and (ii) this Right of First Offer shall be irrevocably terminated and of no further force and effect. Landlord shall convey the Premises to Tenant subject to any and all liens, claims and encumbrances of record (“Permitted Exceptions”) other than the following: (i) the liens of any mortgage, trust deed or deed of trust evidencing an indebtedness owed by Landlord; (ii) mechanic’s liens pursuant to a written agreement between the claimant and Landlord; (iii) broker’s liens pursuant to a written agreement between the broker and Landlord and (iv) any other lien securing the payment of money owed by Landlord (the “Mandatory Cure Items”). Landlord shall, at Landlord’s sole cost, cure and remove any Mandatory Cure Items on or prior to the Closing. If Landlord fails to cure and remove (whether by endorsement or otherwise) any Mandatory Cure Items on or prior to the Closing, Tenant may, at its option and as its sole remedy hereunder, at law, in equity or pursuant to the Lease, either (i) terminate its election to exercise this Right of First Offer, in which event the Earnest Money shall be returned by Landlord to Tenant and this Right of First Offer shall thereafter become forever null and void, or (ii) proceed to close with title to the Premises as it then is with the right to deduct from the Purchase Price the amount reasonably necessary to cure and remove (by endorsement or otherwise, as mutually and reasonably determined by Tenant and Landlord) those Mandatory Cure Items that Landlord has failed to cure and remove. g.            Property Transferred “As Is”. The sale of the Premises pursuant to this Right of First Offer as provided for herein shall be made on a “AS IS,” “WHERE-IS” basis as of the Closing Date, without any representations or warranties, of any nature whatsoever from Landlord. Landlord hereby specifically disclaims any warranty (oral or written) concerning: (i) the nature and condition of the Premises and the suitability thereof for any and all activities and uses that Tenant may elect to conduct thereon, (ii) the manner, construction, condition and state of repair or lack of repair of any improvements located thereon, (iii) the nature and extent of any right-of-way, lien, encumbrance, license, reservation, condition or otherwise, (iv) the compliance of the Premises or its operation with any laws, rules, ordinances, or regulations of any government or other body; and (v) any other matter whatsoever. Tenant expressly acknowledges that, in consideration of the agreements of Landlord herein, LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF QUANTITY, QUALITY, CONDITION, HABITABILITY, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PREMISES, ANY IMPROVEMENTS LOCATED THEREON, OR ANY SOIL CONDITIONS RELATED THERETO. TENANT, FOR TENANT AND TENANT’S SUCCESSORS AND ASSIGNS, HEREBY RELEASES LANDLORD FROM AND WAIVES ANY AND ALL CLAIMS AND LIABILITIES AGAINST LANDLORD FOR, RELATED TO, OR IN CONNECTION WITH,   F-3 -------------------------------------------------------------------------------- ANY ENVIRONMENTAL CONDITION AT THE PREMISES (OR THE PRESENCE OF ANY MATTER OR SUBSTANCE RELATING TO THE ENVIRONMENTAL CONDITION OF THE PREMISES), INCLUDING, BUT NOT LIMITED TO, CLAIMS AND/OR LIABILITIES RELATING TO (IN ANY MANNER WHATSOEVER) ANY HAZARDOUS, TOXIC OR DANGEROUS MATERIALS OR SUBSTANCES LOCATED IN, AT, ABOUT OR UNDER THE PREMISES, OR FOR ANY AND ALL CLAIMS OR CAUSES OF ACTION (ACTUAL OR THREATENED) BASED UPON, IN CONNECTION WITH OR ARISING OUT OF ANY AND ALL ENVIRONMENTAL LAWS. h.            Prorations. Notwithstanding any local custom to the contrary, as it relates to a purchase of the Premises, there shall be no prorations and adjustments between Landlord and Tenant at the Closing (including, but not limited to, any proration or adjustment of ad valorem real estate taxes or special assessments) except as hereinafter expressly provided. Tenant shall receive a credit from Landlord at the Closing for that portion of any Rent paid by Tenant to Landlord for the month in which the Closing occurs (the “Closing Month”) that is allocable to the period from and after the Closing Date. Tenant shall provide a credit to Landlord at the Closing for: (i) any and all Rent and other sums due and owing from Tenant to Landlord pursuant to the Lease with respect to the period prior to the Closing Date that Tenant has not previously paid to Landlord, including, but not limited to, Rent for that portion of the Closing Month occurring prior to the Closing Date to the extent not paid by Tenant prior to the Closing; (ii) any and all Operating Expenses and costs related to the Property that have been paid by Landlord and are related to the period from and after the Closing to the extent not previously reimbursed by Tenant; and (iii) any and all Taxes paid by Landlord for which Tenant has not reimbursed Landlord, whether related to the period prior to or after the Closing Date. Landlord and Tenant hereby agree to re-prorate such amounts to the extent of any error, which obligation shall survive the Closing and the delivery of any conveyance documentation. i.             Closing Expenses. All costs in connection with the purchase of the Premises and the transactions contemplated by this Exhibit F, including, without limitation, any recording fees, broker fees, closing or escrow fees, title insurance premiums, survey costs and transfer taxes shall be allocated in accordance with local custom. Each of Landlord and Tenant shall be responsible for their respective attorneys’ fees. j.             Termination of Lease. Upon the Closing and the transfer to Tenant of the Premises, the Lease shall terminate except for those provisions under the Lease which by their terms specifically survive. k.            Brokerage. Each party hereto represents and warrants to the other that it has dealt with no brokers or finders in connection with this Right of First Offer. Landlord and Tenant each hereby indemnify, protect and defend and hold the other harmless from and against all Losses resulting from the claims of any broker, finder, or other such party claiming a commission in connection with the sale of the Premises pursuant to this Right of First Offer by, through or under the acts or agreements of the indemnifying party. The obligations of the parties pursuant to this Section 5(k) shall survive any transfer of the Premises and the delivery of any conveyance documentation. l.             Absence of Contingencies. Tenant acknowledges and agrees that, except for the condition precedent relative to the issuance of the Title Policy contained above, there are no conditions precedent or other contingencies to Tenant’s obligation to proceed to the Closing if Tenant exercises this Right of First Offer. Without limitation of the foregoing, Tenant shall not be entitled to the benefit   F-4 -------------------------------------------------------------------------------- of any due diligence or other contingency period. Prior to the exercise of this Right of First Offer, Tenant may conduct normal and customary due diligence investigations and studies of the Premises (“Tenant’s Project Inspection”) subject to the terms and conditions set forth in this Section. Tenant shall not conduct (or cause to be conducted) any physically intrusive investigation, examination or study of the Premises (any such investigation, examination or study, an “Intrusive Investigation”) as part of Tenant’s Project Inspection without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld. In the event Tenant desires to conduct (or cause to be conducted) any Intrusive Investigation, such as sampling of soils, other media, building materials, or the other comparable investigation, Tenant will provide a written scope of work to Landlord describing exactly what procedures Tenant desires to perform. Tenant and Tenant’s consultants, agents and employees shall, in performing any Tenant’s Project Inspections, comply with the agreed upon procedures and with any and all laws, ordinances, rules, and regulations applicable to such procedures or the Premises. Tenant and Tenant’s consultants shall: (a) subject to Section 10 of the Lease, maintain comprehensive general liability (occurrence) insurance in an amount of not less than $2,000,000 covering any accident arising in connection with Tenant’s Project Inspections, and deliver a certificate of insurance (in form reasonably acceptable to Landlord), which names Landlord as additional insured thereunder verifying such coverage, to Landlord prior to the performance of any Tenant’s Project Inspections; (b) promptly pay when due any third party costs resulting from Tenant’s Project Inspections; and (c) restore the Premises to the condition in which the same were found before any such Tenant’s Project Inspections were undertaken and repair any damage to the Premises to the extent such condition was altered or the Premises were damaged (directly or indirectly) in connection with Tenant’s Project Inspections. Tenant hereby indemnifies, protects, defends and holds Landlord, Landlord’s affiliates, their respective partners, shareholders, officers and directors, and all of their respective successors and assigns, harmless from and against any and all Losses that any such party suffers or incurs as a result of, or in connection with, (i) any damage caused to, in, or at the Premises; (ii) injury or death to person; or (iii) mechanic’s liens or materialmen’s liens arising out of, or in connection with, Tenant’s Project Inspections. Tenant’s undertakings pursuant to this Section shall survive the Closing and shall not be merged into any instrument of conveyance delivered at the Closing. m.         No Assignment. The rights of Tenant pursuant to this Right of First Offer are personal to Tenant and may not be assigned by Tenant, except in connection with a Permitted Transfer described in Section 8.3 of the Lease. In the event that Tenant assigns, transfers or conveys all or some portion of its interest in the Lease, this Right of First Offer shall be null, void and of no further force and effect irrespective of whether Landlord has consented to such assignment. n.          Default by Landlord. If Landlord shall be in material default of its obligations pursuant to this Right of First Offer, Tenant may either (i) terminate Tenant’s election to exercise this Right of First Offer by written notice to Landlord, in which event (a) the Earnest Money shall be returned to Tenant and (b) this Right of First Offer shall continue in effect; and (ii) Tenant may file an action for declaratory judgment or equitable relief, including for specific performance of Landlord’s obligation to proceed to the Closing, including curing the default in question at Closing. Tenant shall have no other remedy for any default by Landlord pursuant to this Exhibit F, except with respect to title conditions as specifically addressed above. o.          Default by Tenant. In the event Tenant defaults in its obligations to close the purchase of the Premises, or in the event Tenant otherwise defaults pursuant to this Exhibit F, then   F-5 -------------------------------------------------------------------------------- Landlord shall be entitled to retain the Earnest Money as fixed and liquidated damages, this Right of First Offer shall thereafter be forever void and of no further force and effect. Landlord shall have no other remedy for any default by Tenant pursuant to this Exhibit F, including any right to damages or to exercise its rights pursuant to the Lease. LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT (1) THE AMOUNT OF THE EARNEST MONEY IS A REASONABLE ESTIMATE OF AND BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES THAT WOULD BE SUFFERED AND COSTS INCURRED BY LANDLORD AS A RESULT OF HAVING WITHDRAWN THE PREMISES FROM SALE AND THE FAILURE OF THE OPTION CLOSING TO HAVE OCCURRED DUE TO A DEFAULT OF TENANT UNDER THIS EXHIBIT F; (2) THE ACTUAL DAMAGES SUFFERED AND COSTS INCURRED BY LANDLORD AS A RESULT OF SUCH WITHDRAWAL AND FAILURE TO CLOSE DUE TO A DEFAULT OF TENANT UNDER THIS EXHIBIT F WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO DETERMINE; AND (3) THE AMOUNT OF THE EARNEST MONEY SHALL BE AND CONSTITUTE VALID LIQUIDATED DAMAGES. 6.          CHANGE IN OFFER TERMS. In the event that (a) Landlord delivers an Offer Notice and Tenant fails to deliver an Offer Response electing to exercise its Right of First Offer prior to the expiration of the Response Period; and (b) therefore, Landlord has the right to, and is, marketing the Premises for a Sale or actively pursuing the negotiation of the terms and conditions of a Sale, but in the course of such pursuit Landlord desires to change or alter any of the Offer Terms in any material respect, then, during the Offer Period only, Landlord may not consummate any then-pending sale, or finalize the terms and conditions of a Sale, based on and incorporating a material change in the Offer Terms without first delivering a revised Offer Notice to Tenant, reflecting the then-applicable Offer Terms, and providing Tenant with a Tenant’s Response Period during which Tenant may elect to deliver an Offer Response. For purposes of this Section 6, a change in the purchase price originally included in the Offer Terms shall be deemed material if that purchase price is reduced by more than ten percent (10%) and no changes to the Offer Terms shall be material other than changes in the purchase price. 7.            EXCLUDED SALES. In the event that Landlord desires to transfer and convey all or any portion of its interest in the Premises to FR, FI, FILP, an affiliate of Landlord, FR, FI or FILP, to any entity controlled by, or under common control with, Landlord, FR, FI or FILP or any affiliate of Landlord, FR, FI or FILP, to any joint venture in which Landlord, FR, FI or FILP have an interest or to any other participant in such joint venture (or any affiliate of such a participant (any of the foregoing, an “Affiliate”, and any such transfer or conveyance, an “Affiliate Transfer”), such Affiliate Transfer shall not trigger Tenant’s Right of First Offer and, following such Affiliate Transfer, Tenant shall retain its Right of First Offer pursuant to this Agreement. In the event that Landlord desires to market, transfer and convey (any such marketing, transfer or conveyance, a “Portfolio Transfer”) all or any portion of its interest in the Premises to a third party as part of a Portfolio Sale (as hereinafter defined) which includes the Premises, such Portfolio Transfer shall not trigger Tenant’s Right of First Offer and, upon the sale of the Premises as part of any such Portfolio Transfer, Tenant’s Right of First Offer shall automatically be rendered irrevocably null and void and neither party shall have any further rights or liabilities under this Exhibit F. For purposes of this Agreement, a “Portfolio Sale” shall mean the actual or proposed sale, transfer or conveyance, direct or indirect, of more than three (3) properties by Landlord, FI, FILP or FR and one or more Affiliates of Landlord, FI, FILP or FR as part of the same sale or offering package. Notwithstanding anything contained herein to the contrary, the transfer of the Premises as part of a foreclosure, a transfer in lieu of foreclosure or other comparable exercise by a   F-6 -------------------------------------------------------------------------------- lender of its rights in connection with a loan to Landlord or an Affiliate of Landlord shall not trigger this Right of First Offer and the same shall void this Right of First Offer. 8.          TERMINATION. If Landlord consummates a Sale (within the confines of the requirements imposed in this Exhibit F above), or in the event Tenant does not exercise its Right of First Offer, then from and after the date on which such Sale is consummated (unless an Affiliate Transfer), Tenant’s Right of First Offer shall automatically be rendered irrevocably null and void and Tenant shall have no further rights under this Exhibit F or the Lease to acquire fee simple title to the Premises. 9.          BENEFIT. This Exhibit F is for the benefit only of the parties hereto and no other person or entity shall be entitled to rely hereon, receive any benefit herefrom or enforce against any party hereto any provision hereof.   F-7 -------------------------------------------------------------------------------- RIDER 1 TENANT’S EXPANSION OPTION 1.            Tenant’s Expansion Option. Tenant shall have a one (1) time option (the “Expansion Option”) to construct, or cause to be constructed, at Tenant’s sole cost and expense, an expansion of the Premises of approximately 100,000 additional square feet (along with any related parking expansion and modification to the current Premises on and subject to the limitations herein set forth, collectively, the “Expansion Improvements”), by delivery of written notice to Landlord (the “Expansion Notice”) at any time from and after the Commencement Date until the date that is two (2) years prior to the Expiration Date; provided, however, that Landlord may elect (in its sole discretion) to construct the Expansion Improvements, on behalf of Tenant and at Landlord’s sole cost, in exchange for Tenant’s agreement to pay the Expansion Rent (as hereinafter defined), all as more particularly described in Section 3.4 below. The exercise of the Expansion Option shall be made by Tenant on and subject to the terms, conditions and limitations set forth in this Rider No. 1. Notwithstanding anything contained herein to the contrary, Tenant shall have no right to exercise its Expansion Option if: (i) Tenant is in default hereunder (beyond applicable notice and cure periods) at such time as Tenant delivers its Expansion Notice or the date upon which construction of the Expansion Improvements commences (such date, the “Expansion Commencement Date”); or (ii) Tenant does not have a tangible net worth, determined in accordance with generally accepted accounting principles (after deduction for loans to officers and directors, good will and deferred assets) as of each of the date on which Tenant delivers its Expansion Notice and the Expansion Commencement Date, in excess of $15,000,000, such tangible net worth to be evidenced to Landlord by documentation reasonably satisfactory to Landlord. 2.            Expansion Notice; Preliminary Plans. The Expansion Notice shall (i) specify the size, nature and scope of the proposed Expansion Improvements; and (ii) be accompanied by preliminary plans and specifications for the construction of the desired Expansion Improvements prepared by an AIA certified architect (the “Proposed Expansion Plans”), which Proposed Expansion Plans shall be sufficient in scope and detail to enable Landlord to evaluate the feasibility, timing and cost to construct the Expansion Improvements. The Expansion Improvements shall be compatible, as to design and aesthetics, with the existing Premises. The Expansion Improvements shall not require the retrofitting or modification of any of the current Premises existing structure and systems (including, without limitation, all mechanical, electrical, plumbing, heating, ventilating and air conditioning systems), except as reasonably necessary for the proper functioning of the Expansion Improvements, and except as may be consented to by Landlord in its reasonable discretion. The cost of any such retrofitting shall be at Tenant’s sole cost and expense. The configuration of the Expansion Improvements (including, but not limited to, the footprint thereof, the density and number of stories and the rentable square footage intended to be devoted to each of warehouse and office uses), and the composition of the rentable area therein, shall (x) conform to then-applicable zoning laws and regulations and private restrictions unless Tenant obtains a variance in form acceptable to Landlord, and (y) be subject to Landlord’s approval, which approval will not be unreasonably withheld, conditioned or delayed. Tenant shall have no right to exercise the Expansion Option if the proposed Expansion Improvements (or any expansion of the existing Premises) is not permissible or permitted pursuant to either or both: (i) any and all laws, ordinances, rules and regulations of any governmental or quasi-governmental authority, including, but not limited to, any zoning ordinances, unless Tenant obtains a variance for the same (in form and substance reasonably acceptable to Landlord), and (ii) any   Rider No. 1-1 -------------------------------------------------------------------------------- private conditions, covenants or restrictions encumbering the Premises as of the date on which Tenant delivers the Expansion Notice, provided, however, Landlord shall, at no further cost to Landlord, make reasonable efforts and reasonably cooperate with Tenant to obtain the consent of any entity that has covenants or restrictions encumbering the Premises. In addition, and not as a limitation, to the foregoing, in the event that any Laws require additional parking spaces in order for the Building and/or the Expansion Improvements to be in compliance with Law after the construction of the Expansion Improvements, then as a part of the Expansion Improvements, Tenant shall cause such additional parking to be constructed at the Premises, at Tenant’s sole cost and expense, except as otherwise provided in Section 3.4 below to the extent Landlord elects (in its sole discretion) to construct the Expansion Improvements. 3.            Review and Approval of Plans. Landlord shall have a period of thirty (30) days to review and approve the Proposed Expansion Plans (which approval shall not be unreasonably withheld) or to suggest reasonable modifications thereto. If Landlord suggests any reasonable modifications to the Proposed Expansion Plans or the Expansion Improvements, Landlord and Tenant shall each act reasonably and in good faith to agree upon such proposed modifications and to finalize the Proposed Expansion Plans. Landlord’s failure to act within such thirty-day period shall be deemed approval by Landlord of the Proposed Expansion Plans. In the event Landlord and Tenant fail to agree upon the Proposed Expansion Plans within ninety (90) days after the expiration of Landlord’s review period, Tenant’s exercise of the Expansion Option shall automatically be rendered null and void and the Expansion Option (and this Exhibit F) of no further force and effect. 3.1.         Final Plans and General Expansion Terms. Upon Landlord’s and Tenant’s agreement with respect to the Proposed Expansion Plans and the Expansion Improvements, Tenant, at its sole cost and expense, shall have a period of sixty (60) days to prepare: (i) final plans and specifications for the proposed Expansion Improvements (the “Final Plans”) which shall be substantially based upon the Proposed Expansion Plans approved by both Landlord and Tenant; (ii) a proposed construction schedule for the Expansion Improvements; and (iii) a proposed budget describing estimated construction costs associated with the Expansion Improvements (the items described in (i) - (iii), the “General Expansion Terms”). Tenant shall submit the General Expansion Terms to Landlord for its review and approval (which approval shall not be unreasonably withheld) or reasonable modification. Landlord and Tenant shall act reasonably and in good faith to agree upon the Final Plans and the General Expansion Terms within thirty (30) days. In the event Landlord and Tenant fail to agree upon the Final Plans and the General Expansion Terms within one hundred twenty (120) days, Tenant’s exercise of the Expansion Option shall be automatically rendered null and void and the Expansion Option (and this Exhibit F) of no further force and effect. 3.2.         Collateral Assignment of Contracts. Any general contractor contract, and all other contracts, designs and plans shall provide that they may be collaterally assigned to Landlord without any further consent of the contracting party thereunder. Further, Tenant hereby collaterally assigns, transfers and sets over, to Landlord, all of Tenant’s rights, benefits and privileges under, any general contractor contract, and all other contracts, designs and plans for any Expansion Improvements such that in the event of a default by Tenant hereunder, Landlord may cause any counterparty to such contracts, designs and plans to perform their obligations thereunder for the benefit of the Landlord. Tenant shall enter into such further agreements and take such further actions as may be required to effect the provisions of the foregoing collateral assignment. Notwithstanding the foregoing, Tenant shall continue to be liable for all covenants, agreements or obligations under such contracts, designs   Rider No. 1-2 -------------------------------------------------------------------------------- and plans, and Landlord shall not be deemed to have assumed any such contracts, designs or plans, except as provided in Section 3.4 below, to the extent Landlord elects (in its sole discretion) to construct the Expansion Improvements. 3.3    Out-of-Pocket Costs of Landlord. Tenant shall reimburse Landlord for Landlord’s reasonable, out-of-pocket costs and expenses incurred in reviewing and negotiating the Proposed Expansion Plans, Final Plans, General Expansion Terms and overseeing any construction of the Expansion Improvements, within ten (10) days after Landlord’s delivery of written demand to Tenant, together with a detailed schedule of such third-party cost and expenses, except as otherwise provided in Section 3.4 below to the extent Landlord elects (in its sole discretion) to construct the Expansion Improvements on behalf of Tenant. 3.4          Landlord’s Construction Election. Within fifteen (15) business days after Landlord and Tenant have agreed upon the Final Plans and the General Expansion Terms, if at all, Landlord shall provide Tenant with a summary of the terms and conditions upon which Landlord would be willing to construct the Expansion Improvements on behalf of Tenant (and at Landlord’s cost) and lease the Expansion Improvements to Tenant (the “Landlord Expansion Terms”), which Landlord Expansion Terms shall include, but not be limited to, the annual base rent, including, but not limited to, annual escalations thereof, that Landlord would charge Tenant for the Expansion Improvements (the “Expansion Base Rent”), the terms of Landlord’s delivery of the Expansion Improvements and the other material terms of the proposed construction and leaseback by Landlord of the Expansion Improvements. Landlord shall have no obligation hereunder or otherwise to construct the Expansion Improvements and the Landlord Expansion Terms and the terms of the Expansion Amendment (as hereinafter defined) shall be formulated by, and acceptable to, Landlord in its sole and absolute discretion. Tenant shall have a period of ten (10) business days in which to accept or reject, in its sole discretion, the Landlord Expansion Terms. If Tenant timely accepts the Landlord Expansion Terms, Landlord and Tenant shall act diligently and in good faith to negotiate, execute and enter into an amendment to the Lease and this Rider No. 1 to incorporate the Landlord Expansion Terms (the “Expansion Amendment”) within thirty (30) days after such acceptance. If Tenant rejects the Landlord Expansion Terms, if Landlord does not timely deliver the Landlord Expansion Terms, or if Landlord and Tenant are unable to timely negotiate, execute and enter into the Expansion Amendment on terms acceptable to Landlord and Tenant in their respective sole discretion, Tenant shall have the option to construct, or cause to be constructed, the Expansion Improvements at Tenant’s sole cost and expense pursuant to, and in accordance with, this Exhibit F. If Landlord and Tenant execute and enter into the Expansion Amendment, (A) Landlord shall construct the Expansion Improvements pursuant to the Final Plans and the Expansion Amendment at Landlord’s sole cost; and (B) Tenant shall lease the Expansion Improvements from Landlord in exchange for the payment by Tenant to Landlord for the Expansion Base Rent from and after the substantial completion of the Expansion Improvements, all as more particularly described in the Expansion Amendment. Without limitation of the foregoing, Tenant shall lease the Expansion Improvements from Landlord on the same general, fully triple net terms as are applicable to the Premises, and the Expansion Improvements shall be included in the Premises for all relevant purposes from and after their substantial completion by Landlord. 4.            Commencement and Completion of Construction of Expansion Improvements. Provided Landlord and Tenant have not agreed upon the Landlord Expansion Terms and entered into the Expansion Amendment, promptly after Landlord and Tenant agree upon the General Expansion Terms, and provided Tenant elects to proceed with the construction of the Expansion Improvements, Rider No. 1-3 -------------------------------------------------------------------------------- Tenant shall commence its efforts to procure the Approvals (defined below) and to commence the construction of the Expansion Improvements pursuant to, and in accordance with, the Final Plans. Tenant shall furnish or obtain any and all permits, approvals and consents from any governmental or quasi-governmental authorities (including, but not limited to, any permits or approvals pursuant to any private conditions, covenants or restrictions or from any architectural review board) necessary as a condition to the construction of the Expansion Improvements (the “Approvals”), utilities, professional services, design, material, labor and equipment required to construct the Expansion Improvements on the Premises pursuant to and as described by the Final Plans. The Expansion Improvements shall be constructed in compliance with the provisions of Sections 11.2 and 11.3 of the Lease substantially in accordance with the Final Plans and completed in accordance with all applicable statutes, ordinances and building codes, governmental rules, regulations and orders relating to construction of the Expansion Improvements. 4.1          Default Under Lease. Prior to the completion of the Expansion Improvements by Tenant, in the event that Tenant defaults under this Lease (and fails to timely cure such default) after Tenant has exercised its Expansion Option, Landlord may, at its option, elect to: (a) cause Tenant to suspend construction of the Expansion Improvements until such default is cured and in such event, Tenant shall be responsible for, and promptly reimburse Landlord, for any and all costs incurred resulting from such Tenant default and suspension of construction; or (b) terminate construction of the Expansion Improvements and remove the partially constructed Expansion Improvements, in which event Tenant shall reimburse Landlord for all costs incurred by Landlord in removing the partially constructed Expansion Improvements, and Landlord may exercise any or all of its other rights and remedies under this Lease; or (c) complete construction of the Expansion Improvements pursuant to this Rider No. 1, and Landlord may exercise any or all of its other rights and remedies under this Lease, including, but not limited to realizing on the Expansion Improvements Security, as hereinafter defined. Notwithstanding any election previously made by Landlord pursuant to the prior sentence, Landlord may, at any time until construction of the Expansion Improvements is substantially complete, further elect to invoke any option set forth in clauses (a) or (c) of the preceding sentence in lieu of any previously elected option. The rights and remedies of Landlord under this Rider No. 1 are cumulative of any other rights and remedies of Landlord elsewhere provided in this Lease, at law or in equity. 4.2.         Changes to Final Plans. In the event Tenant wishes to propose a modification, adjustment or alteration to the Final Plans (a “Change Order”), Tenant shall promptly provide Landlord with a reasonably detailed written description of the proposed Change Order, together with any and all supporting documentation reasonably appropriate to understand and evaluate the proposed Change Order. Landlord’s consent to any Change Order shall be required, which consent shall not be unreasonably withheld, conditioned or delayed. If Landlord fails to disapprove any Change Order within five (5) business days after request for Landlord’s approval, such approval shall be deemed granted if Landlord does not deny its approval within five (5) business days after a second written request therefore. Notwithstanding the other provisions of this paragraph, Landlord shall not be entitled to disapprove of Change Orders submitted by Tenant to the extent such Change Orders are necessitated by requirements of any governmental or quasi-governmental or administrative code, rule, law, approval or other authority enacted, adopted, amended, supplemented or clarified after the date Tenant obtains the Approvals. Prior to implementing any Change Order, Tenant shall increase the amount of the Expansion Improvements Security (as defined below) to cover the reasonably expected cost of the Change Order or otherwise cause the Expansion Improvements Security to provide adequate security for the completion of any Change Order.   Rider No. 1-4 -------------------------------------------------------------------------------- 4.3.         Substantial Completion; Commencement and Completion. For purposes of this Lease, the term “Expansion Substantial Completion Date” shall mean the date when the construction of the Expansion Improvements has been substantially completed in accordance with the requirements of the Final Plans, excepting only “punch list items.” Provided Tenant elects to proceed with the construction of the Expansion Improvements at its sole cost, Tenant shall promptly commence construction of any Expansion Improvements after the approval of Final Plans and shall diligently pursue the construction of the Expansion Improvements. Tenant shall cause the Expansion Substantial Completion Date to occur within nine (9) months after the approval of Final Plans. In the event the Tenant fails to complete the Expansion Improvements within a the required period of time after the approval of Final Plans, then after sixty (60) days’ prior written notice to Tenant, Landlord shall have the right to cause the Expansion Improvements to be completed, whereupon Landlord shall be entitled to realize and or use any available Expansion Improvements Security and/or obtain reimbursement from Tenant within thirty (30) days after Landlord’s delivery of written demand to Tenant, together with a detailed schedule of Landlord’s third-party cost and expenses incurred in completing the Expansion Improvements. When Tenant believes that the Expansion Improvements are substantially completed as provided above, Landlord and Tenant shall together walk through the Expansion Improvements and inspect them, using reasonable efforts to discover all uncompleted or defective construction in the Expansion Improvements. After such inspection has been completed, and the “punch list” items have been agreed upon, in the parties’ reasonable discretion, Tenant shall cause to be completed and/or repaired such “punch list” items within 30 days thereafter. Upon the Expansion Substantial Completion Date, the Expansion Improvements shall be deemed to be a part of the Premises and the property of Landlord for all purposes, provided, however, that there shall not be an increase in Base Rent due to the addition of the Expansion Improvements (except as otherwise provided in an Expansion Amendment to the extent Landlord constructs the Expansion Improvements). Tenant shall execute any and all deeds, conveyance documents or bills of sale, for no further consideration, to Landlord, conveying the Expansion Improvements to Landlord on Landlord’s request. 4.4        Security and Cure Rights. Prior to commencement of construction of the Expansion Improvements by Tenant, at its sole cost, Tenant shall provide for the benefit of Landlord and any lender to Landlord security (the “Expansion Improvements Security”) for the performance of Tenant’s obligations hereunder, which Expansion Improvements Security could include, but not be limited to, a cash deposit of the cost of construction of the Expansion Improvements into a construction escrow, a letter of credit, or a payment and performance bond, which Expansion Improvements Security (a) shall be in form and substance acceptable to Landlord and its lender, and (b) be available for Landlord and/or its lender to draw upon in the event that Tenant defaults on its obligations pursuant to this Rider No. 1. Upon the occurrence of the Expansion Substantial Completion Date and the completion of any “punch list items”, any Expansion Improvements Security overage remaining, any letter of credit remaining or any bonds or other security shall be released to Tenant. No Expansion Improvements Security shall be required should Landlord elect to construct the Expansion Improvements pursuant to Section 3.5 of this Rider No. 1. 5.            Warranties. After the expiration of the Lease, Tenant shall assign and shall be deemed to have assigned to Landlord any third party warranties issued to Tenant and rights under construction contracts in connection with the Expansion Improvements.   Rider No. 1-5 -------------------------------------------------------------------------------- 6.            Personal to Tenant. The Expansion Option is personal to Tenant and its affiliates, except that the Expansion Option may be transferred in connection with a Permitted Transfer described in Section 8.3 of the Lease. 7.            Progress. Landlord and Tenant shall hold regular meetings concerning the progress of construction of the Expansion Improvements. Landlord and Tenant shall each designate a representative for purposes of monitoring the construction of the Expansion Improvements and making day-to-day construction related decisions. 8.            Mandatory Term Extension. If (a) Landlord or Tenant construct the Expansion Improvements, and (b) the remaining portion of the Term of the Lease is less than five (5) years from and after the Expansion Substantial Completion Date, either by Landlord or Tenant, the Term of this Lease shall be automatically extended such that the Expiration Date occurs on the last day of the calendar month in which five (5) years anniversary of the Expansion Substantial Completion Date occurs (the portion of such extended period after the original Expiration Date, the “Expansion Extension Period”). During the Expansion Extension Period, Base Rent payable by Tenant to Landlord pursuant to the Lease, including, but not limited to, any Expansion Base Rent, shall continue to escalate annually by two percent (2%) per annum. Promptly after the Expansion Substantial Completion Date, Landlord and Tenant shall execute and enter into an amendment to this Lease reflecting the revised Expiration Date, the Expansion Extension Period and the Base Rent during the Expansion Extension Period. Rider No. 1-6 --------------------------------------------------------------------------------

EXHIBIT 10.2 [logo.jpg] LIMITED BRANDS, INC. ANNOUNCES EXECUTIVE APPOINTMENTS — Ken Stevens promoted to Chief Financial Officer — — Promotions of leaders at Victoria’s Secret — — New leader of Mast — COLUMBUS, Ohio (May 24, 2006) — In an effort to continue to recognize future growth opportunities, Limited Brands, Inc. (NYSE: LTD) today announced the appointment of a new Chief Financial Officer, and the promotion of members of the leadership team for Victoria’s Secret. “These are talented leaders who will enable us to continue to maximize our growth potential,” said Leslie H. Wexner, Chairman and Chief Executive Officer of Limited Brands. APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER Ken Stevens has been appointed Executive Vice President and Chief Financial Officer, Limited Brands effective June 12. At Limited Brands, Mr. Stevens has most recently served as Chief Executive Officer of Express. He also has held the position of President of Bath & Body Works with responsibility for finance and planning, operations, store and field management, marketing, and brand merchandising. His career at the senior management level includes serving as President and Chief Operating Officer for inChord Communications, an integrated marketing communications firm which focuses on the pharmaceutical/healthcare industries, and Chairman and Chief Executive Officer of the Bank One Retail Group. Mr. Stevens also has held senior management positions at PepsiCo after serving as a partner with McKinsey and Co. Early in his career, Mr. Stevens held management positions at General Mills and Bullock’s Department stores. Mr. Stevens replaces V. Ann Hailey who transitioned to the role of Executive Vice President, Corporate Development in May. Jay Margolis, Chief Executive Officer/President, Apparel Group, will continue to lead the apparel businesses and Paul Raffin, President, Express, will continue to lead Express. -more- -------------------------------------------------------------------------------- NEW VICTORIA’S SECRET ORGANIZATIONAL STRUCTURE Victoria’s Secret is moving to an integrated business structure with one operating business model for Victoria’s Secret Stores, Victoria’s Secret Beauty, Victoria’s Secret Direct, Pink, Intimissimi, Sexy Sport and all future concepts Sharen Jester Turney will lead the new Victoria’s Secret group as Chief Executive Officer and President, with Jerry Stritzke joining her as Chief Operating Officer. Ms. Turney has led Victoria’s Secret Direct, the catalogue and e-commerce arm of Victoria’s Secret since 2000. Mr. Stritzke most recently served as Chief Executive Officer of Mast Industries, Inc, the sourcing and production arm of Limited Brands, Inc. LEADERSHIP FOR VICTORIA’S SECRET BUSINESS SEGMENTS Mindy Meads will become Chief Executive Officer/President of Victoria’s Secret Direct, on August 4th, with Rick Jackson joining her as Chief Operating Officer of the business. Ms. Meads, formerly President and Chief Executive Officer of Lands’ End, has more than 30 years of experience as a merchant, including the last 15 years leading and re-energizing the Lands’ End product line. Mr. Jackson, who joined Limited Brands in 1998, has been serving as Executive Vice President of Logistic Operations in Limited Logistics Services, Inc. Christine Beauchamp is being promoted from President and General Merchandise Manager to Chief Executive Officer and President of Victoria’s Secret Beauty, to recognize her leadership and contributions to the business. Grace Nichols will remain in her current role as Chief Executive Officer of Victoria’s Secret Stores through early Spring of 2007. After 20 years with Limited Brands and 14 as CEO of Victoria’s Secret Stores, she will work with Limited Brands leadership to develop a new role and transition to it in 2007. LEADERSHIP FOR MAST Rick Paul is being promoted to President for Mast, replacing Mr. Stritzke. Mr. Paul previously led Mast’s Far East operations. ABOUT LIMITED BRANDS: Limited Brands, through Victoria's Secret, Bath & Body Works, C.O. Bigelow, Express, Limited Stores, White Barn Candle Co. and Henri Bendel, presently operates 3,559 specialty stores. Victoria's Secret products are also available through the catalogue and www.VictoriasSecret.com. Bath & Body Works products are also available through the catalog and at www.BathandBodyWorks.com. For further information, please contact: Tom Katzenmeyer SVP, Investor, Media and Community Relations Limited Brands, Inc. 614-415-7076 www.Limitedbrands.com ###

EXECUTION VERSION     US$2,250,000,000 FIVE-YEAR CREDIT AGREEMENT dated as of June 28, 2006 among AUTOMATIC DATA PROCESSING, INC. The Borrowing Subsidiaries referred to herein The LENDERS Party Hereto JPMORGAN CHASE BANK, N.A., as Administrative Agent J.P. MORGAN EUROPE LIMITED, as London Agent JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Agent The SWINGLINE LENDERS BANK OF AMERICA, N.A. as Syndication Agent and BARCLAYS BANK PLC BNP PARIBAS CITICORP USA, INC. DEUTSCHE BANK AG NEW YORK BRANCH and WACHOVIA BANK, NATIONAL ASSOCIATION, as Documentation Agents _________________________ J.P. MORGAN SECURITIES INC., and BANC OF AMERICA SECURITIES LLC, as Co-Lead Arrangers and Joint Bookrunners         TABLE OF CONTENTS ARTICLE I   Definitions   SECTION 1.01. Defined Terms 2   SECTION 1.02. Classification of Loans and Borrowings 24 SECTION 1.03. Terms Generally 24 SECTION 1.04. Accounting Terms; GAAP 25 SECTION 1.05. Exchange Rates 25   ARTICLE II   The Credits   SECTION 2.01. Commitments 25 SECTION 2.02. Loans and Borrowings 26 SECTION 2.03. Requests for Borrowings 28 SECTION 2.04. Bankers’ Acceptances 31 SECTION 2.05. Competitive Bid Procedure 31 SECTION 2.06. Swingline Loans 33 SECTION 2.07. Funding of Borrowings and B/A Drawings 35 SECTION 2.08. Repayment of Borrowings and B/A Drawings; Evidence of Debt 36 SECTION 2.09. Interest Elections 38 SECTION 2.10. Termination, Reduction and Increase of Commitments 40 SECTION 2.11. Prepayment of Loans 42 SECTION 2.12. Fees 44 SECTION 2.13. Interest 45 SECTION 2.14. Alternate Rate of Interest 46 SECTION 2.15. Increased Costs 47 SECTION 2.16. Break Funding Payments 48 SECTION 2.17. Taxes 49 SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Setoffs 50 SECTION 2.19. Mitigation Obligations; Replacement of Lenders 52 SECTION 2.20. Designation of Borrowing Subsidiaries 53   ARTICLE III   Representations and Warranties   SECTION 3.01. Organization; Powers 53 SECTION 3.02. Authorization; Enforceability 53       Contents, p. 2       SECTION 3.03. Governmental Approvals; No Conflicts 54 SECTION 3.04. Financial Condition; No Material Adverse Change 54 SECTION 3.05. Properties 54 SECTION 3.06. Litigation and Environmental Matters 55 SECTION 3.07. Compliance with Laws and Agreements 55 SECTION 3.08. Federal Reserve Regulations 55 SECTION 3.09. Investment Company Status 55 SECTION 3.10. Taxes 55 SECTION 3.11. ERISA 55 SECTION 3.12. Disclosure 55   ARTICLE IV   Conditions   SECTION 4.01. Effective Date 56 SECTION 4.02. Each Credit Event 57 SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary 57   ARTICLE V   Affirmative Covenants   SECTION 5.01. Financial Statements and Other Information 58 SECTION 5.02. Notices of Material Events 59 SECTION 5.03. Existence; Conduct of Business 60 SECTION 5.04. Payment of Taxes 60 SECTION 5.05. Maintenance of Properties 60 SECTION 5.06. Books and Records; Inspection Rights 60 SECTION 5.07. Compliance with Laws 60 SECTION 5.08. Use of Proceeds 61   ARTICLE VI   Negative Covenants   SECTION 6.01. Liens 61 SECTION 6.02. Sale and Leaseback Transactions 62 SECTION 6.03. Fundamental Changes 62   ARTICLE VII   Events of Default       Contents, p. 3     ARTICLE VIII   The Agents   ARTICLE IX   Guarantee   ARTICLE X   Miscellaneous   SECTION 10.01. Notices 69 SECTION 10.02. Waivers; Amendments 70 SECTION 10.03. Expenses; Indemnity; Damage Waiver 72 SECTION 10.04. Successors and Assigns 73 SECTION 10.05. Survival 75 SECTION 10.06. Counterparts; Integration; Effectiveness 76 SECTION 10.07. Severability 76 SECTION 10.08. Right of Setoff 76 SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process 77 SECTION 10.10. WAIVER OF JURY TRIAL 77 SECTION 10.11. Headings 78 SECTION 10.12. Confidentiality 78 SECTION 10.13. Conversion of Currencies 79 SECTION 10.14. Interest Rate Limitation 79 SECTION 10.15. USA Patriot Act 80 SECTION 10.16. No Fiduciary Relationship 80   SCHEDULES: Schedule 2.01 — Lenders and Commitments Schedule 2.18 — Payment Instructions Schedule 6.01 — Liens EXHIBITS: Exhibit A-1 -- Form of Borrowing Subsidiary Agreement Exhibit A-2 -- Form of Borrowing Subsidiary Termination Exhibit B -- Form of Assignment and Assumption Exhibit C -- Form of Opinion of General Counsel of the Company Exhibit D -- Form of Promissory Note         FIVE-YEAR CREDIT AGREEMENT dated as of June 28, 2006 (this “Agreement”), among AUTOMATIC DATA PROCESSING, INC., a Delaware corporation (the “Company”); the BORROWING SUBSIDIARIES from time to time party hereto (the Company and the Borrowing Subsidiaries being collectively called the “Borrowers”); the LENDERS from time to time party hereto; JPMORGAN CHASE BANK, N.A., as Administrative Agent; J.P. MORGAN EUROPE LIMITED, as London Agent; JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Agent; and the SWINGLINE LENDERS. The Company has requested the Lenders (such term and each other capitalized term used and not otherwise defined herein having the meaning assigned to it in Article I) to extend credit in the form of (a) US Tranche Commitments under which the Company and the US Borrowing Subsidiaries may obtain US Tranche Loans in US Dollars in an aggregate principal amount at any time outstanding that will not result in the US Tranche Exposure exceeding US$1,489,392,236.22, (b) Canadian Tranche Commitments under which the Canadian Borrowing Subsidiaries may obtain Canadian Tranche Loans in Canadian Dollars, and the Company and the US Borrowing Subsidiaries may obtain Canadian Tranche Loans in US Dollars, in an aggregate principal amount at any time outstanding that will not result in the Canadian Tranche Exposure exceeding US$446,707,763.78, (c) Euro Tranche Commitments under which the Company, the US Borrowing Subsidiaries and the Euro Borrowing Subsidiaries may obtain Euro Tranche Loans in Euros and US Dollars in an aggregate principal amount at any time outstanding that will not result in the Euro Tranche Exposure exceeding US$313,900,000 and (d) Swingline Loans to the Company and the US Borrowing Subsidiaries in US Dollars, and to the Canadian Borrowing Subsidiaries in Canadian Dollars, in an aggregate amount at any time outstanding that will not result in the aggregate US Dollar Equivalent of the Swingline Exposures exceeding US$1,000,000,000 or the Canadian Swingline Exposures exceeding US$178,683,105.51. The Company has also requested the Lenders to provide (a) a procedure pursuant to which the Borrowers may invite the Lenders to bid on an uncommitted basis on short-term Loans to the Borrowers and (b) a procedure under which the Borrowers may obtain Loans on an uncommitted basis from individual Lenders on terms to be negotiated at the time such Loans are requested. The proceeds of borrowings hereunder are to be used for general corporate purposes of the Borrowers and their subsidiaries, including the refinancing of indebtedness under the Company’s 364-Day Credit Agreement dated as of June 29, 2005 and its Five-Year Credit Agreement dated as of June 30, 2004 (together, the “Existing Credit Agreements”).       2     The Lenders are willing to establish the credit facilities referred to in the preceding paragraph upon the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I   Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: “ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. “Administrative Agent” means JPMCB, in its capacity as administrative agent for the Lenders hereunder or any successor in such capacity. “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent. “Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Agents” means, collectively, the Administrative Agent, the London Agent and the Canadian Agent. “Agreement Currency” has the meaning assigned to such term in Section 10.13(b). “Alternate Base Rate” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. “Applicable Agent” means (a) with respect to a Loan or Borrowing denominated in US Dollars, and with respect to any payment hereunder that does not relate to a particular Loan or Borrowing, the Administrative Agent, (b) with respect to a Borrowing denominated in Euros, the London Agent, and (c) with respect to a Borrowing denominated in Canadian Dollars or a B/A, the Canadian Agent.       3     “Applicable Rate” means, for any day, with respect to any Eurocurrency Loan or B/A Drawing, or with respect to the facility fees payable hereunder, the applicable rate per annum set forth below under the caption “Eurocurrency Spread”, “B/A Spread” or “Facility Fee Rate”, based upon the Ratings: Ratings: Eurocurrency Spread, B/A Spread Facility Fee Rate Category 1 Greater than or equal to Aa3 or AA- 0.110% 0.040% Category 2 Greater than or equal to A3 or A- 0.180% 0.070% Category 3 Less than A3 or A- 0.205% 0.095%   For purposes of the foregoing, (a) if either Moody’s or S&P shall not have in effect Ratings (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in Category 3; (b) if the Ratings established or deemed to have been established by Moody’s and S&P shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless the ratings differ by two Categories, in which case the Eurocurrency Spread, the B/A Spread and the Facility Fees shall be based on Category 2; and (c) if the Ratings established or deemed to have been established by Moody’s and S&P shall be changed (other than as a result of a change in the rating system of Moody’s or S&P), such change shall be effective as of the date on which it is first publicly announced by Moody’s or S&P. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody’s or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company and the Required Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit B or any other form approved by the Administrative Agent.       4     “Attributable Debt” means, with respect to any Sale and Leaseback Transaction, the present value (discounted at the rate set forth or implicit in the terms of the lease included in such Sale and Leaseback Transaction) of the total obligations of the lessee for rental payments (other than amounts required to be paid on account of taxes, maintenance, repairs, insurance, assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights) during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended). In the case of any lease which is terminable by the lessee upon payment of a penalty, the Attributable Debt shall be the lesser of the Attributable Debt determined assuming termination upon the first date such lease may be terminated (in which case the Attributable Debt shall also include the amount of the penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated) or the Attributable Debt determined assuming no such termination. “Availability Period” means the period from and including the Effective Date to but excluding the Maturity Date. “B/A” means a bill of exchange, including a depository bill issued in accordance with the Depository Bills and Notes Act (Canada), denominated in Canadian Dollars, drawn by a Canadian Borrowing Subsidiary and accepted by a Canadian Tranche Lender in accordance with the terms of this Agreement. “B/A Drawing” means B/As accepted and purchased on the same date and as to which a single Contract Period is in effect. “Board” means the Board of Governors of the Federal Reserve System of the United States of America. “Borrower” means the Company or any Borrowing Subsidiary. “Borrowing” means Loans (including Competitive Loans or Contract Loans) of the same Class, Type and currency, made, converted or continued on the same date and, in the case of Eurocurrency Loans or Fixed Rate Loans, as to which a single Interest Period is in effect. “Borrowing Minimum” means (a) in the case of a Borrowing denominated in US Dollars, US$5,000,000 and (b) in the case of a Borrowing denominated in any Designated Foreign Currency, 5,000,000 units of the applicable Designated Foreign Currency. “Borrowing Multiple” means (a) in the case of a Borrowing denominated in US Dollars, US$1,000,000 and (b) in the case of a Borrowing denominated in any Designated Foreign Currency, 1,000,000 units of such currency.       5     “Borrowing Request” means a request by a Borrower for a Borrowing in accordance with Section 2.03. “Borrowing Subsidiary” means a US Borrowing Subsidiary, a Canadian Borrowing Subsidiary or a Euro Borrowing Subsidiary. “Borrowing Subsidiary Agreement” means a Borrowing Subsidiary Agreement substantially in the form of Exhibit A-1. “Borrowing Subsidiary Termination” means a Borrowing Subsidiary Termination substantially in the form of Exhibit A-2. “Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided, that (a) when used in connection with a Eurocurrency Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in deposits in the applicable currency in the London interbank market, (b) when used in connection with a Loan denominated in Canadian Dollars or a B/A, the term “Business Day” shall also exclude any day on which banks are not open for dealings in deposits in Toronto, and (c) when used in connection with a Loan denominated in Euros, the term “Business Day” shall also exclude any days on which the TARGET payment system is not open for the settlement of payments in Euros. “Calculation Date” means the last Business Day of each calendar month. “Canadian Agent” means JPMorgan Chase Bank, N.A., Toronto Branch, or any successor in such capacity. “Canadian Base Rate” means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the next 1/16 or 1%) equal to the greater of (a) the interest rate per annum publicly announced from time to time by JPMorgan Chase Bank, N.A., Toronto Branch, as its reference rate in effect on such day at its principal office in Toronto for determining interest rates applicable to commercial loans denominated in Canadian Dollars in Canada (each change in such reference rate being effective from and including the date such change in publicly announced as being effective) and (b) the interest rate per annum equal to the sum of (i) the CDOR Rate on such day (or, if such rate is not so reported on the Reuters Screen CDOR Page, the average of the rate quotes for bankers’ acceptances denominated in Canadian Dollars with a term of 30 days received by the Canadian Agent at approximately 10:00 a.m., Toronto time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) from one or more banks of recognized standing selected it) and (ii) 0.50% per annum. “Canadian Borrowing Subsidiary” means any Canadian Subsidiary that has been designated as such pursuant to Section 2.20 and that has not ceased to be a Canadian Borrowing Subsidiary as provided in such Section.       6     “Canadian Dollars” or “C$” means the lawful money of Canada. “Canadian Subsidiary” means any Subsidiary that is incorporated or otherwise organized under the laws of Canada or any province thereof. “Canadian Swingline Commitment” means, with respect to each Canadian Swingline Lender, the commitment of such Canadian Swingline Lender to make Canadian Swingline Loans pursuant to Section 2.06, expressed as an amount representing the maximum aggregate amount of such Canadian Swingline Lender’s outstanding Canadian Swingline Loans hereunder, as such commitment may be reduced or increased from time to time pursuant to Section 2.10. The initial amount of each Canadian Swingline Lender’s Canadian Swingline Commitment is set forth on Schedule 2.01. The aggregate amount of the Canadian Swingline Commitments on the date hereof is US$178,683,105.51. “Canadian Swingline Exposure” means, at any time, the sum of the Canadian Swingline Loans outstanding at such time. The Canadian Swingline Exposure of any Lender at any time shall be such Lender’s Canadian Swingline Percentage of the total Canadian Swingline Exposure at such time. “Canadian Swingline Lenders” means JPMorgan Chase Bank, N.A., Toronto Branch and Royal Bank of Canada. “Canadian Swingline Loan” means a Loan made by a Canadian Swingline Lender under its Canadian Swingline Commitment pursuant to Section 2.06. “Canadian Swingline Percentage” means, with respect to any Canadian Swingline Lender, the percentage of the total Canadian Swingline Commitments represented by such Lender’s Canadian Swingline Commitment. If the Canadian Swingline Commitments have terminated or expired, the Canadian Swingline Percentages shall be determined based upon the Canadian Swingline Commitments most recently in effect, giving effect to any assignments. “Canadian Tranche Commitment” means, with respect to each Canadian Tranche Lender, the commitment of such Canadian Tranche Lender to make Canadian Tranche Loans pursuant to Section 2.01(b), to accept and purchase or arrange for the purchase of B/As pursuant to Section 2.04 and to acquire participations in Canadian Swingline Loans pursuant to Section 2.06, expressed as an amount representing the maximum aggregate amount of such Canadian Tranche Lender’s Canadian Tranche Exposure hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to Section 2.10 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Canadian Tranche Lender’s Canadian Tranche Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Canadian Tranche Lender shall have assumed its Canadian Tranche Commitment, as applicable.     7     The aggregate amount of the Canadian Tranche Commitments on the date hereof is US$446,707,763.78. “Canadian Tranche Exposure” means, at any time, the sum of (a) the aggregate principal amount of the Canadian Tranche Loans denominated in US Dollars outstanding at such time, (b) the US Dollar Equivalent of the aggregate principal amount of the Canadian Tranche Loans denominated in Canadian Dollars outstanding at such time, (c) the US Dollar Equivalent of the aggregate face amount of the B/As accepted by the Canadian Lenders and outstanding at such time and (d) the US Dollar Equivalent of the Canadian Swingline Exposure at such time. The Canadian Tranche Exposure of any Lender at any time shall be such Lender’s Canadian Tranche Percentage of the total Canadian Tranche Exposure at such time. “Canadian Tranche Lender” mean a Lender with a Canadian Tranche Commitment. “Canadian Tranche Percentage” means, with respect to any Canadian Tranche Lender, the percentage of the total Canadian Tranche Commitments represented by such Lender’s Canadian Tranche Commitment. If the Canadian Tranche Commitments have terminated or expired, the Canadian Tranche Percentages shall be determined based upon the Canadian Tranche Commitments most recently in effect, giving effect to any assignments. “Canadian Tranche Borrowing” means a borrowing comprised of Canadian Tranche Loans. “Canadian Tranche Loan” means a Loan made by a Canadian Tranche Lender pursuant to Section 2.01(b). Each Canadian Tranche Loan denominated in US Dollars shall be a Eurocurrency Loan or an ABR Loan, and each Canadian Tranche Loan denominated in Canadian Dollars shall be a Eurocurrency Loan or a Canadian Base Rate Loan. “Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. “CDOR Rate” means, on any date, an interest rate per annum equal to the average discount rate applicable to bankers’ acceptances denominated in Canadian Dollars with a term of 30 days (for purposes of the definition of “Canadian Base Rate”) or with a term equal to the Contract Period of the relevant B/As (for purposes of the definition of “Discount Rate”) appearing on the Reuters Screen CDOR Page (or on any successor or substitute page of such Screen, or any successor to or substitute for such     8     Screen, providing rate quotations comparable to those currently provided on such page of such Screen, as determined by the Canadian Agent from time to time) at approximately 10:00 a.m., Toronto time, on such date (or, if such date is not a Business Day, on the next preceding Business Day). “Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or by any lending office of such Lender or by such Lender’s holding company with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. “Class”, when used in reference to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are US Tranche Loans, Euro Tranche Loans, Canadian Tranche Loans, Competitive Loans, Contract Loans or Swingline Loans, and (b) any Commitment, refers to whether such Commitment is a US Tranche Commitment, a Euro Tranche Commitment or a Canadian Tranche Commitment. “Code” means the Internal Revenue Code of 1986, as amended from time to time. “Commitment” means a US Tranche Commitment, a Euro Tranche Commitment or a Canadian Tranche Commitment. “Company” has the meaning assigned to such term in the heading of this Agreement. “Competitive Bid” means an offer by a Lender to make a Competitive Loan in accordance with Section 2.05. “Competitive Bid Rate” means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. “Competitive Bid Request” means a request for Competitive Bids in accordance with Section 2.05. “Competitive Borrowing” means a Borrowing comprised of Competitive Loans. “Competitive Loan” means a Loan made pursuant to Section 2.05. Each Competitive Loan shall be a Eurocurrency Loan or a Fixed Rate Loan.       9     “Competitive Loan Exposure” means, with respect to any Lender at any time, the sum of (a) the aggregate principal amount of the outstanding Competitive Loans of such Lender denominated in US Dollars and (b) the aggregate of the US Dollar Equivalents of the principal amounts of the outstanding Competitive Loans of such Lender denominated in Designated Foreign Currencies. “Consolidated Net Worth” means the shareholders’ equity of the Company, determined on a consolidated basis in accordance with GAAP. “Contract Loan” has the meaning assigned to such term in Section 2.02(e). “Contract Loan Exposure” means, with respect to any Lender at any time, the sum of (a) the aggregate principal amount of the outstanding Contract Loans of such Lender denominated in US Dollars and (b) the aggregate of the US Dollar Equivalents of the principal amounts of the outstanding Contract Loans of such Lender denominated in Designated Foreign Currencies. “Contract Period” means, with respect to any B/A, the period commencing on the date such B/A is issued and accepted and ending on the date 30, 60, 90 or 180 days thereafter, as the applicable Canadian Borrowing Subsidiary may elect (in each case subject to availability); provided, that if such Contract Period would end on a day other than a Business Day, such Contract Period shall be extended to the next succeeding Business Day. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. “Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. “Designated Foreign Currency” means the Canadian Dollar and the Euro. “Discount Proceeds” means, with respect to any B/A, an amount (rounded upward, if necessary, to the nearest C$.01) calculated by multiplying (a) the face amount of such B/A by (b) the quotient obtained by dividing (i) one by (ii) the sum of (A) one and (B) the product of (x) the Discount Rate (expressed as a decimal) applicable to such B/A and (y) a fraction of which the numerator is the Contract Period applicable to such B/A and the denominator is 365, with such quotient being rounded upward or downward to the fifth decimal place and .000005 being rounded upward. “Discount Rate” means, with respect to a B/A being accepted and purchased on any day, (a) for a Lender which is a Schedule I Lender, (i) the CDOR Rate     10     applicable to such B/A or, (ii) if the discount rate for a particular Contract Period is not quoted on the Reuters Screen CDOR Page, the arithmetic average (as determined by the Canadian Agent) of the percentage discount rates (expressed as a decimal and rounded upward, if necessary, to the nearest 1/100 of 1%) quoted to the Canadian Agent by the Schedule I Reference Lenders as the percentage discount rate at which each such bank would, in accordance with its normal practices, at approximately 10:00 a.m., Toronto time, on such day, be prepared to purchase bankers’ acceptances accepted by such bank having a face amount and term comparable to the face amount and Contract Period of such B/A, and (b) for a lender which is a Schedule II Lender or a Schedule III Lender, the arithmetic average (as determined by the Canadian Agent) of the percentage discount rates (expressed as a decimal and rounded upward, if necessary, to the nearest 1/100 of 1%) quoted to the Canadian Agent by the Schedule II Reference Lenders as the percentage discount rate at which each such bank would, in accordance with its normal practices, at approximately 10:00 a.m., Toronto time, on such day, be prepared to purchase bankers’ acceptances accepted by such bank having a face amount and term comparable to the face amount and Contract Period of such B/A. “Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 10.02). “EMU Legislation” means the legislative measures of the European Union for the introduction of, changeover to or operation of the Euro in one or more member states. “Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any of the Borrowers or any of their Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. “ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under     11     Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. “ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Company or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Company or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. “Euro” or “€” means the single currency of the European Union as constituted by the Treaty on European Union and as referred to in the EMU Legislation. “Euro Borrowing Subsidiary” means any Subsidiary that has been designated as such pursuant to Section 2.20 and that has not ceased to be a Euro Borrowing Subsidiary as provided in such Section. “Eurocurrency”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the LIBO Rate. “Euro Tranche Commitment” means, with respect to each Euro Tranche Lender, the commitment of such Euro Tranche Lender to make Euro Tranche Loans pursuant to Section 2.01(c), expressed as an amount representing the maximum aggregate amount of such Euro Tranche Lender’s Euro Tranche Exposure hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to Section 2.10 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Euro Tranche Lender’s Euro Tranche Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which Euro Tranche Lender shall have assumed its Euro Tranche Commitment, as applicable. The aggregate amount of the Euro Tranche Commitments on the date hereof is US$313,900,000.       12     “Euro Tranche Exposure” means, at any time, the sum of (a) the aggregate principal amount of the Euro Tranche Loans denominated in US Dollars outstanding at such time and (b) the US Dollar Equivalent of the aggregate principal amount of the Euro Tranche Loans denominated in Euros outstanding at such time. The Euro Tranche Exposure of any Lender at any time shall be such Lender’s Euro Tranche Percentage of the total Euro Tranche Exposure at such time. “Euro Tranche Lender” mean a Lender with a Euro Tranche Commitment. “Euro Tranche Percentage” means, with respect to any Euro Tranche Lender, the percentage of the total Euro Tranche Commitments represented by such Lender’s Euro Tranche Commitment. If the Euro Tranche Commitments have terminated or expired, the Euro Tranche Percentages shall be determined based upon the Euro Tranche Commitments most recently in effect, giving effect to any assignments. “Euro Tranche Borrowing” means a Borrowing comprised of Euro Tranche Loans. “Euro Tranche Loan” means a Loan made by a Euro Tranche Lender pursuant to Section 2.01(c). Each Euro Tranche Loan shall be a Eurocurrency Loan. “Event of Default” has the meaning assigned to such term in Article VII. “Exchange Rate” means on any day, for purposes of determining the US Dollar Equivalent of any other currency, the rate at which such other currency may be exchanged into US Dollars, as set forth at approximately 11:00 a.m., London time, on such day on the Reuters World Currency Page for the applicable currency or currencies. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Company, or, in the absence of such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of the applicable currencies are then being conducted, at or about 10:00 a.m., local time, on such date for the purchase of US Dollars with such other currency for delivery two Business Days later; provided that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Company, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be presumed correct absent manifest error. “Existing Credit Agreements” has the meaning set forth in the introductory statement. “Excluded Taxes” means, with respect to any Agent, any Lender or any other recipient of any payment to be made by or on account of any Obligation hereunder,     13     (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America (or any political subdivision thereof), or by the jurisdiction under which such recipient is organized or in which its principal office or any lending office from which it makes Loans hereunder is located, (b) any branch profit taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above, (c) in the case of a US Tranche Lender or Euro Tranche Lender (other than an assignee pursuant to a request by the Company under Section 2.19(b)), any withholding tax that is imposed by the United States of America (or any political subdivision thereof) on payments by a Borrower from an office within such jurisdiction to the extent such tax is in effect and would apply as of the date such US Tranche Lender or Euro Tranche Lender becomes a party to this Agreement or relates to payments received by a new lending office designated by such US Tranche Lender or Euro Tranche Lender and is in effect and would apply at the time such lending office is designated, (d) in the case of a Canadian Tranche Lender (other than an assignee pursuant to a request by the Company under Section 2.19(b)), any withholding tax that is imposed (i) by Canada (or any province or other political subdivision therein) on payments by a Canadian Borrowing Subsidiary from an office within such jurisdiction or (ii) by the United States of America (or any political subdivision thereof) on payments by the Company from an office within such jurisdiction, in either case to the extent such tax is in effect and would apply as of the date such Canadian Tranche Lender becomes a party to this Agreement or relates to payments received by a new lending office designated by such Canadian Tranche Lender and is in effect and would apply at the time such lending office is designated, and (e) any withholding tax that is attributable to such Lender’s failure to comply with Section 2.17(e), except, in the case of clause (c) or (d) above, to the extent that (i) such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding tax pursuant to Section 2.17 or (ii) such withholding tax shall have resulted from the making of any payment to a location other than the office designated by the Applicable Agent or such Lender for the receipt of payments of the applicable type. “Exposure” means, with respect to any Lender, such Lender’s US Tranche Exposure, Canadian Tranche Exposure, Euro Tranche Exposure, Competitive Loan Exposure and Contract Loan Exposure. “Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.       14     “Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Company. “Fixed Rate” means, with respect to any Competitive Loan (other than a Eurocurrency Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. “Fixed Rate Loan” means a Competitive Loan bearing interest at a Fixed Rate. “GAAP” means generally accepted accounting principles in the United States of America. “Governmental Authority” means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government. “Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. “Hedging Agreement” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. “Increasing Lender” has the meaning assigned to such term in Section 2.10(d)(i).       15     “Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. “Indemnified Taxes” means Taxes other than Excluded Taxes. “Initial Loans” has the meaning assigned to such term in Section 2.10(d)(iv). “Interest Election Request” means a request by the relevant Borrower to convert or continue a Borrowing or a B/A Drawing in accordance with Section 2.09. “Interest Payment Date” means (a) with respect to any ABR Loan or Canadian Base Rate Loan (other than a Swingline Loan), the last day of each March, June, September and December, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period, (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days’ duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days’ duration after the first day of such Interest Period, and any other dates specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing, (d) with respect to any Contract Loan, the date or dates agreed upon by the relevant Borrower and the applicable Lender or, if no such dates shall have     16     been agreed upon, the last day of each March, June, September and December and (e) with respect to any Swingline Loan, the day that such Loan is required to be repaid. “Interest Period” means, (i) with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the relevant Borrower may elect, (ii) with respect to any Fixed Rate Borrowing, the period (which shall not be more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request and (iii) with respect to any Contract Loan, the period commencing on the date of such Borrowing and ending on the date agreed upon by the relevant Borrower and the applicable Lender; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made, and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. “JPMCB” means JPMorgan Chase Bank, N.A. and its successors. “Judgment Currency” has the meaning assigned to such term in Section 10.13(b). “Lenders” means the Persons listed on Schedule 2.01, any Increasing Lender that shall have become a party hereto pursuant to Section 2.10(d) and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that shall have ceased to be a party hereto pursuant to an Assignment and Assumption. Unless the context requires otherwise, the term “Lenders” shall include the Swingline Lenders. “LIBO Rate” means, with respect to any Eurocurrency Borrowing for any Interest Period, the rate per annum determined by the Applicable Agent at approximately 11:00 a.m., London time, on the Quotation Day for such Interest Period by reference to the British Bankers’ Association Interest Settlement Rates for deposits in the currency of such Borrowing (as reflected on the applicable Telerate screen), for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, “LIBO Rate” shall mean the interest rate per annum determined by the Applicable Agent to be the average of the rates per annum at which deposits in the currency of such Borrowing are offered for such     17     Interest Period to major banks in the London interbank market by JPMCB at approximately 11:00 a.m., London time, on the Quotation Day for such Interest Period. “Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. “Loan Documents” means this Agreement, each Borrowing Subsidiary Agreement, each Borrowing Subsidiary Termination and each promissory note delivered pursuant to this Agreement. “Loans” means the loans made by the Lenders to the Borrowers pursuant to this Agreement. “Local Time” means (a) with respect to a Loan or Borrowing denominated in US Dollars, New York City time, (b) with respect to a Loan or Borrowing denominated in Euro, London time and (c) with respect to a Loan or Borrowing denominated in Canadian Dollars or a B/A, Toronto time. “London Agent” means J.P. Morgan Europe Limited or any successor in such capacity. “Margin” means, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. “Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. “Material Indebtedness” means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of the Company and its Subsidiaries in an aggregate principal amount exceeding US$250,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of any Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Borrower or Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.       18     “Material Subsidiary” means (a) any Subsidiary that is a Borrower, (b) any Subsidiary that directly or indirectly owns or Controls any Material Subsidiary and (c) any other Subsidiary (i) the revenues of which for the most recent period of four fiscal quarters of the Company for which audited financial statements have been delivered pursuant to Section 5.01 were greater than 10% of the Company’s consolidated revenues for such period or (ii) the assets of which as of the end of such period were greater than 10% of the Company’s consolidated assets as of such date; provided that if at any time the aggregate amount of the revenues or assets of all Subsidiaries that are not Material Subsidiaries for or at the end of any period of four fiscal quarters exceeds 10% of the Company’s consolidated revenues for such period or 10% of the Company’s consolidated assets as of the end of such period, the Company shall (or, in the event the Company has failed to do so within 10 days, the Administrative Agent may) designate sufficient Subsidiaries as “Material Subsidiaries” to eliminate such excess, and such designated Subsidiaries shall for all purposes of this Agreement constitute Material Subsidiaries. For purposes of making the determinations required by this definition, revenues and assets of foreign Subsidiaries shall be converted into US Dollars at the rates used in preparing the consolidated balance sheet of the Company included in the applicable financial statements. “Maturity Date” means June 28, 2011. “Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof. “Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. “Obligations” means the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to any Borrower, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrowers under this Agreement and the other Loan Documents. “Other Taxes” means any and all present or future recording, stamp, documentary, excise, transfer, sales, property or similar taxes, charges or levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. “Patriot Act” has the meaning assigned to such term in Section 10.15.       19     “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. “Permitted Encumbrances” means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith; (c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any of the Borrowers or any of their Subsidiaries; provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness or any Lien in favor of the PBGC. “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. “Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any of the Borrowers or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA. “Prepayment Account” has the meaning specified in Section 2.11(e).       20     “Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. “Quotation Day” means, with respect to any Eurocurrency Borrowing and any Interest Period, the day on which it is market practice in the relevant interbank market for prime banks to give quotations for deposits in the currency of such Borrowing for delivery on the first day of such Interest Period. If such quotations would normally be given by prime banks on more than one day, the Quotation Day will be the last of such days. “Ratings” means, at any time, the Company’s issuer rating by Moody’s and the Company’s credit rating by S&P at such time. “Register” has the meaning set forth in Section 10.04. “Related Fund” means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. “Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, trustees, agents and advisors of such Person and such Person’s Affiliates. “Required Lenders” means, at any time, Lenders having unused US Tranche Commitments, U.S. Tranche Exposures, unused Canadian Tranche Commitments, Canadian Tranche Exposures, unused Euro Tranche Commitments and Euro Tranche Exposures with an aggregate US Dollar Equivalent representing more than 50% of the aggregate US Dollar Equivalent of the total unused US Tranche Commitments, U.S. Tranche Exposures, unused Canadian Tranche Commitments, Canadian Tranche Exposures, unused Euro Tranche Commitments and Euro Tranche Exposures at such time; provided that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, the outstanding Competitive Loans and Contract Loans of the Lenders shall be included in their respective US Tranche Exposures in determining the Required Lenders. “Reset Date” has the meaning set forth in Section 1.05(a). “Reuters Screen CDOR Page” means the display designated as page CDOR on the Reuters Monitor Money Rates Service or other page as may, from time to time, replace that page on that service for the purpose of displaying bid quotations for bankers’ acceptances accepted by leading Canadian banks.       21     “Revolving Borrowing” means a Borrowing comprised of US Tranche Loans, Canadian Tranche Loans or Euro Tranche Loans, in each case made pursuant to Section 2.01. “Revolving Loan” means any US Tranche Loan, Canadian Tranche Loan or Euro Tranche Loan. “S&P” means Standard & Poor’s Ratings Group or any successor to the rating agency business thereof. “Sale and Leaseback Transaction” means any arrangement whereby the Company or a Subsidiary, directly or indirectly, shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred. “Schedule I Lender” means any Lender named on Schedule I to the Bank Act (Canada). “Schedule I Reference Lenders” means Royal Bank of Canada and Bank of Montreal. “Schedule II Lender” means any Lender named on Schedule II to the Bank Act (Canada). “Schedule II Reference Lender” means JPMorgan Chase Bank, N.A., Toronto Branch. “Schedule III Lender” means any Lender named on Schedule III to the Bank Act (Canada). “Statutory Reserves” means, with respect to any currency, any reserve, liquid asset or similar requirements established by any Governmental Authority of the United States or of the jurisdiction of such currency or any jurisdiction in which Loans in such currency are made to which banks in such jurisdiction are subject for any category of deposits or liabilities customarily used to fund loans in such currency or by reference to which interest rates applicable to Loans in such currency are determined. “Subsequent Borrowings” has the meaning assigned to such term in Section 2.10(d)(iv). “subsidiary” means, with respect to any Person, any entity with respect to which such Person alone owns, such Person or one or more of its subsidiaries together own, or such Person and any Person Controlling such Person together own, in each case directly or indirectly, capital stock or other equity interests having ordinary voting power     22     to elect a majority of the members of the Board of Directors of such corporation or other entity or having a majority interest in the capital or profits of such corporation or other entity. “Subsidiary” means any subsidiary of the Company. “Swingline Lenders” means the US Swingline Lenders and the Canadian Swingline lenders. “Swingline Loan” means a US Swingline Loan or a Canadian Swingline Loan. “Swingline Exposure” means the US Swingline Exposure and the Canadian Swingline Exposure. “Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. “Tranche” means a category of Commitments and extensions of credit thereunder. For purposes hereof, each of the following comprise a separate Tranche:  (i) the US Tranche Commitments and the US Tranche Loans, (ii) the Canadian Tranche Commitments and the Canadian Tranche Loans and B/A Drawings and (iii) the Euro Tranche Commitments and the Euro Tranche Loans. “Tranche Percentage” means, with respect to any Lender and any Tranche, the percentage of the total Commitments of such Tranche represented by such Lender’s Commitment of such Tranche. “Transactions” means the execution, delivery and performance by the Company and the other Borrowers of the Loan Documents, the borrowing of Loans and purchases and acceptances of B/As hereunder and the use of the proceeds thereof. “Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBO Rate, the Alternate Base Rate, the Canadian Base Rate or a Fixed Rate. “US Borrowing Subsidiary” means any Subsidiary that has been designated as such pursuant to Section 2.20 and that has not ceased to be a US Borrowing Subsidiary as provided in such Section. “US Dollar Equivalent” means, on any date of determination, (a) with respect to any amount in US Dollars, such amount, and (b) with respect to any amount in Canadian Dollars or Euros, the equivalent in US Dollars of such amount, determined by     23     the Administrative Agent pursuant to Section 1.05 using the Exchange Rates at the time in effect under the provisions of such Section. “US Dollars” or “US $” means the lawful money of the United States of America. “US Swingline Commitment” means, with respect to each US Swingline Lender, the commitment of such US Swingline Lender to make US Swingline Loans pursuant to Section 2.06, expressed as an amount representing the maximum aggregate amount of such US Swingline Lender’s outstanding US Swingline Loans hereunder, as such commitment may be reduced or increased from time to time pursuant to Section 2.10. The initial amount of each US Swingline Lender’s US Swingline Commitment is set forth on Schedule 2.01. The aggregate amount of the US Swingline Commitments on the date hereof is US$1,000,000,000. “US Swingline Exposure” means, at any time, the sum of the US Swingline Loans outstanding at such time. The US Swingline Exposure of any Lender at any time shall be such Lender’s US Swingline Percentage of the total US Swingline Exposure at such time. “US Swingline Lenders” means JPMCB, Bank of America, N.A., Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank AG New York Branch, Wachovia Bank, National Association, and Wells Fargo Bank, National Association. “US Swingline Loan” means a Loan made by a US Swingline Lender under its US Swingline Commitment pursuant to Section 2.06. “US Swingline Percentage” means, with respect to any US Swingline Lender, the percentage of the total US Swingline Commitments represented by such Lender’s US Swingline Commitment. If the US Swingline Commitments have terminated or expired, the US Swingline Percentages shall be determined based upon the US Swingline Commitments most recently in effect, giving effect to any assignments. “US Tranche Commitment” means, with respect to each US Tranche Lender, the commitment of such Lender to make US Tranche Loans pursuant to Section 2.01(a) and to acquire participations in US Swingline Loans pursuant to Section 2.06, expressed as an amount representing the maximum aggregate amount of such US Tranche Lender’s US Tranche Exposure hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to Section 2.10 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each US Tranche Lender’s US Tranche Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such US Tranche Lender shall have assumed its US Tranche Commitment, as applicable. The aggregate amount of the US Tranche Commitments on the date hereof is US$1,489,392,236.22.       24     “US Tranche Exposure” means, at any time, the sum of (a) the aggregate principal amount of the US Tranche Loans outstanding at such time plus (b) the US Swingline Exposure at such time. The US Tranche Exposure of any Lender at any time shall be such Lender’s US Tranche Percentage of the total US Tranche Exposure at such time. “US Tranche Lender” mean a Lender with a US Tranche Commitment. “US Tranche Percentage” means, with respect to any US Tranche Lender, the percentage of the total US Tranche Commitments represented by such Lender’s US Tranche Commitment. If the US Tranche Commitments have terminated or expired, the US Tranche Percentages shall be determined based upon the US Tranche Commitments most recently in effect, giving effect to any assignments. “US Tranche Borrowing” means a Borrowing comprised of US Tranche Loans. “US Tranche Loan” means a Loan made by a US Tranche Lender pursuant to Section 2.01(a). Each US Tranche Loan shall be a Eurocurrency Loan or an ABR Loan. “Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “US Tranche Loan”) or by Type (e.g., a “Eurocurrency Loan”) or by Class and Type (e.g., a “Eurocurrency US Tranche Loan”). Borrowings also may be classified and referred to by Class (e.g., a “US Tranche Borrowing”) or by Type (e.g., a “US Tranche Eurocurrency Borrowing”) or by Class and Type (e.g., a “Eurocurrency US Tranche Borrowing”). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder” and words of similar import shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all     25     references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP as in effect from time to time; provided that if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. SECTION 1.05. Exchange Rates. (a) Not later than 10:00 a.m., New York City time, on each Calculation Date, the Administrative Agent shall (i) determine the Exchange Rates applicable to the determination of US Dollar Equivalents of amounts denominated in Canadian Dollars and Euro and (ii) give written notice thereof to the Lenders and the Company. The Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a “Reset Date”), shall remain effective until the next succeeding Reset Date, and shall for all purposes of this Agreement (other than Section 10.13 or any other provision expressly requiring the use of a current Exchange Rate) be the Exchange Rates employed in the determination of US Dollar Equivalents. (b) Not later than 5:00 p.m., New York City time, on each Reset Date on which Loans or B/As are outstanding, the Administrative Agent shall (i) determine the US Tranche Exposure, the Canadian Tranche Exposure and the Euro Tranche Exposure and (ii) notify the Lenders and the Company of the results of such determination. ARTICLE II   The Credits SECTION 2.01. Commitments. (a) Subject to the terms and conditions set forth herein, each US Tranche Lender agrees to make US Tranche Loans to the Company and the US Borrowing Subsidiaries from time to time during the Availability Period in US Dollars in an aggregate principal amount at any time outstanding that will not result in (i) such Lender’s US Tranche Exposure exceeding its US Tranche Commitment or (ii) the aggregate Exposures exceeding the aggregate Commitments.       26     (b) Subject to the terms and conditions set forth herein, each Canadian Tranche Lender agrees from time to time during the Availability Period (i) to make Canadian Tranche Loans to the Canadian Borrowing Subsidiaries in Canadian Dollars and/or to accept and purchase or arrange for the acceptance and purchase of drafts drawn by the Canadian Borrowing Subsidiaries in Canadian Dollars as B/As, and (ii) to make Canadian Tranche Loans to the Company and the US Borrowing Subsidiaries in US Dollars, in an aggregate principal amount at any time outstanding that will not result in (i) such Lender’s Canadian Tranche Exposure exceeding its Canadian Tranche Commitment or (ii) the aggregate Exposures exceeding the aggregate Commitments. (c) Subject to the terms and conditions set forth herein, each Euro Tranche Lender agrees from time to time during the Availability Period to make Euro Tranche Loans to the Company, the US Borrowing Subsidiaries and the Euro Borrowing Subsidiaries in Euros or US Dollars in an aggregate principal amount at any time outstanding that will not result in (i) such Lender’s Euro Tranche Exposure exceeding its Euro Tranche Commitment or (ii) the aggregate Exposures exceeding the aggregate Commitments. SECTION 2.02. Loans and Borrowings. (a) Each US Tranche Loan shall be made as part of a Borrowing consisting of US Tranche Loans made by the US Tranche Lenders (or their Affiliates as provided in paragraph (b) below) ratably in accordance with their respective US Tranche Commitments. Each Canadian Tranche Loan shall be made as part of a Borrowing consisting of Canadian Tranche Loans made by the Canadian Tranche Lenders (or their Affiliates as provided in paragraph (b) below) ratably in accordance with their respective Canadian Tranche Commitments. Each Euro Tranche Loan shall be made as part of a Borrowing consisting of Euro Tranche Loans made by the Euro Tranche Lenders (or their Affiliates as provided in paragraph (b) below) ratably in accordance with their respective Euro Tranche Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.05. Each Contract Loan shall be made in accordance with the procedures set forth in paragraph (e) below. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required hereunder. (b) Subject to Section 2.14, (i) each US Tranche Borrowing shall be comprised entirely of Eurocurrency Loans or ABR Loans as the applicable Borrower may request in accordance herewith; (ii) each Canadian Tranche Borrowing shall be comprised entirely of (A) in the case of a Canadian Tranche Borrowing denominated in Canadian Dollars, Eurocurrency Loans or Canadian Base Rate Loans as the applicable Borrower may request in accordance herewith, and (B) in the case of a Canadian Tranche Borrowing denominated in US Dollars, Eurocurrency Loans or ABR Loans, as the applicable Borrower may request in accordance herewith; (iii) each Euro Tranche Borrowing shall be comprised entirely of (A) in the case of a Euro Tranche Borrowing     27     denominated in Euros, Eurocurrency Loans, and (B) in the case of a Euro Tranche Borrowing denominated in US Dollars, Eurocurrency Loans or ABR Loans, as the applicable Borrower may request in accordance herewith; (iv) each Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed Rate Loans, as the applicable Borrower may request in accordance herewith; (v) each US Swingline Loan shall be comprised entirely of ABR Loans; and (vi) each Canadian Swingline Loan shall be comprised entirely of Canadian Base Rate Loans. Each Lender at its option may make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17 shall apply to such Affiliate to the same extent as to such Lender); provided that any exercise of such option shall not affect the obligation of the applicable Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Borrowing (other than a Borrowing comprised of Competitive Loans or Contract Loans), such Borrowing shall be in an aggregate amount that is at least equal to the Borrowing Minimum and an integral multiple of the Borrowing Multiple; provided that an ABR Borrowing denominated in US Dollars may be made in an aggregate amount that is equal to the aggregate available US Tranche Commitments, Canadian Tranche Commitments or Euro Tranche Commitments, as the case may be, and a Canadian Base Rate Borrowing denominated in Canadian Dollars may be made in an aggregate amount that is equal to the aggregate available Canadian Tranche Commitments. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of (i) five US Tranche Eurocurrency Borrowings outstanding, (ii) three Canadian Tranche Eurocurrency Borrowings outstanding and (iii) three Euro Tranche Eurocurrency Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. (e) At any time, any Borrower and any Lender may agree that such Lender will make a Loan (a “Contract Loan”) to the Borrower denominated in US Dollars, Canadian Dollars or Euros and bearing interest at an agreed upon rate, for an interest period to be agreed upon and upon such other terms as the applicable Borrower and Lender may agree (it being understood that a Contract Loan shall not be required to be in any particular minimum amount); provided, that, (i) after giving effect to the making of any such Contract Loan, the aggregate Exposures shall not exceed the aggregate Commitments and (ii) no such Loan shall be a Contract Loan unless the relevant Borrower and the applicable Lender expressly agree at the time such Loan is made, and notify the Administrative Agent, that such Loan shall be a Contract Loan for purposes of this Agreement. If the applicable Borrower and Lender shall, after any Contract Loan is made, agree that such Contract Loan shall no longer be a Contract Loan hereunder and shall notify the Administrative Agent of such agreement, such Loan shall,     28     as of the date of such agreement, cease to be a Contract Loan or to be entitled to any further benefits under this Agreement. Contract Loans shall be deemed Loans for all purposes under this Agreement. Each Borrower and Lender shall promptly notify the Administrative Agent of (i) the date, principal amount, currency, maturity, interest rate, Interest Period and Interest Payment Dates of each Contract Loan made by or to such Lender to such Borrower and (ii) the date and amount of any repayment or prepayment of any such Contract Loan. SECTION 2.03. Requests for Borrowings. To request a Borrowing of a Type available hereunder, the applicable Borrower, or the Company on behalf of the applicable Borrower, shall notify the Applicable Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 2:00 p.m., Local Time, three Business Days before the date of the proposed Borrowing, (b) in the case of a Canadian Base Rate Borrowing, not later than 10:00 a.m., Local Time, on the date of the proposed Borrowing and, (c) in the case of an ABR Borrowing, not later than 12:00 noon, Local Time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Applicable Agent of a written Borrowing Request in a form approved by the Applicable Agent and signed by the applicable Borrower, or by the Company on behalf of the applicable Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the Borrower requesting such Borrowing (or on whose behalf the Company is requesting such Borrowing); (ii) whether the requested Borrowing is to be a US Tranche Borrowing, a Canadian Tranche Borrowing or a Euro Tranche Borrowing; (iii) the currency and aggregate principal amount of the requested Borrowing; (iv) the date of the requested Borrowing, which shall be a Business Day; (v) the Type of the requested Borrowing; (vi) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period” and (vii) the location and number of the relevant Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07. If no currency is specified with respect to any requested Eurocurrency Borrowing, then the relevant Borrower shall be deemed to have selected (i) in the case of a US Tranche     29     Borrowing, US Dollars, (ii) in the case of a Canadian Tranche Borrowing, Canadian Dollars, and (iii) in the case of a Euro Tranche Borrowing, Euros. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be (i) in the case of a Borrowing denominated in US Dollars, an ABR Borrowing, (ii) in the case of a Borrowing denominated in Canadian Dollars, a Canadian Base Rate Borrowing, and (iii) in the case of a Borrowing denominated in Euro, a Eurocurrency Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the relevant Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Applicable Agent shall advise each Lender that will make a Loan as part of the requested Borrowing of the details thereof and of the amount of the Loan to be made by such Lender as part of the requested Borrowing. SECTION 2.04. Bankers’ Acceptances. (a) Each acceptance and purchase of B/As of a single Contract Period pursuant to Section 2.01(b) or Section 2.09 shall be made ratably by the Canadian Tranche Lenders in accordance with the amounts of their Canadian Tranche Commitments. The failure of any Canadian Tranche Lender to accept any B/A required to be accepted by it shall not relieve any other Canadian Tranche Lender of its obligations hereunder; provided that the Canadian Tranche Commitments are several and no Canadian Tranche Lender shall be responsible for any other Canadian Tranche Lender’s failure to accept B/As as required. (b) The B/As of a single Contract Period accepted and purchased on any date shall be in an aggregate amount that is an integral multiple of C$1,000,000 and not less than C$5,000,000. The face amount of each B/A shall be C$100,000 or any whole multiple thereof. If any Canadian Tranche Lender’s ratable share of the B/As of any Contract Period to be accepted on any date would not be an integral multiple of C$100,000, the face amount of the B/As accepted by such Lender may be increased or reduced to the nearest integral multiple of C$100,000 by the Canadian Agent in its sole discretion. B/As of more than one Contract Period may be outstanding at the same time; provided that there shall not at any time be more than a total of three B/A Drawings outstanding. (c) To request an acceptance and purchase of B/As, a Borrower shall notify the Canadian Agent of such request by telephone not later than 10:00 a.m., Local Time, one Business Day before the date of such acceptance and purchase. Each such telephonic request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Canadian Agent of a written request in a form approved by the Canadian Agent and signed by such Borrower. Each such telephonic and written request shall specify the following information: (i) the aggregate face amount of the B/As to be accepted and purchased; (ii) the date of such acceptance and purchase, which shall be a Business Day;       30     (iii) the Contract Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Contract Period” (and which shall in no event end after the Maturity Date); and (iv) the location and number of the Borrower’s account to which any funds are to be disbursed, which shall comply with the requirements of Section 2.07. If no Contract Period is specified with respect to any requested acceptance and purchase of B/As, then the Borrower shall be deemed to have selected a Contract Period of 30 days’ duration. Promptly following receipt of a request in accordance with this paragraph, the Canadian Agent shall advise each Canadian Tranche Lender of the details thereof and of the amount of B/As to be accepted and purchased by such Lender. (d) Each Borrower hereby appoints each Canadian Tranche Lender as its attorney to sign and endorse on its behalf, manually or by facsimile or mechanical signature, as and when deemed necessary by such Lender, blank forms of B/As. It shall be the responsibility of each Canadian Tranche Lender to maintain an adequate supply of blank forms of B/As for acceptance under this Agreement. Each Borrower recognizes and agrees that all B/As signed and/or endorsed on its behalf by any Canadian Tranche Lender shall bind such Borrower as fully and effectually as if manually signed and duly issued by authorized officers of such Borrower. Each Canadian Tranche Lender is hereby authorized to issue such B/As endorsed in blank in such face amounts as may be determined by such Lender; provided that the aggregate face amount thereof is equal to the aggregate face amount of B/As required to be accepted by such Lender. No Canadian Tranche Lender shall be liable for any damage, loss or claim arising by reason of any loss or improper use of any such instrument unless such loss or improper use results from the gross negligence or willful misconduct of such Lender. Each Canadian Tranche Lender shall maintain a record with respect to B/As (i) received by it from the Canadian Agent in blank hereunder, (ii) voided by it for any reason, (iii) accepted and purchased by it hereunder and (iv) canceled at their respective maturities. Each Canadian Tranche Lender further agrees to retain such records in the manner and for the periods provided in applicable provincial or Federal statutes and regulations of Canada and to provide such records to each Borrower upon its request and at its expense. Upon request by any Borrower, a Lender shall cancel all forms of B/A that have been pre-signed or pre-endorsed on behalf of such Borrower and that are held by such Lender and are not required to be issued pursuant to this Agreement. (e) Drafts of each Borrower to be accepted as B/As hereunder shall be signed as set forth in paragraph (d) above. Notwithstanding that any Person whose signature appears on any B/A may no longer be an authorized signatory for any of the Lenders or such Borrower at the date of issuance of such B/A, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in     31     force at the time of such issuance and any such B/A so signed shall be binding on such Borrower. (f) Upon acceptance of a B/A by a Lender, such Lender shall purchase, or arrange the purchase of, such B/A from the applicable Borrower at the Discount Rate for such Lender applicable to such B/A accepted by it and provide to the Canadian Agent the Discount Proceeds for the account of such Borrower as provided in Section 2.07. The acceptance fee payable by the Company to a Lender under Section 2.12 in respect of each B/A accepted by such Lender shall be set off against the Discount Proceeds payable by such Lender under this paragraph. Notwithstanding the foregoing, in the case of any B/A Drawing resulting from the conversion or continuation of a B/A Drawing or Canadian Tranche Loan pursuant to Section 2.09, the net amount that would otherwise be payable to such Borrower by each Lender pursuant to this paragraph will be applied as provided in Section 2.09(f). (g) Each Lender may at any time and from time to time hold, sell, rediscount or otherwise dispose of any or all B/A’s accepted and purchased by it. (h) Each B/A accepted and purchased hereunder shall mature at the end of the Contract Period applicable thereto. (i) Each Borrower waives presentment for payment and any other defense to payment of any amounts due to a Lender in respect of a B/A accepted and purchased by it pursuant to this Agreement which might exist solely by reason of such B/A being held, at the maturity thereof, by such Lender in its own right and each Borrower agrees not to claim any days of grace if such Lender as holder sues each Borrower on the B/A for payment of the amounts payable by such Borrower thereunder. On the specified maturity date of a B/A, or such earlier date as may be required pursuant to the provisions of this Agreement, each Borrower shall pay the Lender that has accepted and purchased such B/A the full face amount of such B/A, and after such payment such Borrower shall have no further liability in respect of such B/A and such Lender shall be entitled to all benefits of, and be responsible for all payments due to third parties under, such B/A. (j) At the option of each Borrower and any Lender, B/A’s under this Agreement to be accepted by that Lender may be issued in the form of depository bills for deposit with The Canadian Depository for Securities Limited pursuant to the Depository Bills and Notes Act (Canada). All depository bills so issued shall be governed by the provisions of this Section 2.04. SECTION 2.05. Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period any Borrower may request Competitive Bids for Competitive Loans in US Dollars, Canadian Dollars or Euros and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that the aggregate Exposures at any time shall not exceed the aggregate Commitments. To request Competitive Bids, the Company or the     32     applicable Borrower shall notify the Applicable Agent of such request by telephone (i) in the case of a Eurocurrency Competitive Borrowing, not later than 10:00 a.m., Local Time, four Business Days before the date of the proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing not later than 12:00 noon, Local Time, one Business Day before the date of the proposed Competitive Borrowing. Not more than three Competitive Bid Requests may be submitted on the same day. Each telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Applicable Agent of a written Competitive Bid Request in a form approved by the Applicable Agent and signed by the Company. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.02: (i) the Borrower requesting the Competitive Bid and the aggregate amount and currency of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Eurocurrency Borrowing or a Fixed Rate Borrowing; (iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term “Interest Period” and (v) the location and number of the Company’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Applicable Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Company in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Applicable Agent and must be received by the Applicable Agent by telecopy, (i) in the case of a Eurocurrency Competitive Borrowing, not later than 12:00 noon, Local Time, four Business Days before the date of the proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., Local Time, on the date of the proposed Competitive Borrowing. Competitive Bids that do not conform to the form approved by the Applicable Agent may be rejected by the Applicable Agent, and the Applicable Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which may equal the entire principal amount of the Competitive Borrowing requested by the Company) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per     33     annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) The Applicable Agent shall promptly notify the Company by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the applicable Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Applicable Agent by telephone, confirmed by telecopy in a form approved by the Applicable Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, (i) in the case of a Eurocurrency Competitive Borrowing, not later than 11:00 a.m., Local Time, three Business Days before the date of the proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., Local Time, on the date of the proposed Competitive Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request and (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid; provided further that in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of the Borrowing Multiple in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) The Applicable Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) If the Applicable Agent or one of its Affiliates shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the applicable Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Applicable Agent pursuant to paragraph (b) of this Section. SECTION 2.06. Swingline Loans. (a) Subject to the terms and conditions set forth herein, each US Swingline Lender agrees to make US Swingline Loans in US Dollars to the Company or any US Borrowing Subsidiary, and each Canadian Swingline     34     Lender agrees to make Canadian Swingline Loans in Canadian Dollars to any Canadian Borrowing Subsidiary, from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate US Dollar Equivalent of the Swingline Exposures exceeding US$1,000,000,000, (ii) the aggregate US Dollar Equivalent of Canadian Swingline Exposure exceeding US$178,683,105.51, (iii) the aggregate US Tranche Exposures exceeding the aggregate US Tranche Commitments, (iv) the aggregate Canadian Tranche Exposures exceeding the Canadian Tranche Commitments or (v) the aggregate Exposures exceeding the aggregate Commitments; provided that (A) no Swingline Lender shall be required to make a Swingline Loan to refinance an outstanding Swingline Loan and (B) no Swingline Lender shall make a Swingline Loan if it shall have been notified by the Administrative Agent at the request of the Required Lenders that an Event of Default has occurred and is continuing and that, as a result, no further Swingline Loans shall be made by it (a “Swingline Suspension Notice”). Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers specified above may borrow, prepay and reborrow Swingline Loans. Each Swingline Loan shall be in an integral amount of US$1,000,000 or C$1,000,000, as applicable. The Borrowers may request any US Swingline Loans or Canadian Swingline Loans from one or more of the US Swingline Lenders or Canadian Swingline Lenders, subject only to the limitation that the outstanding US Swingline Loans or Canadian Swingline Loans of any Swingline Lender shall at no time exceed its US Swingline Commitment or Canadian Swingline Commitment, as the case may be. (b) To request Swingline Loans, a Borrower shall notify the Applicable Agent of such request by telephone (confirmed by telecopy) on the day of a proposed Swingline Loan by not later than 3:00 p.m., Local Time, in the case of US Swingline Loans (or 4:00 p.m., Local Time, in the case of a US Swingline Loan to be made by JPMCB), and not later than 11:00 a.m., Local Time, in the case of Canadian Swingline Loans. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day), the aggregate amount of the requested Swingline Loans and the amount of the Swingline Loan to be made by each Swingline Lender. The Applicable Agent will promptly advise the applicable Swingline Lenders of any such notice received from such Borrower. The applicable Swingline Lenders shall make their Swingline Loans available to such Borrower by means of a transfer of funds to the general deposit account of such Borrower with the Applicable Agent (or another account in the jurisdiction of the Applicable Agent specified by such Borrower in its request for such Swingline Loan) by 4:00 p.m., Local Time, on the requested date of such Swingline Loans (or 5:00 p.m., Local Time, in the case of a US Swingline Loan to be made by JPMCB and requested after 3:00 p.m., Local Time). (c) By written notice given to the Applicable Agent not later than 10:00 a.m., Local Time, on any Business Day, each US Swingline Lender may require the US Tranche Lenders to acquire participations on such Business Day in all or a portion of its US Tranche Swingline Loans outstanding and each Canadian Swingline Lender     35     may require the Canadian Tranche Lenders to acquire participations on such Business Day in all or a portion of its Canadian Tranche Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which the applicable Lenders will participate. Promptly upon receipt of such notice, the Applicable Agent will give notice thereof to each applicable Lender, specifying in such notice the percentage of the applicable Swingline Loans allocated to such Lender. Each Lender agrees, upon receipt of notice as provided above, to pay to the Applicable Agent, for the account of each applicable Swingline Lender, the percentage of such Swingline Loans allocated to such Lender. Each US Tranche Lender and Canadian Tranche Lender acknowledges and agrees that, in the absence of a Swingline Suspension Notice received by the applicable Swingline Lender not less than two Business Days prior to the making of the applicable Swingline Loan, its obligation to acquire participations in each Swingline Loan pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the US Tranche Commitments or the Canadian Tranche Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Applicable Agent shall promptly pay pro rata to the applicable Swingline Lenders the amounts so received by it from the Lenders. The Applicable Agent shall notify the relevant Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph. Any amounts received by a Swingline Lender from any Borrower (or other party on behalf of such Borrower) in respect of a Swingline Loan after receipt by such Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Applicable Agent; any such amounts received by the Applicable Agent shall be promptly remitted by the Applicable Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the applicable Swingline Lenders, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the applicable Borrower of any default in the payment thereof. SECTION 2.07. Funding of Borrowings and B/A Drawings. (a) Each Lender shall make each Loan (other than a Contract Loan or a Swingline Loan) to be made by it and disburse the Discount Proceeds (net of applicable acceptance fees) of each B/A to be accepted and purchased by it hereunder on the proposed date thereof by wire transfer of immediately available funds in the applicable currency by 2:00 p.m., Local Time, to the account of the Applicable Agent most recently designated by it for such purpose by notice to the applicable Lenders. The Applicable Agent will make such Loans or Discount Proceeds (net of applicable acceptance fees) available to the relevant Borrower by promptly crediting the amounts so received, in like funds, to an account of such Borrower maintained by the Applicable Agent (or another account specified by such Borrower in the applicable Borrowing Request or request for an acceptance and purchase     36     of B/As) (i) in New York City, in the case of Loans denominated in US Dollars (ii) in London, in the case of Loans denominated in Euros and (iii) in Toronto, in the case of Loans denominated in Canadian Dollars or B/As. Each Lender shall make each Contract Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by the time and to the account agreed upon by the relevant Borrower and the applicable Lender. (b) Unless the Applicable Agent shall have received notice from a Lender prior to the proposed date of any Borrowing or acceptance and purchase of B/As that such Lender will not make available to the Applicable Agent such Lender’s share of such Borrowing or the applicable Discount Proceeds (net of applicable acceptance fees), the Applicable Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing or the applicable Discount Proceeds (net of applicable acceptance fees) available to the Applicable Agent, and the Applicable Agent has made an amount corresponding to such share available to such Borrower, then the applicable Lender and such Borrower severally agree to pay to the Applicable Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Applicable Agent, at (i) in the case of such Lender, the rate reasonably determined by the Applicable Agent to be the cost to it of funding such amount or (ii) in the case of such Borrower, the interest rate applicable to the subject Loan or the cost to the Agent of funding the net proceeds of the subject B/As. If such Lender pays such amount to the Applicable Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing or such Lender’s purchase of B/As and the Applicable Agent shall return to such Borrower any amount (including interest) paid by such Borrower to the Applicable Agent pursuant to this paragraph. SECTION 2.08. Repayment of Borrowings and B/A Drawings; Evidence of Debt. (a) Each Borrower hereby unconditionally promises to pay to the Applicable Agent for the accounts of the applicable Lenders or Swingline Lenders (i) unless otherwise specified in this Section 2.08, the then unpaid principal amount of the Loans comprising each Borrowing of such Borrower on the Maturity Date and the face amount of each B/A, if any, accepted by such Lender as provided in Section 2.04, (ii) the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable thereto and (iii) the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Loan is made; provided that on each date that a US Tranche Borrowing (or a Competitive Borrowing in US Dollars) or a Canadian Tranche Borrowing (or a Competitive Borrowing in Canadian Dollars) is made by any Borrower, such Borrower shall repay all US Tranche Swingline Loans or Canadian Tranche Swingline Loans, as     37     the case may be, made to it and then outstanding. Each Borrower hereby unconditionally promises to pay to the applicable Lender the then unpaid principal amount of each Contract Loan on the date or dates agreed by such Borrower and such Lender. Each Borrower agrees to repay the principal amount of each Loan made to such Borrower and the accrued interest thereon and the face amount of each B/A drawn by such Borrower in the currency of such Loan or B/A. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the obligations of each Borrower to such Lender resulting from the Loans made and the B/As accepted by such Lender, including the amounts of principal and interest and amounts in respect of B/As payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Borrowing made hereunder, the Class, Type and currency thereof and the Interest Period applicable thereto, and the amount of each B/A Drawing made hereunder and the Contract Period applicable thereto, (ii) the amount of any principal, interest or amount in respect of any B/A due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by any Agent hereunder for the accounts of the Lenders and each Lender’s share thereof. Each of the London Agent and the Canadian Agent shall furnish to the Administrative Agent, promptly after the making of any Loan or Borrowing or the acceptance of any B/A with respect to which it is the Applicable Agent or the receipt of any payment of principal or interest with respect to any such Loan or Borrowing with respect to which it is the Applicable Agent, information with respect thereto that will enable the Administrative Agent to maintain the accounts referred to in the preceding sentence. The Administrative Agent shall notify in writing the London Agent or the Canadian Agent, as applicable, promptly after the making of any Loan or Borrowing with respect to which it is the Applicable Agent or the receipt of payment of any principal with respect to any such Loan or Borrowing. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Loans made to it or the B/As drawn by it in accordance with the terms of this Agreement. (e) Any Lender may request that Loans of any Class made by it to any Borrower be evidenced by a promissory note if it is the policy of such Lender to obtain promissory notes in transactions comparable to those provided for herein or if has another business reason for requesting such a promissory note. In such event, each applicable Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its     38     registered assigns) in the form of Exhibit D hereto. Thereafter, the Loans evidenced by each such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.09. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Each B/A Drawing shall have a Contract Period as specified in the applicable request therefor. After the initial Borrowings under any Tranche and, if applicable, B/A Drawings, the Borrowers may elect to convert and continue such Borrowings and, if applicable, B/A Drawings to or as other Borrowings and, if applicable, B/A Drawings under such Tranche as provided in this Section (it being understood that no B/A Drawing may be converted or continued other than at the end of the Contract Period applicable thereto). The Borrowers may elect different options with respect to different portions of the affected Borrowings or B/A Drawings, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowings or accepting the B/As comprising such B/A Drawings, as the case may be, and any Loans or B/As resulting from an election made with respect to any such portion shall be considered a separate Borrowing or B/A Drawing. Notwithstanding any other provision of this Section, no Borrowing or B/A Drawing may be converted into or continued as a Borrowing or B/A Drawing with an Interest Period or Contract Period, as applicable, ending after the Maturity Date. This Section shall not apply to Swingline Loans, Competitive Loans or to Contract Loans, which may not be converted or continued. (b) To make an election pursuant to this Section, a Borrower, or the Company on its behalf, shall notify the Applicable Agent of such election by telephone (x) in the case of an election that would result in a Borrowing, by the time and date that a Borrowing Request would be required under Section 2.03 if such Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election and (y) in the case of an election that would result in a B/A Drawing or continuation of a B/A Drawing, by the time and date that a request would be required under Section 2.04 if such Borrower were requesting an acceptance and purchase of B/As to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Applicable Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the relevant Borrower, or the Company on its behalf. Notwithstanding any contrary provision herein, this Section shall not be construed to permit any Borrower to (i) change the currency of any Borrowing, (ii) elect an Interest Period for Eurocurrency Loans that does not comply with Section 2.02(d) or (iii) convert any Borrowing or B/A Drawing to a Borrowing or B/A     39     Drawing not available under the Class of Commitments pursuant to which such Borrowing or B/A Drawing was made. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.03 or 2.04: (i) the Borrowing or B/A Drawing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing or B/A Drawing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing or B/A Drawing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) in the case of an election with respect to a US Tranche Borrowing, whether a Eurocurrency Borrowing or an ABR Borrowing is elected; in the case of an election with respect to a Canadian Tranche Borrowing denominated in Canadian Dollars or a B/A Drawing, whether a Eurocurrency Borrowing, a Canadian Base Rate Borrowing or a B/A Drawing is elected; and in the case of an election with respect to a Canadian Tranche Borrowing denominated in US Dollars, whether a Eurocurrency Borrowing or an ABR Borrowing is elected; and (iv) in the case of an election of a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”, and in the case of an election of a B/A Drawing, the Contract Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Contract Period” provided that no Eurocurrency Borrowing or B/A Drawing may be elected with an Interest Period or Contract Period, as the case may be, that would extend after the Maturity Date. If any such Interest Election Request requests a Eurocurrency Borrowing or a B/A Drawing but does not specify an Interest Period or Contract Period, then the Borrower shall be deemed to have selected an Interest Period or Contract Period of one month’s duration, as the case may be. (d) Promptly following receipt of an Interest Election Request, the Applicable Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing or B/A Drawing. (e) If the relevant Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Borrowing or B/A Drawing prior to the end of the Interest Period or Contract Period applicable thereto, then, unless such Borrowing or B/A Drawing is repaid as provided herein, at the end of such Interest Period or Contract     40     Period, such Borrowing or B/A Drawing shall (i) in the case of a Eurocurrency Borrowing denominated in US Dollars, be converted to an ABR Borrowing, (ii) in the case of a Eurocurrency Borrowing denominated in Canadian Dollars or a B/A Drawing, be converted into a Canadian Base Rate Borrowing and (iii) in the case of any other Eurocurrency Borrowing, become due and payable on the last day of such Interest Period. (f) Upon the conversion of any Canadian Tranche Borrowing (or portion thereof), or the continuation of any B/A Drawing (or portion thereof), to or as a B/A Drawing, the net amount that would otherwise be payable to a Borrower by each Lender pursuant to Section 2.04(f) in respect of such new B/A Drawing shall be applied against the principal of the Canadian Tranche Loan made by such Lender as part of such Canadian Tranche Borrowing (in the case of a conversion), or the reimbursement obligation owed to such Lender under Section 2.04(i) in respect of the B/As accepted by such Lender as part of such maturing B/A Drawing (in the case of a continuation), and such Borrower shall pay to such Lender an amount equal to the difference between the principal amount of such Canadian Tranche Loan or the aggregate face amount of such maturing B/As, as the case may be, and such net amount. (g) The conversion or continuation of any Borrowing or B/A Drawing shall not constitute a repayment of amounts outstanding or a new advance of funds hereunder. SECTION 2.10. Termination, Reduction and Increase of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Company may at any time terminate, or from time to time reduce, the Commitments of any Class; provided that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum, (ii) the Company shall not terminate or reduce the US Tranche Commitments if, after giving effect to any concurrent prepayment of the US Tranche Loans in accordance with Section 2.11, aggregate US Tranche Exposures would exceed the aggregate US Tranche Commitments, (iii) the Company shall not terminate or reduce the Canadian Tranche Commitments if, after giving effect to any concurrent prepayment of the Canadian Tranche Loans in accordance with Section 2.11, the aggregate Canadian Tranche Exposures would exceed the aggregate Canadian Tranche Commitments, (iv) the Company shall not terminate or reduce the Euro Tranche Commitments if, after giving effect to any concurrent prepayment of the Euro Tranche Loans in accordance with Section 2.11, the aggregate Euro Tranche Exposures would exceed the aggregate Euro Tranche Commitments and (v) the Company shall not terminate or reduce any Commitments if, after giving effect to any concurrent prepayment of Loans in accordance with Section 2.11, the aggregate Exposures would exceed the aggregate Commitments. (c) The Company shall notify the Administrative Agent of any election to terminate or reduce the Commitments of any Class under paragraph (b) of this Section at     41     least three Business Days prior to the effective date of such termination or reduction, specifying the effective date of such election. Promptly following receipt of any such notice, the Administrative Agent shall advise the other Agents and the applicable Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the applicable Lenders in accordance with their respective Commitments of such Class. (d) (i) The Company may on one or more occasions, by written notice to the Administrative Agent and executed by the Company and one or more financial institutions (any such financial institution referred to in this paragraph (d) being called an “Increasing Lender”), which may include any Lender, cause new Commitments of any Tranche to be extended by the Increasing Lenders (or cause the Commitments of any Tranche of the Increasing Lenders to be increased, as the case may be) in amounts set forth in such notice not to be less than (A) $10,000,000 for each Increasing Lender and (B) $25,000,000 for all Increasing Lenders under each such notice; provided that (x) at no time shall the aggregate amount of all extensions of new Commitments and increases in existing Commitments effected pursuant to this paragraph (d) exceed $500,000,000, (y) each Increasing Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and (z) each Increasing Lender, if not already a Lender hereunder, shall execute all such documentation as the Administrative Agent shall reasonably specify to evidence the Commitment or Commitments of such Increasing Lender and/or its status as a Lender hereunder. (ii) Extensions of new Commitments and increases in existing Commitments pursuant to this paragraph (d) shall become effective on the date specified in the applicable notice delivered by the Company pursuant to subparagraph (i) above. Upon the effectiveness of such extensions of new Commitments and/or increases in existing Commitments, (A) each Increasing Lender not already a Lender hereunder shall be deemed to be a party to this Agreement and shall thereafter be entitled to all rights, benefits and privileges accorded a Lender hereunder and subject to all obligations of a Lender hereunder and (B) Schedule 2.01 shall be deemed to have been amended to reflect the new Commitments or the increases in the Commitments, as applicable, of each Increasing Lender as set forth in the applicable notice delivered by the Company. (iii) Notwithstanding the foregoing, no increase in the Commitments (or in any Commitment of any Lender) or extension of new Commitments hereunder shall become effective under this paragraph (d) unless (A) on the date of such increase or     42     extension, the conditions set forth in paragraphs (a) and (b) of Section 4.02 shall be satisfied (without giving effect to the parenthetical in such paragraph (a)) and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Financial Officer of the Company and (B) the Administrative Agent shall have received documents consistent with those delivered pursuant to Section 4.01(b) and (c) as to the corporate power and authority of the Borrowers to borrow hereunder after giving effect to such increase or extension. (iv) On the effective date of any extension of a new Commitment of any Tranche or increase in an existing Commitment of any Tranche pursuant to this paragraph (d), (A) the aggregate principal amount of the Revolving Loans of such Tranche outstanding (the “Initial Loans”) immediately prior to giving effect to such extension or increase shall be deemed to be repaid, (B) after the effectiveness of such extension or increase, the Borrowers shall be deemed to have made new Revolving Borrowings of such Tranche (the “Subsequent Borrowings”) in an aggregate principal amount equal to the aggregate principal amount of the Initial Loans and of the Types and for the Interest Periods specified in a Borrowing Request delivered to the Administrative Agent in accordance with Section 2.03, (C) each Lender shall pay to the Administrative Agent in same day funds an amount equal to the difference, if positive, between (x) such Lender’s Percentage (calculated after giving effect to any such extension or increase) of the Subsequent Borrowings and (y) such Lender’s Percentage (calculated without giving effect to any such extension or increase) of the Initial Loans, (D) after the Administrative Agent receives the funds specified in clause (C) above, the Administrative Agent shall pay to each Lender the portion of such funds that is equal to the difference, if positive, between (x) such Lender’s Percentage (calculated without giving effect to any such extension or increase) of the Initial Loans and (y) such Lender’s Percentage (calculated after giving effect to any such extension or increase) of the amount of the Subsequent Borrowings, (E) each Lender shall be deemed to hold its applicable Tranche Percentage of each Subsequent Borrowing (each calculated after giving effect to any such extension or increase) and (F) each applicable Borrower shall pay each Lender any and all accrued but unpaid interest on the Initial Loans. The deemed payments made pursuant to clause (A) above in respect of each Eurocurrency Loan shall be subject to the provisions of Section 2.16 if the effective date of the extension of or increase in Commitments pursuant to this paragraph (d) occurs other than on the last day of the Interest Period relating thereto and breakage costs result. SECTION 2.11. Prepayment of Loans. (a) Any Borrower, or the Company on behalf of any Borrower, shall have the right at any time and from time to time to prepay any Borrowing and amounts owed in respect of outstanding B/As of such Borrower in whole or in part, subject to prior notice in accordance with paragraph (d) of this Section; provided, that, unless the applicable Borrowers and Lenders shall have otherwise agreed at the time such Loans were made, Competitive Loans or Contract Loans may be prepaid only with the consent of the Lenders making such Loans.       43     (b) If the aggregate Exposures of any Class shall exceed the aggregate Commitments of such Class, then (i) on the last day of any Interest Period for any Eurocurrency Borrowing of such Class (or, in the case of the Canadian Commitments, the last day of any Contract Period for any B/A Drawing), and (ii) on any other date in the event ABR Borrowings or Canadian Base Rate Borrowings shall be outstanding under such Class, the applicable Borrowers shall prepay Loans of such Class in an amount equal to the lesser of (A) the amount necessary to eliminate such excess (after giving effect to any other prepayment of Loans on such day) and (B) the amount of the applicable Borrowings or B/A Drawings referred to in clause (i) or (ii), as applicable. If, on any Reset Date, the aggregate amount of the Exposures of any Class shall exceed 105% of the aggregate Commitments of such Class, then the applicable Borrowers shall, not later than the next Business Day, prepay one or more Borrowings of such Class (or, in the case of the Canadian Commitments, amounts owing in respect of outstanding B/As) in an aggregate principal amount sufficient to eliminate such excess. (c) Prior to any optional or mandatory prepayment of Borrowings or amounts owing in respect of outstanding B/A Drawings hereunder, the applicable Borrower shall select the Borrowing or Borrowings and B/A Drawings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (d) of this Section. (d) The applicable Borrower, or the Company on behalf of the applicable Borrower, shall notify the Applicable Agent by telephone (confirmed by telecopy) of any prepayment of a Borrowing or amounts owing in respect of an outstanding B/A Drawing hereunder (i) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., Local Time, three Business Days before the date of such prepayment, (ii) in the case of an ABR Borrowing, a Canadian Base Rate Borrowing or any amount owed in respect of an outstanding B/A Drawing, not later than 11:00 a.m., Local Time, one Business Day before the date of such prepayment and (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, Local Time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof, or amount owed in respect of an outstanding B/A Drawing or portion thereof, to be prepaid; provided that, if a notice of optional prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.10(c), then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.10(c). Promptly following receipt of any such notice, the Applicable Agent shall advise the applicable Lenders of the contents thereof. Each partial prepayment of any Borrowing or amounts owing in respect of a B/A Drawing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02 or an acceptance and purchase of B/As as provided in Section 2.04. Each prepayment of a Borrowing or B/A Drawing shall be applied ratably to the Loans included in the prepaid Borrowing or the B/As included in such B/A Drawing.     44     Prepayments shall be accompanied by (i) accrued interest to the extent required by Section 2.13 and (ii) break funding payments pursuant to Section 2.16. (e) Amounts to be applied pursuant to this Section or Article VII to prepay or repay amounts to become due with respect to outstanding B/As shall be deposited in the Prepayment Account (as defined below). The Canadian Agent shall apply any cash deposited in the Prepayment Account allocable to amounts to become due in respect of B/As on the last day of their respective Contract Periods until all amounts due in respect of outstanding B/As have been prepaid or until all the allocable cash on deposit has been exhausted. For purposes of this Agreement, the term “Prepayment Account” shall mean an account established by a Borrower with the Canadian Agent and over which the Canadian Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this paragraph (e). The Canadian Agent will, at the request of such Borrower, invest amounts on deposit in the Prepayment Account in short-term, cash equivalent investments selected by the Canadian Agent in consultation with such Borrower that mature prior to the last day of the applicable Contract Periods of the B/As to be prepaid; provided, however, that the Canadian Agent shall have no obligation to invest amounts on deposit in the Prepayment Account if a Default or Event of Default shall have occurred and be continuing. Such Borrower shall indemnify the Administrative Agent for any losses relating to the investments so that the amount available to prepay amounts due in respect of B/As on the last day of the applicable Contract Period is not less than the amount that would have been available had no investments been made pursuant thereto. Other than any interest earned on such investments (which shall be for the account of such Borrower, to the extent not necessary for the prepayment of B/As in accordance with this Section), the Prepayment Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited in the Prepayment Account and reinvested and disbursed as specified above. If the maturity of the Loans and all amounts due hereunder has been accelerated pursuant to Article VII, the Canadian Agent may, in its sole discretion, apply all amounts on deposit in the Prepayment Account to satisfy any of the Obligations in respect of Canadian Tranche Loans and B/As (and each Borrower hereby grants to the Canadian Agent a security interest in its Prepayment Account to secure such Obligations). SECTION 2.12. Fees. (a) The Company agrees to pay to the Administrative Agent, in US Dollars, for the account of the office (or Affiliate) of each Lender from which such Lender would make Loans to the Company in US Dollars hereunder (which office or Affiliate shall be specified by each Canadian Tranche Lender and Euro Tranche Lender in a notice delivered to the Administrative Agent prior to the initial payment to such Lender under this paragraph), a facility fee, which shall accrue at the Applicable Rate on the daily amount of the sum of (i) such Lender’s US Tranche Commitment, (ii) the US Dollar Equivalent of such Lender’s Canadian Tranche Commitment and (iii) the US Dollar Equivalent of such Lender’s Euro Tranche Commitment (in each case whether used or unused) during the period from and including     45     the date hereof to but excluding the date on which the last of such Commitments terminates; provided that, if such Lender continues to have any Exposure, including Swingline Exposures, of any Class after its Commitment of such Class terminates, then such facility fee shall continue to accrue on the daily amount of such Lender’s Exposure, including Swingline Exposures, of such Class to but excluding the date on which such Lender ceases to have any such Exposure, including Swingline Exposures. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year, commencing on the first such date to occur after the date hereof, and on the date on which all the Commitments shall have terminated and the Lenders shall have no further Exposures, including Swingline Exposures. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The applicable Canadian Borrowing Subsidiary agrees to pay to the Canadian Agent, for the account of each Canadian Tranche Lender, on each date on which B/As drawn by such Canadian Borrowing Subsidiary are accepted hereunder, in Canadian Dollars, an acceptance fee equal to the (i)  the product of the Applicable Rate and the face amount of each B/A accepted by such Lender multiplied by (ii) a fraction the numerator of which is the number of days in the Contract Period applicable to such B/A and the denominator of which is 365. (c) The Company agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Agents specified above for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan denominated in US Dollars) shall bear interest at the Alternate Base Rate. (b) The Loans comprising each Canadian Base Rate Borrowing (including each Swingline Loan denominated in Canadian Dollars) shall bear interest at the Canadian Base Rate. (c) The Loans comprising each Eurocurrency Borrowing shall bear interest (i) in the case of a Revolving Borrowing, at the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (d) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan.       46     (e) Each Contract Loan shall bear interest at a rate per annum agreed upon between the applicable Borrower and Lender. (f) Notwithstanding the foregoing, if any principal of or interest on any Loan, any amount owed in respect of any B/A or any fee payable by any Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% per annum plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section, (ii) in the case of any other amount payable in US Dollars, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) above and (iii) in the case of any other amount payable in Canadian Dollars, 2% plus the rate applicable to Canadian Base Rate Loans as provided in paragraph (b) above. (g) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (f) above shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (h) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Canadian Base Rate or the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Canadian Base Rate or LIBO Rate shall be determined by the Applicable Agent, and such determination shall be conclusive absent manifest error. SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing denominated in any currency: (a) the Applicable Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; or (b) the Applicable Agent is advised by a majority in interest of the Lenders that would participate in such Borrowing that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;       47     then the Applicable Agent shall give notice thereof to the applicable Borrower and the applicable Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Applicable Agent notifies the applicable Borrower and the applicable Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing denominated in such currency to, or continuation of any Borrowing denominated in such currency as a Eurocurrency Borrowing shall be ineffective, and any Eurocurrency Borrowing denominated in such currency that is requested to be continued shall be repaid on the last day of the then current Interest Period applicable thereto, and (ii) any Borrowing Request for a Eurocurrency Borrowing denominated in such currency shall be ineffective. SECTION 2.15. Increased Costs. (a) If any Change in Law or the applicability of any Statutory Reserves shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender; or (ii) impose on any Lender or the London or Canadian interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender or participations therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan or obtaining funds for the purchase of B/As (or of maintaining its obligation to make any such Loan or to accept and purchase B/As) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Company will pay or cause the other Borrowers to pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender reasonably determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Company will pay or cause the other Borrowers to pay to such Lender , as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered. (c) Each Lender shall determine the amount or amounts necessary to compensate such Lender or such Lender’s holding company, as the case may be, as specified in paragraph (a) or (b) of this Section using the methods customarily used by it for such purpose (and if such Lender uses more than one such method, the method used     48     hereunder shall be that which most accurately determines such amount or amounts). A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or such Lender’s holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, and setting forth in reasonable detail the calculations used by such Lender to determine such amount, shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay or cause the other Borrowers to pay to such Lender the amount shown as due on any such certificate within 15 Business Days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Company shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and delivers a certificate with respect thereto as provided in paragraph (c) above; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan to a Loan of a different Type or Interest Period other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan or to issue B/As for acceptance and purchase on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(d) and is revoked in accordance therewith), or (d) the assignment or deemed assignment of any Eurocurrency Loan, or Fixed Rate Loan or the right to receive payment in respect of a B/A other than on the last day of the Interest Period or Contract Period, as the case may be, applicable thereto as a result of a request by the Company pursuant to Section 2.19, then, in any such event, the applicable Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate such Lender would bid were it to bid, at the commencement of such period, for deposits in the applicable currency of a comparable amount and period from other banks in the London interbank market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section, and     49     setting forth in reasonable detail the calculations used by such Lender to determine such amount or amounts, shall be delivered to the applicable Borrower and shall be conclusive absent manifest error. The applicable Borrower shall pay such Lender the amount shown as due on any such certificate within 15 Business Days after receipt thereof. SECTION 2.17. Taxes. (a) Any and all payments by or on account of any Borrower in respect of any Obligation hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, the London Agent, the Canadian Agent or the applicable Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The relevant Borrower shall indemnify the Administrative Agent, the London Agent, the Canadian Agent and each Lender, within 15 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by such Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of any Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability setting forth in reasonable detail the circumstances giving rise thereto and the calculations used by such Lender to determine the amount thereof delivered to the Company by a Lender, or by an Agent, on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this     50     Agreement shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Company as will permit such payments to be made without withholding or at a reduced rate; provided that such Lender has received written notice from the Company advising it of the availability of such exemption or reduction and containing all applicable documentation. SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Setoffs. (a) Except as agreed by the relevant Borrower and the applicable Lenders with respect to Contract Loans, each Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, Local Time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time (or any other applicable time agreed by the relevant Borrower and the applicable Lenders with respect to Contract Loans) on any date may, in the discretion of the Applicable Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Applicable Agent to the applicable account specified in Schedule 2.18 for the account of the applicable Lenders or, in any such case, to such other account as the Applicable Agent shall from time to time specify in a notice delivered to the Company and the applicable Borrower; provided that payments to the Swingline Lenders or the applicable Lenders in respect of Contract Loans and payments pursuant to Sections 2.15, 2.16, 2.17 and 10.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein (it being agreed that the Borrowers will be deemed to have satisfied their obligations with respect to payments referred to in this proviso if they shall make such payments to the persons entitled thereto in accordance with instructions provided by the Administrative Agent; the Administrative Agent agrees to provide such instructions upon request, and no Borrower will be deemed to have failed to make such a payment if it shall transfer such payment to an improper account or address as a result of the failure of the Administrative Agent to provide proper instructions). The Applicable Agent shall distribute any such payments received by it for the account of any Lender or other Person promptly, in accordance with customary banking practices, following receipt thereof at the appropriate lending office or other address specified by such Lender or other Person. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder of principal or interest in respect of any Loan shall be made in the currency of such Loan; all other payments hereunder and under each other Loan Document shall be made in US Dollars. Any payment required to be made by an Agent hereunder shall be deemed to have been made by the time required if such Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by such Agent to make     51     such payment. Any amount payable by any Agent to one or more Lenders in the national currency of a member state of the European Union that has adopted the Euro as its lawful currency shall be paid in Euros. (b) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on its US Tranche Loans, Canadian Tranche Loans, Euro Tranche Loans or participations in Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its US Tranche Loans, Canadian Tranche Loans, Euro Tranche Loans and participations in Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the US Tranche Loans, Canadian Tranche Loans, Euro Tranche Loans and participations in Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of their respective US Tranche Loans, Canadian Tranche Loans, Euro Tranche Loans and participations in Swingline Loans and accrued interest thereon; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in Swingline Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. Any purchaser of a participation under this paragraph shall have the benefit of Sections 2.15, 2.16 and 2.17 with respect to the participation purchased, but shall not be deemed by virtue of such purchase to have extended any Commitment that it had not extended prior to such purchase. (c) Unless the Applicable Agent shall have received notice from the relevant Borrower prior to the date on which any payment is due for the account of all or certain of the Lenders hereunder that such Borrower will not make such payment, the Applicable Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders , as the case may be, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the applicable Lenders severally agrees to repay to the Applicable Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date     52     such amount is distributed to it to but excluding the date of payment to the Applicable Agent, at a rate determined by the Applicable Agent in accordance with banking industry practices on interbank compensation. (d) If any Lender shall fail to make any payment required to be made by it to any Agent pursuant to this Agreement, then the Agents may, in their discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by them for the account of such Lender to satisfy such Lender’s obligations to the Agents until all such unsatisfied obligations are fully paid. SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall consult with the Company regarding any actions that could be taken to reduce amounts payable under such Sections and the costs of taking such actions and shall, at the request of the Company following such consultations, use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable, direct, out-of-pocket costs and expenses incurred by any Lender in connection with any such designation or assignment. If any Lender requests compensation under Section 2.15, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under the Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent (and if a US Tranche Commitment or a Canadian Tranche Commitment is being assigned, the Swingline Lenders), which consent shall not be unreasonably withheld and (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee or the Company. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply.       53     SECTION 2.20. Designation of Borrowing Subsidiaries. The Company may at any time and from time to time designate any Subsidiary as a US Borrowing Subsidiary or a Euro Borrowing Subsidiary or designate any Canadian Subsidiary as a Canadian Borrowing Subsidiary by delivery to the Administrative Agent of a Borrowing Subsidiary Agreement executed by such Subsidiary and the Company, and upon such delivery such Subsidiary shall for all purposes of this Agreement be a US Borrowing Subsidiary, a Euro Borrowing Subsidiary or a Canadian Borrowing Subsidiary, as the case may be, and a party to this Agreement until the Company shall have executed and delivered to the Administrative Agent a Borrowing Subsidiary Termination with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a US Borrowing Subsidiary, a Euro Borrowing Subsidiary or a Canadian Borrowing Subsidiary, as the case may be, and a party to this Agreement. Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will become effective as to any Borrowing Subsidiary at a time when any principal of or interest on any Loan to such Borrowing Subsidiary shall be outstanding hereunder, provided that such Borrowing Subsidiary Termination shall be effective to terminate the right of such Borrowing Subsidiary, as the case may be, to make further Borrowings under this Agreement. As soon as practicable upon receipt of a Borrowing Subsidiary Agreement, the Administrative Agent shall send a copy thereof to each Lender. ARTICLE III   Representations and Warranties The Company and each other Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. The Company and each of the Material Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within the Company’s and each other Borrower’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Company and each other Borrower and constitutes a legal, valid and binding obligation of each of them, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.       54     SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except as may be required under applicable securities laws and regulations, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any other Borrower or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Company or any Subsidiary or their assets, or give rise to a right thereunder to require any payment to be made by the Company or any Subsidiary, and (d) will not result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary. SECTION 3.04. Financial Condition; No Material Adverse Change.   (a) The Company has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders’ equity and cash flows as of and for the fiscal year ended June 30, 2005 (the “Annual Financial Statements”), reported on by Deloitte & Touche, independent public accountants, certified by its chief financial officer and its consolidated balance sheet and statements of income, stockholders’ equity and cash flows as of and for the fiscal quarters ended September 30, 2005, December 31, 2005 and March 31, 2006 (collectively, the “Quarterly Financial Statements”), certified by one of its Financial Officers. The Annual Financial Statements and the Quarterly Financial Statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Company and the consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to, in the case of the Quarterly Financial Statements, normal year-end adjustments and the absence of footnotes. (b) Since March 31, 2006, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole. SECTION 3.05. Properties. The Company and each Material Subsidiary has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Company, threatened against or affecting the Company and its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected,     55     individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions. (b) Except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, none of the Company and the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. SECTION 3.07. Compliance with Laws and Agreements. The Company and each Material Subsidiary is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to be in compliance, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.08. Federal Reserve Regulations. (a) Neither any Borrower nor any Subsidiary is engaged principally, or as a substantial part of its activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock (within the meaning of Regulation U). (b) No part of the proceeds of any Loan has been or will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry Margin Stock (as defined in Regulation U of the Board) or to refinance Indebtedness originally incurred for such purpose, or in any manner or for any purpose that has resulted or will result in a violation of Regulation U or X of the Board. SECTION 3.09. Investment Company Status. Neither any Borrower nor any of the Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940. SECTION 3.10. Taxes. The Company and the Material Subsidiaries have timely filed or caused to be filed all Tax returns and reports required to have been filed and have paid or caused to be paid all Taxes required to have been paid by them, except (a) any Taxes that are being contested in good faith by appropriate proceedings and for which the Company or such Subsidiary has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under     56     each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than US$100,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than US$100,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.12. Disclosure. Neither the Confidential Information Memorandum nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrowers to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. ARTICLE IV   Conditions SECTION 4.01. Effective Date. This Agreement shall become effective on the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of James B. Benson, Esq., General Counsel of the Company, substantially in the form of Exhibit C, and covering such other matters relating to the Company, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Company hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrowers, the authorization of the Transactions and any other legal matters relating to the Borrowers, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel.       57     (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Company, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 (without giving effect to the parenthetical in such paragraph (a)). (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. (f) The commitments under the Existing Credit Agreements shall have been or shall simultaneously be terminated and the principal of and interest accrued on all loans outstanding thereunder and all fees and other amounts accrued or owing thereunder shall have been or shall simultaneously be paid in full. The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and accept and purchase B/As shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 5:00 p.m., New York City time, on June 28, 2006 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing or to accept and purchase any B/A is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrowers set forth in this Agreement (other than the representations set forth in Sections 3.04(b) and 3.06(a)) shall be true and correct on and as of the date of such Borrowing or acceptance and purchase of B/As. (b) At the time of and immediately after giving effect to such Borrowing or acceptance and purchase of B/As, no Default shall have occurred and be continuing. Each Borrowing or acceptance and purchase of B/As shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary. The obligation of each Lender to make Loans to or accept B/As at the request of any Borrowing Subsidiary is subject to the satisfaction of the following conditions:       58     (a) The Administrative Agent (or its counsel) shall have received a Borrowing Subsidiary Agreement of such Borrowing Subsidiary duly executed by all parties thereto. (b) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the formation, existence and good standing of such Borrowing Subsidiary, the authorization of the Transactions insofar as they relate to such Borrowing Subsidiary and any other legal matters relating to such Borrowing Subsidiary, its Borrowing Subsidiary Agreement or such Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. ARTICLE V   Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan, each amount owed in respect of any B/A, and all fees and other amounts payable hereunder shall have been paid in full, the Company and each other Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Company will furnish to the Administrative Agent: (a) within 90 days after the end of each fiscal year of the Company, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche or other independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Company and its consolidated subsidiaries on a consolidated basis in accordance with     59     GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Company certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Company or any of its subsidiaries with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Company to its shareholders generally, as the case may be; (e) promptly, but not later than five Business Days after the publication of any change by Moody’s or S&P in its Rating, notice of such change; and (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Company or any of its subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Reports required to be delivered pursuant to subsections (a), (b) and (d) of this Section 5.01 shall be deemed to have been delivered on the date on which the Company posts such reports on the Company’s website on the Internet at www.adp.com or when such report is posted on the SEC’s website at www.sec.gov; provided that the Company shall deliver paper copies of the reports referred to in subsection (a), (b) and (d) of this Section 5.01 to the Administrative Agent or any Lender who requests the Company to deliver such paper copies until written notice to cease delivering paper copies is given by the Administrative Agent or such Lender. Notices required to be delivered pursuant to subsection (e) of this Section 5.01 shall be deemed to have been delivered on the date on which the Company posts such information on the Internet at the website www.adp.com or when the publication is first made available by means of Moody’s or S&P’s (as the case may be) Internet subscription service. The Administrative Agent shall promptly make available to each Lender a copy of the certificate to be delivered pursuant to subsection (c) of this Section 5.01 by posting such certificate on IntraLinks or by other similar means. SECTION 5.02. Notices of Material Events. The Company will furnish to the Administrative Agent and each Lender prompt written notice (in any case within 5 Business Days) of the following: (a) the occurrence of any Default;       60     (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Company or any Subsidiary that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and (c) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Company will, and will cause each other Borrower to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04. Payment of Taxes. The Company will, and will cause each Material Subsidiary to, pay its Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Company or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties. The Company will, and will cause each Material Subsidiary to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 5.06. Books and Records; Inspection Rights. The Company will keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Company will permit any representatives designated by the Administrative Agent, or by any Lender through the Administrative Agent, at reasonable times and upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers. SECTION 5.07. Compliance with Laws. The Company will, and will cause each Material Subsidiary to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property (including, but not limited to,     61     ERISA and environmental laws), except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used only for general corporate purposes, including the refinancing of indebtedness under the Existing Credit Agreements. No part of the proceeds of any Loan will be used, whether directly or indirectly, to purchase or carry Margin Stock (as defined in Regulation U of the Board) or to refinance Indebtedness originally incurred for such purpose, or in any manner or for any purpose that will result in a violation of Regulation U or X of the Board. ARTICLE VI   Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees and other amounts payable hereunder have been paid in full, the Company and each other Borrower covenants and agrees with the Lenders that: SECTION 6.01. Liens. The Company will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Company or any Subsidiary existing on the date hereof and set forth in Schedule 6.01; provided that (i) such Lien shall not apply to any other property or asset of any of the Borrowers or any of their Subsidiaries and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of any of the Company or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;       62     (d) Liens on fixed or capital assets acquired, constructed or improved by the Company or any Subsidiary; provided that (i) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (ii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Company or any Subsidiary; (e) Liens on securities deemed to exist under repurchase agreements and reverse repurchase agreements entered into by the Company and the Subsidiaries; and (f) other Liens not expressly permitted by clauses (a) through (d) above; provided that the sum of (i) the aggregate principal amount of outstanding obligations secured by Liens permitted under this clause (f) and (ii) the Attributable Debt permitted by Section 6.02(b) does not at any time exceed 25% of Consolidated Net Worth. SECTION 6.02. Sale and Leaseback Transactions. The Company will not, and will not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction except: (a) Sale and Leaseback Transactions to which the Borrower or any Subsidiary is a party as of the date hereof; and (b) other Sale and Leaseback Transactions; provided that the sum of (i) the aggregate principal amount of outstanding obligations secured by Liens permitted by Section 6.01(f) and (ii) the aggregate Attributable Debt in respect of Sale and Leaseback Transactions permitted by this clause (b) does not at any time exceed 25% of Consolidated Net Worth. SECTION 6.03. Fundamental Changes. Neither the Company nor any other Borrower will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions and including by means of any merger or sale of capital stock or otherwise) all or substantially all of its assets (whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing or would result from such transaction, the Company or any Borrower may merge or consolidate with any Person if (a) the Company or such Borrower, as the case may be, is the surviving Person or (b) the surviving Person (i) is organized under the laws of The United States of America or, in the case of a merger or consolidation of a Borrower other than the Company, the jurisdiction of organization of such Borrower, and (ii) assumes in writing all of the Company’s or such Borrower’s obligations under this Agreement pursuant to documentation reasonably satisfactory to the Administrative Agent, such     63     satisfaction to be based solely upon the validity and enforceability of the assumption contained in such documentation. ARTICLE VII   Events of Default If any of the following events (“Events of Default”) shall occur: (a) the Company or any other Borrower shall fail to pay any principal of any Loan, or any amount due in respect of any B/A, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Company or any other Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) any representation or warranty made or deemed made by or on behalf of the Company or any Borrower in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Company or any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the Company’s or such Borrower’s existence) or 5.08 or in Article VI; (e) the Company or any Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent or any Lender to the Company; (f) the Company or any Subsidiary shall default in the payment of any Material Indebtedness when and as due, or any event or condition shall occur that results in any Material Indebtedness becoming due prior to its scheduled maturity; provided, that if the maturity of any Material Indebtedness of a Person acquired directly or indirectly by the Company after the date hereof shall be accelerated by reason of such acquisition, no Event of Default under this paragraph (f) shall be deemed to have occurred with respect to such Material Indebtedness so long as     64     such acceleration shall have been rescinded, or such Material Indebtedness shall have been repaid, within five Business Days following the date of such acceleration; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or any Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Company or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or (i) the Company or any Material Subsidiary shall become unable, admit in writing its inability, or fail generally, to pay its debts as they become due; then, and in every such event (other than an event with respect to any Borrower described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Company, take either or both of the following actions, at the same or different times:  (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding, and declare an amount equal to the full face amount of all outstanding B/As, to be due and payable in whole (or in part, in which case any principal or other amount not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans and an amount equal to the full face amount of all such outstanding B/As so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; and in case of any event with respect to     65     any of the Borrowers described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding and an amount equal to the full face amount of all outstanding B/As, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. All amounts due and payable under this Article VII in respect of outstanding B/As shall be paid to the Canadian Agent and held in the Prepayment Account for application as provided in Section 2.11(e). ARTICLE VIII   The Agents In order to expedite the transactions contemplated by this Agreement, the Persons named in the heading of this Agreement are hereby appointed to act as Administrative Agent, London Agent and Canadian Agent on behalf of the Lenders. Each of the Lenders and each assignee of any Lender hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee and to exercise such powers as are delegated to the Agents by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent and, to the extent expressly provided herein, the other Agents are hereby expressly authorized by the Lenders, without hereby limiting any implied authority, and by the Borrowers with respect to clause (c) below, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Company of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Company or any other Borrower pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any of the Borrowers or any of their Subsidiaries or other Affiliates thereof as if it were not an Agent. The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) no Agent shall have any duty to take any     66     discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that such Agent is required to exercise upon receipt of notice in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth in the Loan Documents, no Agent shall have any duty to disclose, and no Agent shall be liable for the failure to disclose, any information relating to any of the Borrowers or any of their Subsidiaries that is communicated to or obtained by the institution serving as Agent or any of its Affiliates in any capacity. No Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless and until written notice thereof is given to such Agent by a Borrower (in which case such Agent shall give written notice to each other Lender), and no Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to such Agent. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.       67     Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, any Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right, with the consent of the Company, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent’s resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on the amount of its Loans and available Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Company or any other Borrower and (b) to indemnify and hold harmless each Agent and any of its Related Parties, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Company or any other Borrower; provided that no Lender shall be liable to an Agent or any such other indemnified Person for any portion of such liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are determined to have resulted from the gross negligence or willful misconduct of such Agent, and any of its Related Parties or any of their respective directors, officers, employees or agents. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.       68     None of the Lenders identified on the facing page or signature pages of this Agreement or elsewhere herein as a “co-syndication agent” shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. ARTICLE IX   Guarantee In order to induce the Lenders to extend credit to the other Borrowers hereunder, the Company hereby irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, the payment when and as due of the Obligations of such other Borrowers. The Company further agrees that the due and punctual payment of such Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee hereunder notwithstanding any such extension or renewal of any such Obligation. The Company waives presentment to, demand of payment from and protest to any Borrower of any of the Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of the Company hereunder shall not be affected by (a) the failure of any Agent or Lender to assert any claim or demand or to enforce any right or remedy against any Borrower under the provisions of this Agreement, any other Loan Document or otherwise; (b) any extension or renewal of any of the Obligations; (c) any rescission, waiver, amendment or modification of, or release from, any of the terms or provisions of this Agreement, or any other Loan Document or agreement; (d) any default, failure or delay, willful or otherwise, in the performance of any of the Obligations; or (e) any other act, omission or delay to do any other act which may or might in any manner or to any extent vary the risk of the Company or otherwise operate as a discharge of a guarantor as a matter of law or equity or which would impair or eliminate any right of the Company to subrogation. The Company further agrees that its agreement hereunder constitutes a guarantee of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Agent or Lender to any balance of any deposit account or credit on the books of any Agent or Lender in favor of any Borrower or any other Person. The obligations of the Company hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of any of the Obligations, any impossibility in the performance of any of the Obligations or otherwise.       69     The Company further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Agent or Lender upon the bankruptcy or reorganization of any Borrower or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Agent or Lender may have at law or in equity against the Company by virtue hereof, upon the failure of any other Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Company hereby promises to and will, upon receipt of written demand by any Agent or Lender, forthwith pay, or cause to be paid, to the applicable Agent or Lender in cash an amount equal to the unpaid principal amount of such Obligations then due, together with accrued and unpaid interest thereon. The Company further agrees that if payment in respect of any Obligation shall be due in a currency other than US Dollars and/or at a place of payment other than New York and if, by reason of any Change in Law, disruption of currency or foreign exchange markets, war or civil disturbance or other event, payment of such Obligation in such currency or at such place of payment shall be impossible or, in the reasonable judgment of any Agent or Lender, not consistent with the protection of its rights or interests, then, at the election of the Administrative Agent, the Company shall make payment of such Obligation in US Dollars (based upon the applicable Exchange Rate in effect on the date of payment) and/or in New York, and shall indemnify each Agent and Lender against any losses or reasonable out-of-pocket expenses that it shall sustain as a result of such alternative payment. Upon payment by the Company of any sums as provided above, all rights of the Company against any Borrower arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full of all the Obligations owed by such Borrower to the Agents and the Lenders. Nothing shall discharge or satisfy the liability of the Company hereunder except the full performance and payment of the Obligations. ARTICLE X   Miscellaneous SECTION 10.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Borrower, to Automatic Data Processing, Inc., One ADP Boulevard, MS #420, Roseland, NJ 07068-1728, Attention of Treasurer     70     (Telephone No. 973-974-5710; Telecopy No. 973-974-3320), with a copy to Automatic Data Processing, Inc., One ADP Boulevard, MS #450, Roseland, NJ 07068-1728, Attention of General Counsel (Telecopy No. 973-974-3324); (b) if to the Administrative Agent, to JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 1111 Fannin, Floor 10, Houston, TX 77002, Attention of Teri M. Smith (Telephone No. 713-750-7920; Telecopy No. 713-750-2358), with a copy to JPMorgan Chase Bank, N.A., 270 Park Avenue, New York, NY 10017, Attention of Tracey Ewing (Telephone No. 212-270-8916; Telecopy No. 212-270-5127);         (c) if to the London Agent, to it at J.P. Morgan Europe Limited, Loans Agency Division, 125 London Wall, Floor 9, London, England EC2Y5AJ (Telephone No. 44-20-7-777-2288; Telecopy No. 44-20-7-777-2360); with a copy to the Administrative Agent as provided in paragraph (b) above; (d) if to the Canadian Agent, to it at JPMorgan Chase Bank, N.A., Toronto Branch, Funding Officer, Royal Bank Plaza, Floor 18, Toronto, Canada M5J2J2 (Telephone No. 416-981-9235; Telecopy No. 416-981-9128); with a copy to the Administrative Agent as provided in paragraph (b) above; and (e) if to any Lender or Swingline Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto or in the case of a Lender, to the Administrative Agent and the Borrowers. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.02. Waivers; Amendments. (a) No failure or delay by any Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or acceptance and purchase of a B/A shall not be construed as a waiver of any Default, regardless of whether any Agent or any Lender may have had notice or knowledge of such Default at the time.       71     (b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or by the Company and the Administrative Agent with the consent of the Required Lenders (and, additionally, in each case, if their rights and obligations are affected thereby, the Swingline Lenders) or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Borrowers that are parties thereto, in each case with the consent of the Required Lenders; provided that no such agreement shall (i) increase any Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or the amount payable in respect of any B/A, reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender adversely affected thereby, (iii) postpone the date of any scheduled payment of the principal amount of any Loan, or any interest thereon, the required date of any payment with respect to any B/A, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender (it being understood that the addition of new tranches of loans or commitments that may be extended under this Agreement shall not be deemed to alter such pro rata sharing of payments), (v) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be) (except, in each case, to provide for new tranches of loans or commitments that may be extended under this Agreement), (vi) release the Company from, or limit or condition, its obligations under Article IX, without the written consent of each Lender, or (vii) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders with Commitments of any Class (or holding Obligations arising under such Commitments) differently than those of Lenders with Commitments of any other Class (or holding Obligations arising under such Commitments) without the written consent of Lenders holding a majority in interest of the outstanding Loans, obligations in respect of B/As and unused Commitments of each adversely affected Class; provided further that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of any Agent or Swingline Lender hereunder or under any other Loan Document without the prior written consent of such Agent or Swingline Lender and (B) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the US Tranche Lenders (but not the Euro Tranche Lenders or the Canadian Tranche Lenders), the Euro Tranche Lenders (but not the Canadian Tranche Lenders or the US Tranche Lenders), or the Canadian Tranche Lenders (but not the US Tranche Lenders or the Euro Tranche Lenders) may be effected by an agreement or agreements in writing entered into by the Company and requisite percentage in interest of     72     the affected Class of Lenders. Notwithstanding anything else in the Section to the contrary, any amendment of the definition of Applicable Rate pursuant to the final sentence of that definition in Section 1.01 of this Agreement shall not require the written consent of the each Lender affected thereby, but shall require the written consent of the Company and the Required Lenders. SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company shall pay (i) all reasonable out-of-pocket expenses incurred by the Agents and their Affiliates, including the reasonable fees, charges and disbursements of counsel for the Agents and such Affiliates, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all reasonable out-of-pocket expenses incurred by any Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for any Agent or any Lender, in connection with the enforcement or protection of its rights under any Loan Document, including its rights under this Section, or in connection with the Loans made or the B/As accepted and purchased, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Company shall indemnify each Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, liabilities, out-of-pocket costs or expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee (whether by a third party or by any Borrower) arising out of, in connection with, or as a result of (i) any transaction or proposed transaction (whether or not consummated) in which any proceeds of any Borrowing or purchase of B/As hereunder are applied or proposed to be applied, directly or indirectly, by any of the Borrowers or their Subsidiaries, (ii) any Loan or B/A Drawing or the use of the proceeds therefrom or (iii) the execution, delivery or performance by any of the Borrowers and their Subsidiaries of the Loan Documents, or any actions or omissions of a Borrower or any of its Subsidiaries in connection therewith; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, liabilities, costs or expenses shall have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Company fails to pay any amount required to be paid by it to any Agent or any Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to such Agent or Swingline Lender such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed loss, liability, cost or expense, as the case may be, was incurred by or asserted against such Agent or Swingline Lender in its capacity as such. For purposes     73     hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum (without duplication) of the total Exposures (including B/As) and unused Commitments at the time. (d) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable within 15 Business Days after receipt by the Company of a reasonably detailed invoice therefor. SECTION 10.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Company nor any Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans or other amounts at the time owing to it); provided that (i)  the Administrative Agent (except in the case of an assignment to a Lender) and the Company (except in the case of an assignment to a Lender, an Affiliate of a Lender or a Related Fund of a Lender or if an Event of Default has occurred and has been continuing for 30 days) must each give their prior written consent to such assignment (which consents shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender, an Affiliate of a Lender or a Related Fund of any Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitments and outstanding Loans, the US Dollar Equivalent of the Commitments and outstanding Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than US$10,000,000 unless each of the Company and the Administrative Agent otherwise consent, (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of US$3,500 and (iv) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and     74     provided further that any consent of the Company otherwise required under this paragraph shall not be required if an Event of Default referred to in clause (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 10.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of each Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and amounts in respect of B/As owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been made in compliance with this Agreement as provided in this paragraph. (e) Any Lender may, without the consent of any Borrower or the Administrative Agent or any Swingline Lender, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement     75     shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (i), (ii), (iii) or (vi) of the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant so provides and is made with the Company’s prior written consent. A Participant shall not be entitled to the benefits of Section 2.17 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.17(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or, in the case of a Lender that is an investment fund, to the trustee under the indenture to which such fund is a party, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. Survival. All covenants, agreements, representations and warranties made by the Borrowers herein or in any other Loan Document or in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto or thereto and shall survive the execution and delivery of this Agreement and any other Loan Document and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan     76     Document is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17, 10.03 and 10.12 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof. SECTION 10.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final and in whatever currency denominated) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Borrower against any of and all the obligations of such Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.       77     SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Borrower or its properties in the courts of any jurisdiction. (c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO     78     THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. Confidentiality. (a) Each Agent and each Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors, to Related Funds’ directors and officers and to any direct or indirect contractual counterparty in swap agreements (it being understood that each Person to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any regulatory authority, (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) to the extent required or advisable in the judgment of counsel in connection with any suit, action or proceeding relating to the enforcement of rights of the Agents or the Lenders against the Borrowers under this Agreement or any other Loan Document, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (vii) with the consent of the Company or (viii) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Section of which such Agent or Lender is aware or (B) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Company other than as a result of a breach of this Section of which such Agent or Lender is aware. For the purposes of this Section, “Information” means all information received from the Company relating to the Company or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Company other than as a result of a breach of this Section of which such Agent or Lender is aware. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. (b) Each Lender acknowledges that Information furnished to it pursuant to this Agreement may include material non-public information concerning the Company and its Related Parties or the Company’s securities, and confirms that it has developed compliance procedures regarding the use of material non-public information and that it     79     will handle such material non-public information in accordance with those procedures and applicable law, including Federal and state securities laws. (c) All information, including requests for waivers and amendments, furnished by the Company, the Subsidiaries or the Administrative Agent pursuant to, or in the course of administering, this Agreement will be syndicate-level information, which may contain material non-public information about the Company, the Subsidiaries and their Related Parties or the Company’s securities. Accordingly, each Lender represents to the Borrower and the Administrative Agent that it has identified in its Administrative Questionnaire a credit contact who may receive information that may contain material non-public information in accordance with its compliance procedures and applicable law, including Federal and state securities laws. SECTION 10.13. Conversion of Currencies. (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures in the relevant jurisdiction the first currency could be purchased with such other currency on the Business Day immediately preceding the day on which final judgment is given. (b) The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the “Applicable Creditor”) shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than the currency in which such sum is stated to be due hereunder (the “Agreement Currency”), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 10.13 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 10.14. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan or any B/A Drawing under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or accepting such B/A in accordance with applicable law, the rate of interest payable in respect of such Loan or B/A Drawing hereunder, together with all Charges payable in respect thereof, shall be limited to the     80     Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or B/A Drawing but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or B/A Drawings shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon (a) at the Federal Funds Effective Rate in the case of US Dollar denominated amounts, (b) at the Canadian Base Rate in the case of Canadian dollar denominated amounts, to the date of repayment, or (c) at a rate determined by the Administrative Agent to represent the applicable Lenders’ cost of funds in the case of Euro denominated amounts, shall have been received by such Lender. SECTION 10.15. USA Patriot Act. Each Lender hereby notifies each Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies such Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender to identify such Borrower in accordance with the Patriot Act. Each Borrower agrees to provide the Lenders, upon request, with all documentation and other information required to be obtained by the Lenders pursuant to applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act. SECTION 10.16. No Fiduciary Relationship. Each Borrower, on behalf of itself and the Subsidiaries, agrees that in connection with all aspects of the transactions contemplated hereby and any communications in connection therewith, each Borrower, the Subsidiaries and their Affiliates, on the one hand, and the Administrative Agent, the Lenders and their Affiliates, on the other hand, will have a business relationship that does not create, by implication or otherwise, any fiduciary duty on the part of the Administrative Agent, the Lenders or their Affiliates, and no such duty will be deemed to have arisen in connection with any such transactions or communications. [Remainder of page intentionally left blank]           IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AUTOMATIC DATA PROCESSING, INC.,   by   /s/ Raymond L. Colotti                     Name: Raymond L. Colotti     Title: Treasurer       JPMORGAN CHASE BANK, N.A., individually and as Administrative Agent and Swingline Lender,   by   /s/ Tracey Navin Ewing                     Name: Tracey Navin Ewing     Title: Vice President       JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Agent,   by   /s/ Christine Chan                             Name: Christine Chan     Title: Vice President       JPMORGAN EUROPE LIMITED, as London Agent,   by   /s/ Stephen Clarke                             Name: Stephen Clarke     Title: Vice President             ABN AMRO BANK NV,   by   /s/ Frances Logan                             Name: Frances Logan     Title: Managing Director       by   /s/ Christopher Lo                             Name: Christopher Lo     Title: Associate       BANCA DI ROMA - NEW YORK BRANCH,   by   /s/ Andreas Panteli                             Name: Andreas Panteli     Title: First Vice President       by   /s/ Luca Balestra                               Name: Luca Balestra     Title: Executive Vice President       BANK OF AMERICA, N.A.,   by   /s/ Bryan A. Smith                             Name: Bryan A. Smith     Title: Vice President       BANK OF MONTREAL,   by   /s/ Joseph W. Linder                         Name: Joseph W. Linder     Title: Vice President             BARCLAYS BANK PLC,   by   /s/ Alison McGuigan                         Name: Alison McGuigan     Title: Associate Director       BNP PARIBAS,   by   /s/ Angela Bentley Arnold                 Name: Angela Bentley Arnold     Title: Director       by   /s/ Jerome D’Humieres                     Name: Jerome D’Humieres     Title: Director       CITICORP USA, INC.,   by   /s/ Matias Cruces                               Name: Matias Cruces     Title: Vice President       DEUTSCHE BANK AG NEW YORK BRANCH,   by   /s/ Yvonne Tilden                             Name: Yvonne Tilden     Title: Vice President       by   /s/ Anca Trifan                                   Name: Anca Trifan     Title: Director             FIRST TENNESSEE BANK NATIONAL ASSOCIATION,   by   /s/ G. Porter Robinson                       Name: G. Porter Robinson     Title: Senior Vice President       HSBC BANK USA, NATIONAL ASSOCIATION,   by   /s/ David Wagstaff                             Name: David Wagstaff     Title: Senior Vice President       ING LUXEMBOURG,   by   /s/ Vincent Vermeire                         Name: Vincent Vermeire     Title: Head of Corporate &     Institutional Banking       by   /s/ Yves Verhulst                                 Name: Yves Verhulst     Title: Manager Financial Institutional   Professional Intermediaries       KEY BANK NATIONAL ASSOCIATION,   by   /s/ Daniel DiMarco                           Name: Daniel DiMarco     Title: Assistant Vice President             MIZUHO CORPORATE BANK, LTD.,   by   /s/ Bertram H. Tang                             Name: Bertram H. Tang     Title: Senior Vice President & Team   Leader       NORTHERN TRUST,   by   /s/ John A. Konstantos                       Name: John A. Konstantos     Title: Vice President       PNC BANK, NATIONAL ASSOCIATION,   by   /s/ Michael Nardo                             Name: Michael Nardo     Title: Senior Vice President       ROYAL BANK OF CANADA,   by   /s/ Tom Fairbrother                           Name: Tom Fairbrother     Title: Authorized Signatory       by   /s/ Dustin Craven                               Name: Dustin Craven     Title: Attorney-in-Fact             SANPAOLO IMI SpA,   by   /s/ Renato Carducci                           Name: Renato Carducci     Title: General Manager       by   /s/ Luca Sacchi                                 Name: Luca Sacchi     Title: Vice President       SOCIETE GENERALE,   by   /s/ Ambrish D. Thanawala                 Name: Ambrish D. Thanawala     Title: Managing Director       SUNTRUST BANK,   by   /s/ Douglas C. O’Bryan                     Name: Douglas C. O’Bryan     Title: Vice President       UNION BANK OF CALIFORNIA, N.A.,   by   /s/ Christine Davis                             Name: Christine Davis     Title: Vice President       U.S. BANK NATIONAL ASSOCIATION,   by   /s/ Gregory L. Dryden                       Name: Gregory L. Dryden     Title: Senior Vice President             WACHOVIA BANK, NATIONAL ASSOCIATION,   by   /s/ Karin E. Samuel                           Name: Karin E. Samuel     Title: Vice President       WELLS FARGO BANK, NATIONAL ASSOCIATION,   by   /s/ Megan Donnelly                           Name: Megan Donnelly     Title: Vice President              

EXHIBIT 10.1     Boston Scientific Corporation 2003 Long-Term Incentive Plan Non-Qualified Stock Option Agreement __________________________ PREPARED FOR: Employee’s Name   BOSTON SCIENTIFIC COPY PLEASE RETURN IN THE ENVELOPE PROVIDED     --------------------------------------------------------------------------------   This Agreement is entered into by and between Boston Scientific Corporation (the "Corporation") and the person whose name appears on the signature page hereof (the "Optionee") effective as of the _____ day of ________________, 2006. This Agreement is made pursuant to the Boston Scientific Corporation 2003 Long-Term Incentive Plan, as amended (the "Plan"), which is administered by the Committee. Capitalized terms not defined in this Agreement have the same meanings specified in the Plan. I. Grant of Option The Corporation hereby grants to the Optionee a Non-Qualified Stock Option (the "Option") to purchase that number of shares of common stock of the Corporation set forth on the signature page hereof (the "Option Shares") at the price set forth on the signature page hereof (the "Exercise Price"). II. Term and Vesting of Option Except as otherwise provided in Section IV, the Option shall have a term of ten (10) years from _______________________, 2006 until _____________________ 2016 and shall vest in accordance with the vesting schedule set forth on the signature page hereof. III. Exercise of Option While this Option remains exercisable, the Optionee may exercise a vested portion of the Option by delivering to the Corporation or its designee in the form and at the location specified by the Corporation, notice stating the Optionee's intent to exercise a specified number of shares subject to the Option and payment of the full Exercise Price for the specified number of shares. The payment for the full Exercise Price for the shares exercised must be made in (i) cash, (ii) by certified check or bank draft payable in U.S. dollars ($US) to the order of the Corporation, (iii) in whole or in part in Common Stock of the Corporation owned by the Optionee, valued at Fair Market Value or (iv) by "cashless exercise", by the Optionee delivering to his/her securities broker instructions to sell a sufficient number of shares of Common Stock to cover the Exercise Price, applicable tax obligations and the brokerage fees and expenses associated therewith. Shares of Common Stock of the Corporation used for payment, in whole or part, of the Exercise Price must have been owned by the Optionee, free and clear of all liens or encumbrances for a period of at least six (6) months prior to the exercise date. In addition, the Committee may impose such other or different requirements as it may deem necessary to avoid charges to earnings of the Corporation. The exercise date for the Optionee's exercise of all or a specified portion of the Option pursuant to this Section III will be deemed to be the date on which the Corporation receives the Optionee's payment in full for the Option Shares to be exercised accompanied by the notice of exercise     --------------------------------------------------------------------------------   specified by the Corporation as set forth above. Notice of exercise of all portions of the Option being exercised along with payment in full of the Exercise Price for such portion must be received by the Corporation or its designee on or prior to the last day of the Option term, as set forth in Section II above, except as provided in Section IV below. Upon the Corporation's determination that there has been a valid exercise of the Option, the Corporation shall issue certificates in accordance with the terms of this Agreement, or cause the Corporation’s transfer agent to make the necessary book entries, for the shares subject to the exercised portion of the Option. However, the Corporation shall not be liable to the Optionee, the Optionee's personal representative, or the Optionee's successor(s)-in-interest for damages relating to any delays in issuing the certificates or in making book entries, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in making book entries, or in the certificates themselves. IV. Termination of Employment Upon the Optionee's termination of employment for reasons of death or Disability, all remaining unexercised portion(s) of the Option shall immediately vest and become exercisable by the Optionee or the Optionee's appointed representative, as the case may be, until the expiration of term of the Option, or such other term as the Committee may determine at or after grant. Upon termination of the Optionee's employment for reasons (including Retirement) other than for Cause or those set forth above, the Optionee shall have the shorter of (i) twelve (12) months from the date of termination or (ii) the remaining term of the Option, to exercise all vested, unexercised portion(s) of the Option. Upon termination of the Optionee's employment for reasons (including Retirement) other than for Cause or those set forth above, all non-vested unexercised portions of the Option shall lapse; provided that the Committee, in its sole discretion, may extend the exercise period and/or accelerate vesting of unvested portions of the Option provided that such exercise period does not extend beyond the original term of the Option and no portion of the Option shall become vested earlier than six (6) months from the date of grant. At the time the Optionee is informed of termination of the Optionee's employment for Cause, all unexercised portions of the Option shall lapse and be forfeited. The Option, to the extent unexercised on the date following the end of any period described above or the Option term set forth above in Section II, shall thereupon lapse and be forfeited. Any permitted transferee (pursuant to Section VIII below) of the Optionee shall receive the rights herein granted subject to the terms and conditions of this Agreement. No transfer of this Option shall be approved and effected by the Corporation unless (i) the Corporation shall have been timely furnished with written notice of such transfer and any copies of such notice as the Committee may deem, in its sole discretion, necessary to establish the validity of the transfer; (ii) the transferee or transferees shall have agreed in writing to be bound by the terms and conditions of this Agreement; and (iii) such transfer complies with applicable laws and regulations.   2 --------------------------------------------------------------------------------   V. No Rights to Continued Employment The Option grant made under the Plan and this Agreement shall not confer on the Optionee any right to continue serving as an employee of the Corporation and this Agreement shall not be construed in any way to limit the Corporation's right to terminate or change the terms of the Optionee's employment. VI. Change in Control All unvested portions of the Option shall vest in the event of a Change in Control (as defined in the Plan), immediately prior to the effective date of the Change in Control. All vested portions of the Option shall terminate immediately prior to a Change in Control unless the Committee provides, at its discretion, for the substitution or assumption of the Option, by conversion into an option to acquire securities of equivalent kind and value of the surviving entity as of the effective date of the Change in Control. VII. Legend on Certificate The certificates representing the shares received by the Optionee pursuant to the exercise of the Option may be stamped or otherwise imprinted with a legend in such form as the Corporation or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Corporation may reflect stop-transfer instructions with respect to such shares. VIII. Transferability Except as required by law, the Option granted under this Agreement is not transferable and shall not be sold, transferred, assigned, pledged, gifted, hypothecated or otherwise disposed of by the Optionee other than by will or the laws of descent and distribution or without payment of consideration to Family Members of the Optionee or to trusts or other partnerships for the benefit of immediate family members of the Optionee. During the Optionee's lifetime, the Option is exercisable only by the Optionee, except as provided in Section IV above. IX. Satisfaction of Tax Obligations The Optionee agrees to make appropriate arrangements with the Corporation for satisfaction of any applicable federal, state or local income tax, withholding requirements or like requirements, including the payment to the Corporation at the time of exercise of the Option of all such taxes and requirements.   3 --------------------------------------------------------------------------------   X. Securities Laws Upon the acquisition of any shares pursuant to the exercise of the Option, Optionee will make or enter into such written representations, warranties and agreements as the Corporation may reasonably request in order to comply with applicable securities laws, or with the Plan. XI. Legal Notices Any legal notice necessary under this Agreement shall be addressed to the Corporation in care of its Secretary at the principal executive office of the Corporation and to the Optionee at the address appearing in the personnel records of the Corporation for such Optionee or to either party at such other address as either party may designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. XII. Choice of Law The interpretation, performance and enforcement of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts (without regard to the conflicts of laws principles) and applicable federal laws. XIII. Conflicts The Option granted by this Agreement is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. The Committee retains the right to alter or modify the Option granted under this Agreement as the Committee may determine as in the best interests of the Company.   4 --------------------------------------------------------------------------------   XIV. Headings The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. XV. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Corporation, by its duly authorized officer, and the Optionee have executed and delivered to the Agreement effective as of the date and year first above written. Option Shares: # ________of Shares Exercise Price: $_______ Vesting Schedule:         Percent of Option     Shares Vesting   Date Vested 25%     Date of First Anniversary 25%     Date of Second Anniversary 25%     Date of Third Anniversary 25%     Date of Fourth Anniversary               OPTIONEE             Signature:       Name: --------------------------------------------------------------------------------  Employee’s Name                 BOSTON SCIENTIFIC CORPORATION           James R. Tobin   President and Chief Executive Officer                                         5 --------------------------------------------------------------------------------

  Exhibit 10.2 JEFFERIES GROUP, INC. 2003 INCENTIVE COMPENSATION PLAN RESTRICTED STOCK AGREEMENT      AGREEMENT dated as of [insert grant date] (the “Grant Date”), between JEFFERIES GROUP, INC., a Delaware corporation (the “Company”), and [insert employee name] (“Employee”).      WHEREAS, the Compensation Committee of the Board of Directors (the “Committee”) has determined that the Company shall make a grant of Restricted Stock to Employee under the Company’s 2003 Incentive Compensation Plan (the “2003 Plan”), in furtherance of the purposes of the 2003 Plan and in recognition of Employee’s service as an employee of the Company and/or its subsidiaries; and      WHEREAS, the Company desires to confirm the grant of Restricted Stock, and to set forth the terms and conditions of such grant, and Employee desires to accept such grant and agree to the terms and conditions thereof, as set forth in this Restricted Stock Agreement (the “Agreement”).      NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:      1. Grant of Restricted Stock. The Company hereby confirms the grant, under the 2003 Plan, to Employee on the Grant Date set forth above of [insert number of shares] shares of Restricted Stock (the “Restricted Stock”). The Restricted Stock is subject to all of the terms and conditions set forth in this Agreement, including the restrictions set forth in Section 3. The Company shall issue in the name of Employee, as promptly as practicable, one or more certificates representing the shares of Common Stock, $.0001 par value (“Common Stock”), granted as Restricted Stock or shall instruct its transfer agent to issue Restricted Stock which shall be maintained in “book entry” form on the books of the transfer agent. The Restricted Stock shall bear the restrictive legend and be subject to the other terms set forth in Section 3. For purposes of this Agreement, each tranche of shares of Common Stock will remain Restricted Stock until the expiration of the Restrictions (as defined in Section 3) on such tranche or the forfeiture of the Restricted Stock, without regard to extraordinary transactions which may affect the Common Stock except as may be otherwise provided under the 2003 Plan and determinations of the Committee thereunder.      2. Incorporation of 2003 Plan by Reference. The Restricted Stock has been granted to Employee under the 2003 Plan. The 2003 Plan and information regarding the 2003 Plan, including documents that constitute the “Prospectus” for the 2003 Plan under the Securities Act of 1933, can be viewed and printed out from the Company’s secure Intranet website, www.corp.jefco.com (go to People Services, then to Plan Documents). All of the terms, conditions, and other provisions of the 2003 Plan are hereby incorporated by reference into this Agreement. Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the 2003 Plan. If there is any conflict between the provisions of this Agreement and the provisions of the 2003 Plan, the provisions of the 2003 Plan shall govern. Employee hereby acknowledges that the 2003 Plan and information regarding the 2003 Plan has been made readily available to him and agrees to be bound by all the terms and provisions thereof (as presently in effect or hereafter amended), rules and regulations   --------------------------------------------------------------------------------   adopted from time to time thereunder, and by all decisions and determinations of the Committee made from time to time thereunder.      3. Restrictions on Restricted Stock and Related Terms.      (a) Restrictions Generally. Until they expire in accordance with Section 3(b), the following restrictions (the “Restrictions”) shall apply to the Restricted Stock: (1) the Restricted Stock shall be subject to a risk of forfeiture as set forth in Section 3(b) (the “Risk of Forfeiture”), and (2) Employee shall not sell, transfer, assign, pledge, margin, or otherwise encumber or dispose of the Restricted Stock (except for transfers and forfeitures to the Company). Upon issuance of certificates or the transfer agent making the appropriate entry on its books representing the Restricted Stock in the name of Employee, which shall occur as promptly as practicable after the Grant Date, Employee shall be entitled to receive dividends on the Restricted Stock as provided in Section 3(e), shall be entitled to vote Restricted Stock on any matter submitted to a vote of holders of Common Stock, and shall have all other rights in connection with such Restricted Stock as would a holder of Common Stock except as otherwise expressly provided under this Section 3, and subject to the Committee’s authority (including authority to make adjustments to Awards) under the 2003 Plan.      (b) Risk of Forfeiture and Expiration Thereof. Unless otherwise determined by the Committee, if for any reason Employee’s employment by the Company or a subsidiary terminates prior to the expiration of the Restrictions, and immediately thereafter Employee is not employed by the Company or any direct or indirect subsidiary of Company (“Termination”), except as set forth below, all Restricted Stock as to which the Restrictions have not expired at or before the time of such Termination (and any related property resulting from Section 3(e)(iii)) shall be forfeited at the time of such Termination. Except as otherwise specifically set forth herein, the Restrictions shall expire as to [insert percentage to vest]% of the shares of Restricted Stock (and any related property) on each of [insert vesting dates] (each being a “Vesting Date,” at which date such Restricted Stock is deemed “vested”).   (i)   Death or Disability. If Employee dies or if such Termination is by reason of Employee’s Disability (as defined below), then such forfeiture and automatic repurchase shall not occur, and the Restrictions as to all of the shares of Restricted Stock shall immediately expire upon such death or Termination.     (ii)   Involuntary Termination by the Company not for Cause (and not subject to Section 3(b)(iii)). In the event of an involuntary Termination of Employment by the Company not for Cause (other than a Termination not for Cause following a Change in Control), provided that the Employee executes a settlement agreement and release in such form as may be requested by the Company, Restricted Stock not then or previously vested shall not then be forfeited, but thereafter shall be forfeited and repurchased by the Company (as provided above) if there occurs a Forfeiture Event prior to the earlier of the Vesting Date for such Restricted Stock or Employee’s death. A “Forfeiture Event” shall be deemed to occur if, following Employee’s Termination by the Company not for Cause, Employee renders services for any organization or engages (either as owner, investor, partner, stockholder, employer, -2- --------------------------------------------------------------------------------         employee, consultant, advisor, or director) directly or indirectly, in any business which is or becomes competitive with the Company, its subsidiaries or affiliates. However, following Employee’s Termination by the Company not for Cause, it shall not constitute a Forfeiture Event if Employee purchases stock or other securities of an organization or business so long as the stock or other securities are listed upon a recognized securities exchange or traded over-the-counter and such investment does not represent a greater than five percent equity interest in the organization or business.     (iii)   Termination not for Cause Following a Change in Control. If, following a Change in Control, Employee’s employment is terminated not for Cause by the Company or its successor, Restrictions on all of the then-outstanding Restricted Stock not vested at the date of Termination will immediately expire and such Restricted Stock will immediately vest. If a Change in Control occurs followed by Termination of Employment by the Company not for Cause and a determination is made by the Company pursuant to Sections 280G and 4999 of the Code that a “golden parachute” excise tax will be payable in connection with compensation to Employee hereunder, Employee’s right to accelerated vesting of the shares upon the Change in Control, to the extent such right results in “parachute payments” (as such term is defined in Code Section 280G), shall be limited to the extent just necessary to avoid the excise tax. This limitation shall be applied in a manner that maximizes the number of shares as to which accelerated vesting can apply (or, stated conversely, any limitation on acceleration of vesting shall apply first to those shares with the lengthiest remaining vesting period, which shares would result in the highest “parachute payments”).     (iv)   Termination by Employee for any reason or Termination by the Company for Cause. In the event of Employee’s Termination of Employment by Employee for any reason (other than due to death or Disability) or by the Company for Cause, the portion of the then-outstanding Restricted Stock not vested at the date of termination will be forfeited and repurchased by the Company (as provided above).      (c)     Certain Definitions. The following definitions apply for purposes of this Agreement:   (i)   “Cause” means Employee’s:         Neglect, failure or refusal to timely perform the duties of Employee’s employment (other than by reason of a physical or mental illness or impairment), or Employee’s gross negligence in the performance of his or her duties;         Material breach of any agreements, covenants and representations made in any employment agreement or other agreement with the Company or any of its subsidiaries or affiliates or violation of internal policies or procedures as are in effect as of the date such action is taken, including but not limited to the Company’s Code of Ethics and Standards of Employee Conduct, as amended from time to time; -3- --------------------------------------------------------------------------------         Violation of any law, rule, regulation or by-law of any governmental authority (state, federal or foreign), any securities exchange or association or other regulatory or self-regulatory body or agency applicable to Employee, the Company, its subsidiaries or affiliates or any material general policy or directive of the Company, its subsidiaries or affiliates;         Conviction of, or plea of guilty or nolo contendere to, a crime involving moral turpitude, dishonesty, fraud or unethical business conduct, or any felony of any nature whatsoever;         Failure to obtain or maintain any registration, license or other authorization or approval that Employee is required to maintain or that the Company, its subsidiaries or affiliates reasonably believes is required in order for Employee to perform his or her duties, provided, however, that Employee shall be given written notice of any such registration, license or other authorization or approval that he or she is required to obtain and a reasonable period of time to obtain such registration, license, or other authorization or approval; or         Willful failure to execute a directive of the board of directors of the Company or any of its subsidiaries or affiliates, the Executive Committee of any of the Company’s subsidiaries or affiliates, or Employee’s supervisor (unless such directive would result in the commission of an act which is illegal or unethical) or commission of an act against the directive of such Board, such Executive Committee or Employee’s supervisor.     (ii)   A “Change in Control” shall be deemed to have occurred if any of the following conditions shall have been satisfied after the Grant Date:         Any person (as defined in section 3(a)(9) of the Securities Exchange Act of 1934, as such term is modified in Section 13(d)), other than (i) an employee plan established by the Company or any of its subsidiaries; or (ii) any group of Company employees holding shares subject to agreements relating to the voting of such shares becomes a beneficial owner, directly or indirectly, of more than 51% of the voting stock of the Company;         The consummation of a merger or consolidation of the Company with any other corporation or any other entity, or the issuance of voting securities in connection with a merger or consolidation of the Company, if the holders of the Company’s voting securities immediately prior to such transaction hold in the aggregate less than a majority of the then outstanding voting securities of the Company (or any successor company or entity) entitled to vote generally in the election of the directors of the Company (or such other company or entity) after such transaction; -4- --------------------------------------------------------------------------------         The sale or disposition by the Company of all or substantially all of its assets in which one person or more than one person acting as a group acquires assets from the Company that have a total gross fair market value equal to more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition; or         A change in the composition of the Board of Directors of the Company such that individuals who, as of the date of this agreement, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a member of the Board of Directors of the Company subsequent to the date of this agreement whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least a majority of the directors then constituting the Incumbent Board shall be considered as if that individual were a member of the Incumbent Board.     (iii)   “Disability” means that Employee has commenced receipt of long-term disability benefits under the Company’s long-term disability policy as in effect at the date of Employee’s termination of employment.     (iv)   “Termination” or “Termination of Employment” means the event by which Employee ceases to be employed by the Company, its subsidiaries and affiliates and immediately thereafter is not employed by any other entity included within the Company.           (d) Evidence of Restricted Stock. Restricted Stock shall be evidenced either (i) by issuance of one or more certificates in the name of Employee or (ii) by an entry on the books of the Company’s transfer agent. The Restricted Stock shall bear an appropriate legend referring to the terms, conditions, and Restrictions applicable hereunder in substantially the following form: The shares of Common Stock represented by this certificate (the “Shares”) have been granted by Jefferies Company, Inc. (the “Company”) as Restricted Stock under the Company’s 2003 Incentive Compensation Plan (the “2003 Plan”) and the Restricted Stock Agreement (the “Agreement”), dated as of [insert date of agreement] between the registered owner named hereon (“Employee”) and the Company. Under the 2003 Plan and the Agreement, copies of which may be examined at the office of the Secretary of the Company, until [insert last vesting date] (subject to acceleration in certain circumstances), Employee shall not sell, transfer, assign, pledge, margin, or otherwise encumber or dispose of the Shares (except for transfers and forfeitures to the Company), and Employee shall forfeit the Shares upon termination of Employee’s employment with the Company and its subsidiaries in certain circumstances. The Shares are subject to certain other terms and conditions set forth in the Agreement. Unless otherwise determined by the Company, certificates representing Restricted Stock shall remain in the physical custody of the General Counsel of the Company or his designee until such time as Restrictions on such Restricted Stock have expired. In addition, Restricted Stock shall be subject to -5- --------------------------------------------------------------------------------   such stop-transfer orders and other restrictive measures as the General Counsel of the Company shall deem advisable under federal or state securities laws, rules and regulations thereunder, and the rules of the New York Stock Exchange (the “NYSE”) or any national securities exchange or automated quotation system on which Common Stock is then listed or quoted, or to implement the Restrictions.      (e) Dividends and Distributions; Stock Splits. Employee shall be entitled to receive dividends and distributions payable with respect to Restricted Stock if and to the extent that he or she is the record owner of such Restricted Stock on any record date for such a dividend or distribution and he or she has not forfeited such Restricted Stock on or before the payment date for such dividend or distribution, and Restricted Stock shall be subject to any stock split, subject to the following terms and conditions:   (i)   In the event of a cash dividend or distribution on Common Stock which is not a large, special and non-recurring dividend or distribution (as determined by the Board of Directors), such dividend or distribution shall be paid in cash to Employee;     (ii)   In the event of a large, special and non-recurring cash dividend payable on Common Stock, the Company shall retain the amount of such cash dividend and, in lieu of delivery thereof, shall grant to Employee additional shares of Restricted Stock having a fair market value (as determined by the Committee) at the payment date of the dividend or distribution equal to the amount of cash paid as a dividend or distribution on each share of Common Stock multiplied by the number of shares of Employee’s Restricted Stock. Such additional Restricted Stock will be subject to the same Restrictions and to such other terms and conditions as applied to the Restricted Stock;     (iii)   In the event of any non-cash dividend or distribution in the form of property other than Common Stock payable on Common Stock (including shares of a subsidiary of the Company distributed in a spin-off) (unless the Committee determines to make equitable adjustments under Section 5.3 of the 2003 Plan in lieu of the procedure specified in this Section 3(e)(iii)), the Company shall retain in its custody the property so distributed in respect of Employee’s Restricted Stock, which property will be subject to the same Restrictions and to such other terms and conditions of the 2003 Plan and this Agreement as apply to the Restricted Stock with respect to which such property was distributed, until such time as the Restrictions expire or the Restricted Stock (together with such property) are forfeited. To the greatest extent practicable, such property will be treated the same as such Restricted Stock with respect to which the property was distributed, including in the event of any dividends or distributions paid in respect of such property or with respect to the placement of any legend on certificate(s) or documents representing such property.     (iv)   In the event of a dividend or distribution in the form of Common Stock or split-up of shares, the Common Stock issued or delivered as such dividend or distribution or resulting from such split-up will be deemed to be additional Restricted Stock and will be subject to the same Restrictions and to such other terms and conditions of the -6- --------------------------------------------------------------------------------         2003 Plan and this Agreement as applied to the Restricted Stock with respect to which such dividend or distribution was paid or which was subject to such split-up.      (f) Delivery of Certificates. Upon expiration of Restrictions on any Restricted Stock, the shares previously issued in the name of Employee as such Restricted Stock shall no longer be deemed to be Restricted Stock, and the Company shall, subject to the satisfactory payment of any federal, state or foreign taxes or other amounts referred to in Section 4, below, cause any legend referring to the Restrictions to be removed from the certificate(s) representing such shares and shall deliver such certificate(s) (together with any property resulting from Section 3(e)(iii)) to Employee.      (g) Stock Powers. Employee shall deliver to the General Counsel of the Company, at the time of execution of this Agreement and/or at such other time or times as the General Counsel may request, one or more executed stock powers, in the form attached hereto as Exhibit A or such other form as may be specified by the General Counsel, authorizing the transfer of the Restricted Stock to the Company upon forfeiture, and Employee shall take such other steps or perform such other actions as may be requested by the General Counsel to effect the transfer of any forfeited Restricted Stock (together with any property resulting from Section 3(e)(iii)) to the Company.      4. Tax Withholding. Employee shall make arrangements satisfactory to the Company, or, in the absence of such arrangements, the Company and any subsidiary may deduct from any payment to be made to Employee any amount necessary, to satisfy requirements of federal, state, local, or foreign tax law to withhold taxes or other amounts with respect to the grant of the Restricted Stock or the expiration of the Restrictions applicable to the Restricted Stock (and any property resulting from Section 3(e)(iii)). In the event that Employee files, under Section 83(b) of the Code, an election to be taxed on his receipt of Restricted Stock as the receipt of ordinary income at the date of grant of the Restricted Stock, Employee shall at the time of such filing notify the Company of the making of such election and furnish a copy of the notice to the Company. Unless Employee has made separate arrangements satisfactory to the Company, the Company may elect to withhold shares deliverable upon lapse of the Restrictions on the Restricted Stock having a fair market value (as determined by the Committee) equal to the amount of such tax liability required to be withheld in connection with the grant of the Restricted Stock or the expiration of the Restrictions applicable to the Restricted Stock, but the Company shall not be obligated to withhold such shares. The Company may specify a reasonable deadline (for example, 90 days before lapse of Restrictions) by which separate arrangements must be made for payment of withholding taxes other than through withholding of shares.      5. Legal Compliance. Employee agrees to take any action the Company reasonably deems necessary in order to comply with federal and state laws, or the rules and regulations of the NYSE, the National Association of Securities Dealers, Inc., or any other stock exchange, or any other obligation of the Company or Employee relating to the Restricted Stock or this Agreement.      6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES. -7- --------------------------------------------------------------------------------        7. Miscellaneous. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties. This Agreement and the 2003 Plan constitute the entire agreement between the parties with respect to the Restricted Stock, and supersede any prior agreements or documents with respect thereto. No amendment, alteration, suspension, discontinuation, or termination of this Agreement which may impose any additional obligation upon the Company or materially impair the rights of Employee with respect to the Restricted Stock shall be valid unless in each instance such amendment, alteration, suspension, discontinuation, or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and, if Employee’s rights are being materially impaired, by Employee. Neither the Restricted Stock nor the granting thereof shall constitute or be evidence of any agreement or understanding, express or implied, that Employee has a right to continue as an officer or employee of the Company or any subsidiary for any period of time, or at any particular rate of compensation. Any waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof.      The Employee hereby acknowledges that the type and periods of restriction imposed in the provisions of this Agreement are fair and reasonable. The Employee hereby further acknowledges that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, the Employee agrees that if any particular provision of this Agreement shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. In addition, if any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.           Employee:   JEFFERIES GROUP, INC.           [Insert employee name]   By:                         Social Sec. No.                   Address:         [Insert employee address]         -8- --------------------------------------------------------------------------------   STOCK POWER      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Jefferies Group, Inc. [insert number of shares] shares of Common Stock, $0.0001 par value per share, of Jefferies Group, Inc., a Delaware corporation (the “Corporation”), registered in the name of the undersigned on the books and records of the Corporation, and does hereby irrevocably constitute and appoint [Name] and [Name], and each of them, attorneys, to transfer the Common Stock on the books of the Corporation, with full power of substitution in the premises.                 (Signature should be in exact form as on Stock certificate)                 Date -9-

  CONFIDENTIAL [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.22 EXCLUSIVE LICENSE AGREEMENT   This Exclusive License Agreement (“Agreement”) is made as of the 21st day of April 2006 (hereinafter the “Effective Date”) by and between GREEN CROSS VACCINE CORP., a corporation organized and existing under the laws of the Republic of Korea, having its registered offices at 227-3, Kugai-Ri, Kiheung-Eup, Yongin City, Kyounggi Province, Republic of Korea, (“Licensor”) And RHEIN BIOTECH GmbH, formed and in good standing under the laws of Germany, having its seat in Düsseldorf, Eichsfelder Strasse 11, 40595, Germany, (“Licensee” or “RBG”); (With Licensor and Licensee, referred individually as a “Party” and collectively as the “Parties”). WITNESSETH WHEREAS,   Berna Biotech AG (“Berna”) is the owner of substantially all of the share capital of (1) Rhein Biotech NV, incorporated under the laws of the Netherlands having its registered office at Oude Maasstraat 47, NL 6229 BC Maastricht, The Netherlands (hereinafter “RBNV”), which prior to the Effective Date owned 100 percent of the share capital of RBG and of (2) Rhein Vaccines B.V., which owns 100% of the share capital of Licensor; WHEREAS,   the Parties entered into a Development agreement dated January 1, 2003 (“Development Agreement”), whereby Licensee provided services for the development of Supervax (defined below) for and on behalf of Licensor; and subsequent thereto, the Parties enter into the “License Option Agreement Supervax” dated November 9, 2005 (“Option Agreement”), which grants the Licensee an exclusive worldwide option to an exclusive license for Supervax; WHEREAS,   Dynavax, a vaccine company based in the USA, and RBNV entered into a Letter of Intent dated March 10, 2006, to sell RBG to Dynavax (the “Letter of Intent); WHEREAS,   among other things the Letter of Intent also provided certain licensing terms regarding Supervax, which licensing terms regarding Supervax are being superseded by this Agreement; [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL WHEREAS,   as an ancillary condition to the sale of RBG to Dynavax, Dynavax shall cause RBG to exercise the exclusive license option in the Option Agreement, and Licensor shall grant such exclusive license as provided for hereinbelow. NOW THEREFORE, in consideration of the premises, the mutual understandings and the obligations herein contained, and intending to be legally bound, Licensor and Licensee do hereby agree as follows: SECTION 1: DEFINITIONS     Plural used in this Agreement shall mean singular and vice versa. The following initially capitalized terms shall have the following meanings when used in this Agreement (and derivative forms of them will be interpreted accordingly):   1.1   “Actual Cost for Filling and Packaging of vials” shall mean the cost [ * ]   1.2   “Affiliate” shall mean (i) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by a Party; or (ii) any corporation or business entity which, directly or indirectly, owns, controls or holds fifty percent (50%) (or the maximum ownership interest permitted by law) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general-partnership interest, of a Party. Affiliates of Licensor include Crucell N.V., a Dutch corporation; RBNV; Rhein vaccines B.V.; and Berna Biotech AG. Affiliation shall be determined based on RBG being wholly owned by Dynavax, and not owned at all by RBNV.   1.3   “Cost for Registration” shall mean all costs related to entering into registrations, or obtaining regulatory approvals (such as BLAs and NDAs in the U.S. and regulatory approvals have a similar effect in other countries), in each case for Supervax for prophylactic applications or indications, including all direct, indirect, internal and external costs related to: [ * ]     The Parties recognize that there is some overlap among different categories included in (a) – (b). Individual costs, however, shall not be double-counted across multiple categories. Any overlap between the categories shall not, however, be used or interpreted to narrow any of (a) – (b).   1.4   “Cost for Technology Transfer” shall mean all [ * ] respecting Supervax.   1.5   “Development Agreement” shall have the meaning given in the second recital above.   1.6   “Effective Date” shall have the meaning stated above in the first paragraph of this Agreement.   1.7   “Field” means the prevention (or prophylaxis) of disease in humans.   1.8   “Letter of Intent” shall have the meaning given in the third recital above. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL 1.9   “License Revenues” shall mean all [ * ] in respect of such sublicense. To be clear, the following, even if received from a Sublicensee pursuant to such an agreement, are excluded from License Revenues: [ * ]     As regards (c) and (d), the recovered (through the payment from the Sublicensee) expenses shall not then be included under any cost category that is included as a deduction to arrive at Net Profit. As regards (a), [ * ] As regards (b), [ * ] As regards (c), this exclusion from License Revenues is limited to actual cost and as regards internal personnel costs is limited to reasonable FTE rates at the rate of [ * ] adjusted for inflation every year by reference to [ * ] with the first adjustment to be made with respect to FTEs devoted in [ * ] plus all materials, travel and related expenses.   1.10   “Marketing, Sales & Distribution Expenses” shall mean Licensee’s and its Affiliates’ direct, indirect, internal and external costs to market, sell and distribute Supervax Program Products, including the following types of such costs: [ * ]   1.11   “Net Profit” shall mean the sum of [ * ] minus all of the following: [ * ]       To the extent such calculation results in a negative number (i.e., a loss) for the applicable reporting period, then [ * ]       Internal costs included in Net Sales shall be accounted for based on actual cost, with internal labor costs being billed at a rate of [ * ] adjusted for inflation every year by reference to [ * ] with the first adjustment to be made with respect to FTEs devoted in [ * ] External costs shall be accounted for at the amount equal to amounts paid out to third parties. RBG is entitled to do all accounting hereunder in accordance with U.S. generally accepted accounting principles, consistently applied.       If there is any overlap among different cost deduction categories used in the calculation of Net Sales and Net Profits, such individual costs, however, shall not be double-counted across multiple such deducted categories. Any overlap between the categories shall not be used or interpreted to narrow, however, any such deducted cost category.   1.12   “Net Sales” shall mean the gross invoice price of sales of Supervax Program Products made by Licensee, and its Affiliates to third parties (including distributors and Sublicensees) less deductions for [ * ] Sales made by third parties, such as Sublicensees, which sales are used to calculate the payment of License Revenues to Licensee, shall not be included in Net Sales. Sales from Licensee or its Affiliate to third-party selling agents or contractors, where Licensee or its Affiliate has no royalty or profit interest in the resales by the such agents or contractors (as in the case of a traditional distributor), shall be included in the calculation of Net Sales (although resales by such agents or contractors shall not be).   1.13   “Option Agreement” shall have the meaning given in the second recital above.   1.14   “Patent” shall mean granted patents, including utility models and certificates of invention, and reissues, re-examinations, supplementary protection certificates, [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     extensions, and term restorations thereof, and patent applications therefor, including any continuations, continuations-in-parts, divisionals thereof, and the like.   1.15   “Patent Costs” shall mean all direct, indirect, internal and external patent preparation, prosecution, extension and maintenance costs specifically relating to Supervax Program Products or the manufacture, use, clinical testing thereof, including fees to patent offices and outside and counsel, and a reasonable accounting of internal legal resources, together with those costs referred to in the last sentence of Section 4.2 below as well as those referred to in the last sentence of Section 8.1.1 below.   1.16   “Payment Term” means, for a given country, the period from first commercial sale of the first Supervax Program Product in a given country, to [ * ] thereafter. Payment Term is determined on a country-by-country basis.   1.17   “Supervax Technology” shall mean all materials, information, experience and data, formulae, procedures, culture medium and growth conditions, results and specifications, manufacturing processes, equipment specifications, purification processes, regulatory filings, and rights of reference thereto, product registrations, and vaccine-related clinical and pre-clinical data, in written or electronic form, which are related specifically to Supervax, which (i) are in the possession of Licensor at the Effective Date, and/or has been transferred to Licensee prior to the Effective Date pursuant to the obligations of preceding Research/License Agreement, and the Development Agreement (as defined herein), (ii) are necessary or useful in connection with the research, development, manufacture of Supervax, (iii) are not subject to a third party confidentiality obligation that prevents Licensor from disclosing the same, and (iv) are not generally known or published. Schedule 1.11 provides an exemplary list of Supervax Know How. This list is not all-inclusive. Items otherwise fitting within the foregoing definition but not stated on such list remain nevertheless included in the Supervax Technology.   1.18   “Sublicensee” shall mean a third party to whom Licensee has granted a license and/or sublicense under the Supervax Technology to make, use, offer to sell, import, use or sell Supervax in the Field.   1.19   “Supervax” shall mean the current prophylactic two dose Hepatitis B vaccine that includes the [ * ] adjuvant. [ * ]   1.20   “Supervax Program Products” means all prophylactic Hepatitis B vaccines that contain all of the following: [ * ] The Supervax Program Products include Supervax.       In addition, throughout this Agreement the words “include” (and all conjugations of it), “such as” and “for example” shall each be deemed to be followed by the words “without limitation,” “but without limitation,” or similar language against construing the language as limiting. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL SECTION 2: LICENSE GRANT 2.1   Exclusive License. Licensor grants to Licensee and its Affiliates a profit share-bearing (solely as set forth in this Agreement), worldwide, exclusive (even as to Licensor and its Affiliates) license under the Supervax Technology to develop, make, have made, use, sell, offer to sell, store, import, export and distribute Supervax Program Products in the Field for the Term.   2.1.1   Sublicense Right. The license grant of Section 2.1 shall include the right to sublicense third parties (through one or more tiers or layers of sublicensees without consent from Licensor) the right to develop, make, have made, use, offer for sale, store, sell, import and/or export Supervax Program Products in the Field in one (1) or more countries of the world.   2.2   Retained Rights. Licensor shall retain the right to use the Supervax Technology to perform and have performed research and development in the Field, and any other activities, including commercial activities, provided the subject matter of such other activities are not [ * ] Supervax Program Products in the Field. As long as the exclusive license is in effect, the right to reference product registration files is not included. However to the extent any third party may reference such regulatory file for a generic marketing approval (i.e. an ANDA-like filing) Licensor may do the same, provided that it is understood and agreed Licensor must derive rights thereto in the same manner as third parties, and does not obtain any additional rights or access to such data through this agreement.   2.3   License Field Restrictions. The license grant of Section 2 is restricted by Section 6 of the Definitive Commercial Agreement among Licensee, RBNV, and Dynavax Technologies Corporation, of even date herewith, as quoted below: “SECTION 6: COVENANTS NOT TO COMPETE 6.1 [ * ] RBG and Dynavax, for [ * ] after Closing, will not develop and/or market, and/or license others to develop and/or market, for [ * ] Hepatitis B vaccine, other than Heplisav Program Products. 6.2 [ * ] RBG and Dynavax, for [ * ] after Closing, will not develop and/or market, and/or license others to develop and/or market, [ * ] other than Heplisav Program Products.” SECTION 3: DEVELOPMENT AND COMMERCIALIZATION OBLIGATIONS 3.0   Definition of Efforts. “Commercially Reasonable Diligent Efforts” shall mean a reasonable level of efforts, commensurate with the efforts that a similarly situated biotechnology company would devote to a product of similar potential and having similar commercial advantages and disadvantages, taking into account all relevant commercial factors such as: [ * ] In assessing Commercially Reasonable Diligent Efforts [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     Efforts RBG and its Affiliates will ignore any negative impact to RBG and its Affiliates of Licensor’s Net Profit share or RBNV’s rights set forth in Section 3.1 and 3.2 of the Definitive Commercial Agreement among RBG, RBNV and Dynavax of even date with this Agreement.   3.1   Exertion of Efforts. RBG, and/or its Affiliates, shall exert Commercially Reasonable Diligent Efforts to develop and commercialize Supervax in those countries where it is reasonable in applying the Commercially Reasonable Diligent Efforts standard to do, including via the following kinds of activities:   3.1.1   progress a Supervax Program Product through development to registration, including conducting clinical trials and preparing and filing applications for registration;   3.1.2   scaling up the manufacturing process for a Supervax Program Product to the scale required for the clinical trials of Section 3.1.1;   3.1.3   developing a commercial production process for a Supervax Program Product, and implementing the same in a commercial manufacturing facility; and   3.1.4   marketing, offering to sell, selling, importing and distributing Supervax.   3.2   Decision as to for which Countries to Develop and Commercialize Supervax.   3.2.1   Licensee is entitled to decide for which countries it wishes to develop and commercialize Supervax, provided such decision is consistent with the Commercially Reasonable Diligent Efforts standard.   3.3   If Licensee takes the decision to file for marketing approval, and/or to market, no Supervax Program Product in any particular country in or for which Licensee has made a contrary decision for a Heplisav Program Product, and the Commercially Reasonable Diligent Efforts standard would require marketing Supervax in such country (taking into account all factors provided for in the definition of such standard above, including gray market effects on countries where Licensee will be marketing a Supervax Program Product and the potential impact on the selling price in such countries), then Licensee shall promptly inform Licensor in writing. Licensor may then inform Licensee, that for such country, Licensee’s exclusive license is revoked, and, thereafter Licensor or an Affiliate theoreof, will have the rights to register, market, offer to sell and sell Supervax in such country. Licensor shall have the right to reference regulatory dossiers useful for registration in such market. Licensor shall in this case be entitled under its license in Section 4.3.1 of the Definitive Commercial Agreement between the Parties of even date with this Agreement to manufacture Supervax Program Product solely to supply itself solely for such reverted countries. In addition, Licensee agrees to discuss in good faith with Licensor the possibility of Licensee supplying Licensor with quantities of Supervax Program Product for Licensor’s sales in any such reverted countries, but Licensor shall not be required to supply Licensor unless the Parties reach written agreement as to such supply and in any case Licensee shall not be required under any circumstances to prioritize supply for the reverted countries ahead of supply for countries where Licensee retains its license nor shall Licensee be required to increase its capacity for production of [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     Supervax Program Products. Licensor will owe Licensee and shall pay Licensee [ * ] of Net Profits on Supervax in each reverted country (if there ever are any), applying the cost definitions and mechanics of set forth in this Agreement mutatis mutandis to calculate Licensor’s Net Profits and provide for it to pay Licensee’s share of it to Licensee.   3.4   Commercial Partners/Sublicensee Efforts. Licensee’s Affiliates’, Sublicensees’ and distributors’ efforts shall count as Licensees’ efforts for purposes of evaluating diligence under this Article 3.   3.5   Tolling in Case of [ * ] Licensee’s diligence obligations under this Article 3 shall be tolled for the period of any [ * ] of [ * ] of the [ * ] from [ * ] that [ * ]   3.6   Sole Diligence Obligations. Licensee’s sole obligations to practice or work the licensed technology and to diligently develop and commercialize hereunder shall be those explicitly set forth above in this Article 3. No other such obligations of any kind shall be imposed on License or any of its Affiliates, whether implied at law or in equity, or provided in statute. SECTION 4: PAYMENT FOR GRANTED RIGHTS 4.1   Profit Sharing. The Parties hereby agree to share the Net Profits realized from the sale and licensing of Supervax in accordance with the following:   4.1.1   Development Reimbursement Share. Licensee shall pay Licensor [ * ] of the Net Profit until Licensee has paid Licensor an amount equal to the principal development investment made by Licensor pursuant to the Development Agreement, plus accumulated interest at [ * ] per annum, as per Schedule 1. Payment for Supervax attached hereto (“Development Investment”). This [ * ] share of Net Profits is payable until the Development Investment has been fully repaid to Licensor, even if [ * ]   4.1.2   Fully Reimbursed Share. During the Payment Term but after Licensee’s payments of Net Profit have equaled the Development Investment, Licensee shall pay Licensor [ * ] of the Net Profit earned in such time period.   4.1.3   No More Profit-Sharing After the Payment Term, Except to Reimburse the Development Investment. Except as provided in Section 4.1.1, Licensee shall not owe Licensor any further Net Profit with respect to each country in which the Payment Term has expired.   4.2   Licensee Obligations. Licensee shall be solely responsible for the payment of any royalties, license fees, and milestone or other payments due to third parties contracted by Licensee under licenses or similar agreements necessary to allow the manufacture, use or sale of Supervax in the Field. However, these amounts shall be included as a deduction in the calculation of Net Profits. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL SECTION 5: PAYMENTS; BOOKS AND RECORDS; AUDIT 5.1   Net Profit Reports and Payments. After the first Net Sale is recorded, Licensee agrees to submit quarterly written reports to Licensor within ninety (90) days after the end of each calendar quarter (December 31, April 1, July 1, and October 1), stating in each such report the number, description, and aggregate Net Sales sold during the calendar quarter by Licensee and its Affiliates (if applicable), the Net Profit and the amount owed to Licensor. Concurrently with the submission of such reports, Licensee, as the case may be, shall pay the Net Profit Share in accordance with Section 4.1.   5.2   Method of Payment.   5.3   All payments due hereunder to Licensor shall be paid in Euros in immediately available funds, for Licensor’s account, to a bank designated in writing by Licensor.   5.4   Interest. If any payment under this Agreement is not made by the date on which the same becomes due and payable, the late Party shall owe the other Party interest at the rate of LIBOR plus two percent (2%) per annum on any outstanding amount until payment is made in full.   5.5   No Refunds. Payments referred to herein shall not be refundable.   5.6   Currency Conversion. If any currency conversion shall be required in connection with the calculation of Profit Share hereunder, such conversion shall be calculated at the published rate of [ * ] for such period.   5.7   Withholding Taxes. If Licensee is required by law to withhold taxes from any payments due hereunder to Licensor, then Licensee shall be entitled to deduct the entire amount of the required withholding from the amount otherwise due hereunder, shall pay the amount required to be withheld to the relevant tax authority, and shall provide evidence of such payment to Licensor within sixty (60) days thereafter. Licensee agrees to reasonably cooperate with Licensor as to from what country payments required hereunder are made, provided that any change in country requested by Licensor does not have a negative impact on taxes due by Licensee (i.e., does not cause Licensee to owe greater taxes) that Licensor is unwilling to reimburse Licensee.   5.8   Records; Inspection. Licensee, its Affiliates and their Sublicensees, shall keep complete, true, and accurate books of account and records for the purpose of determining the Profit Share amounts payable under this Agreement. Such books and records shall be kept at the principal place of business of Licensee, or its Affiliate, or Sublicensee, as the case may be, for at least three (3) years following the end of the calendar quarter to which they pertain. Such records will be open for inspection during such three (3) year period by an independent public accounting firm of national prominence retained by the other Party for the purpose of verifying the Net Profit Share statements, no more than once per set of records. Such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by Licensee and Licensor. The Licensor’s representative or agent will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section shall be at the expense of the [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     Licensor, unless a variation or error producing an increase exceeding [ * ] of the amount stated for any period covered by the inspection is established in the course of any such inspection, whereupon all costs relating to the inspection for such period will be paid the Licensee. SECTION 6: CONFIDENTIALITY 6.1   This section 6 amends and restates the confidentiality provisions, as they pertain solely to Supervax, pursuant to (1) Section 4.1 of the Research License Agreement dated October 16, 1992, (2) Section 5a. of the Development Agreement dated January 1, 2003, and (3) Section 7 of the License Option Agreement Supervax dated November 9, 2005, each of (1), (2) and (3) between Licensee and Licensor’s Affiliate, Green Cross Vaccine Corp.   6.2   All documents, materials and know-how which may be furnished to the receiving Party hereto (the “Recipient”) by the disclosing Party hereto (the “Disclosing Party”) pursuant to this Agreement, and the predecessor agreements referred to in Section 6.1 hereinabove, shall be, if suitably marked or designated in tangible form, deemed the Disclosing Party’s “Proprietary Information” and, therefore, considered confidential and shall not be used by Recipient other than for the purposes licensed under this Agreement and for the exercise of the Recipient’s rights under this Agreement. Recipient shall use the same degree of care regarding Disclosing Party’s Proprietary Information as it uses in protecting and preserving its own proprietary/confidential information of like kind to avoid disclosure or dissemination thereof, but no less than a reasonable degree of care. Information which is disclosed orally or otherwise than in tangible form shall be considered Proprietary Information if: (a) the information is identified as confidential at the time of disclosure and a written summary is provided to the Recipient within thirty (30) days thereafter, or (b) the information is identified as confidential in writing and provided to the Recipient prior to or at the time of disclosure by the Disclosing Party.   6.3   This confidentiality obligation shall not apply to information if the information: (a) is publicly known or which the Recipient has documentary records which establish its or its Affiliate’s knowledge prior to this disclosure; (b) subsequently becomes publicly known and/or published through no fault of the Recipient; (c) is independently developed without use or reference to the other Party’s Proprietary Information; (d) is required by operation of law or requirement of a governmental authority or rules of any securities exchange having jurisdiction to be disclosed (provided that the Party making the required disclosure gives reasonable (under the circumstances) advance notice of the required disclosure and all reasonable assistance to seek confidential treatment or a protective order if appropriate ); or (e) is or was brought to the Recipient’s attention by a third Party who has a legal right to do so. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL SECTION 7: PUBLICATIONS AND PUBLICITY 7.1   Each Party agrees not to use the name of the other Party or any member of its staff in sales promotion work or advertising, or in any other form of publicity, without the written permission of the other Party.   7.2   Neither Party shall disclose in any press release, public statement, or public release, the terms of this Agreement or any information with respect to this Agreement (including, without limitation, any release of information in connection with any scientific and medical conference) without the other Party’s express written permission. The foregoing shall not apply to disclosures under an understanding of confidentiality or to information, which had theretofore been disclosed by or with the consent of the other Party. Either Party will be free to publish the results of the Supervax project after providing the other Party with a [ * ] (which period shall commence to the date that the other Party receives the text which is to be published and a summary of the manner of intended publication) in which to review and approve each publication, which approval shall not be unreasonably withheld. In any such publication by Licensor, Licensee’s contribution shall be acknowledged by Licensor. Notwithstanding any of the foregoing, nothing in this Agreement shall be deemed to prevent a Party (or its Affiliate) from complying with its reporting requirements as part of its responsibilities as a public company. This includes public company reporting requirements of Dynavax Technologies Corporation, a Delaware corporation. Accordingly, while Licensee will attempt to give Licensor advance notice of any such required disclosures, and will reasonably consider Licensee’s comments thereon if provided on a timeline that is reasonable in view of the required disclosure, Licensee and its Affiliates retain the right to make all legally required disclosures (including as legally required based on SEC interpretations), based on the good faith advice of its outside corporate counsel. SECTION 8: INTELLECTUAL PROPERTY 8.1   Defense of Third Party Infringement Claims.   8.1.1   Infringement Claims. If the production, sale or use of any Supervax in the Field results in a claim, suit or proceeding alleging patent infringement against Licensee or Licensor (or their respective Affiliates or Sublicenses), such Party shall promptly notify the other Party hereto in writing setting forth the facts of such claim in reasonable detail. The Party subject to such claim shall have the exclusive right to defend and control the defense of any such claim, suit or proceeding, at its own expense, using counsel of its own choice, provided, however, it shall not enter into any settlement which admits or concedes that any aspect of the Patent or Know How of the other Party hereto is invalid or unenforceable without the prior written consent of such other Party. Such Party shall keep the other Party hereto reasonably informed of all material developments in connection with any such claim, suit or proceeding. All liabilities under this Section are and shall be deemed deductible costs in the calculation of Net Profits via inclusion within the Patent Costs. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL SECTION 9: WARRANTIES, INDEMNIFICATION AND INSURANCE 9.1   Disclaimer. UNLESS EXPRESSLY STATED HEREIN, LICENSOR DISCLAIMS ALL WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER, INCLUDING BUT NOT LIMITED TO WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, OR MERCHANTABILITY CONCERNING THE SUPERVAX KNOW HOW, AND THAT LICENSEE’S USE OF SUPERVAX KNOW HOW WILL BE FREE FROM INFRINGEMENT OF PATENTS OF THIRD PARTIES.   9.2   Warranties and Representations.   9.2.1   Both Parties. Licensor and Licensee warrant and represent that: (i) they have the power and authority to enter into this Agreement and perform the responsibilities and obligations herein and the execution and delivery of this Agreement has been duly authorized; (ii) they have the power to carry out their obligations under this Agreement; and (iii) nothing in this Agreement or in the execution or performance thereof shall constitute a breach, violation or default of any provision contained in such Party’s certificate or articles of incorporation or other organizing instruments nor violate any contract or other commitment of such Party. 9.2.2   Licensor Representations. Licensor represents and warrants to Licensee the following:   9.2.2.1   Licensor shall not grant, during the Term, any rights to third parties, or take any actions or fail to take any actions, which grant or action(s) would impair the rights granted to Licensee herein.   9.2.2.2   As of the Effective Date, Licensor has sufficient legal and/or beneficial title to, and/or the right to license, the Supervax Technology necessary for the purposes contemplated under this Agreement and to grant the licenses contained herein, including those items of Supervax Technology listed in Schedule 1.1.   9.2.2.3   As of the Effective Date, Licensor is not aware, nor should it be aware, of any third party communications alleging that any Supervax Technology licensed under this Agreement would infringe any valid patent rights of any third party.   9.2.2.4   As of the Effective Date, Licensor does not own, does not control, and has not filed, any Patent that claims one or more inventions relating to the composition, formulation, manufacture and/or the use, of Supervax Program Products, and is not entitled to assignment from any other entity any Patent claiming an invention made prior to the Effective Date which invention relates to the composition, formulation, manufacture and/or use of Supervax Program Products. 9.3   Indemnification.   9.3.1   Except to the extent resulting from the willful misconduct or gross negligence, or breach of representation and warranty of Licensor or any of its Affiliates, Licensor shall not be liable for and Licensee shall indemnify and hold Licensor harmless against any and all liabilities, damages, losses, costs, and expenses, whether direct or indirect, consequential, incidental, including reasonable attorney’s fees, in all cases that are paid [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     to third parties (“Damages”), resulting from claims, demands, actions, other proceedings and judgments in all cases brought or obtained by third parties (“Third-Party Claims”) arising out of: the offer for sale, sale, manufacture, importation and/or use of Supervax by Licensee, its licensees, distributors, employees, consultants and investigators, or agents during or after Licensee-authorized pre-clinical and clinical studies, and as a result of the manufacture and/or sale of Supervax. 9.3.2   Licensor shall indemnify, defend and hold harmless Licensee and its Affiliates and their directors, officers and employees from and against all Damages to the extent resulting from Third-Party Claims arising out of the willful misconduct or gross negligence, or breach of representation and warranty of, Licensor and/or any of its Affiliates.   9.4   Indemnification Procedure. If a Party (the “Indemnitee”) intends to claim indemnification hereunder, Indemnitee shall promptly notify the other Party (the “Indemnitor”) of any claim, demand, action, or other proceeding for which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and to the extent the Indemnitor so desires jointly with any other Indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that the Indemnitee shall have the right to retain its own counsel at Indemnitee’s own expense. The indemnity obligations under Section 9.3 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the prior express written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. The failure to deliver notice to the Indemnitor within a reasonable time after notice of any such claim or demand, or the commencement of any such action or other proceeding, only to the extent actually prejudicial to its ability to defend such claim, demand, action or other proceeding, shall relieve such Indemnitor of any liability to the Indemnitee under Section 9.3 with respect thereto, but the omission so to deliver notice to the Indemnitor shall not relieve it of any liability that it may have to the Indemnitee otherwise than under Section 9.3. The Indemnitor may not settle or otherwise consent to an adverse judgment in any such claim, demand, action or other proceeding, that diminishes the rights or interests of the Indemnitee without the prior express written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed. The Indemnitee, its Affiliates, and all of their employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by this Section 9.4.       If the Parties cannot in good faith agree as to the application of Section 9.3’s subsections to any particular Claim, then each Party may the conduct its own defense of such Claim and reserves the right to claim indemnification (to the extent provided for in Section 9.3) from the other Party upon resolution of the underlying Claim.   9.5   LIMITATION OF LIABILITY. EXCEPT TO THE EXTENT A PARTY IS REQUIRED TO INDEMNIFY THE OTHER FOR AMOUNTS PAID TO THIRD PARTIES OR AS REGARDS THE BREACH OF ANY CONFIDENTIALITY [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     OBLIGATION, PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES (SUCH AS LOST PROFITS, OPPORTUNITY COSTS, MISSED BUSINESS OPPORTUNITIES, OR OTHER THINGS CAUSED BUT NOT PROXIMATELY CAUSED BY ANY BREACH OR DEFAULT UNDER THIS AGREEMENT, WHETHER THE THEORY OF LIABILITY IS GROUNDED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) PRODUCT LIABILITY OR OTHERWISE), AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK SUCH DAMAGES. NO PARTY MAY SEEK OR OBTAIN PREJUDGMENT INTEREST OR ATTORNEY’S FEES OR COSTS. To be clear, this does not negate Licensor’s right to its direct damages equal to its share of Net Profits as provided for hereunder, if notwithstanding earning such Net Profits Licensee does not pay to Licensor the required share. SECTION 10: TERM AND TERMINATION 10.1   Term. This Agreement shall become effective as of the Effective Date and, unless earlier terminated pursuant to the other provisions of this Section 10, shall continue in full force and effect in perpetuity, even though the payment obligation under Section 4.1.1 ends once the Development Investment has been repaid and the obligations to pay a share of Net Profits in Section 4.1.2 ends on a country-by-country basis as the Payment Term expires in each country.   10.2   Termination for Cause. Either Party to this Agreement may terminate this Agreement in the event the other Party shall be in material breach of this Agreement (including by default), and such material breach shall have continued uncured for [ * ] after written notice thereof was provided to the breaching Party by the non-breaching Party. Any termination shall become effective at the end of such [ * ] period unless the breaching Party (or any other Party on its behalf) has cured any such breach or default prior to the expiration of the [ * ] period, or in the case of a breach incapable of cure during such time period, delivered a plan to cure the breach as promptly as practicable by the application of Commercial Reasonable Diligent Efforts, together with an undertaking to carry out such plan. However, if Licensee terminates this Agreement due to Licensor being in material breach of this Agreement, which breach cannot be or is not cured as provided in this Section, the licenses granted by Licensor in Section 2.1 shall continue after such termination.   10.3   Entire Agreement. Licensee and Licensor may terminate this Agreement upon mutual agreement at any time. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL 10.4   Termination Upon Insolvency or Bankruptcy. The Parties acknowledge that the Supervax Technology are ‘intellectual property’ for purposes of Section 365(n) of the U.S. Bankruptcy Code and that Licensee will have the ability to exercise all rights provided by Section 365(n) with respect to the Supervax Technology licensed hereunder. In this regard, the Parties agree that Section 365(n) of the U.S. Bankruptcy Code will govern Licensee’s and Licensor’s rights to intellectual property licensed under this Agreement in the event Licensor files for or is placed in bankruptcy. The Parties explicitly intend that to the extent the laws of another country whose laws govern the bankruptcy (or similar status) of Licensor afford or allow for similar protection of a license in bankruptcy, such protection shall extend to the license granted in Section 2.1 hereof and such license shall not be terminated based on the bankruptcy (or similar status) of Licensor.   10.5   Rights and Obligations on Term, Termination, or Suspension.   10.5.1   Termination by either Party pursuant to this Article shall not prejudice any other remedy that a Party might have. Termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement.   10.5.2   Except for termination by Licensee pursuant to Section 10.2, upon termination of this Agreement by either Party, at Licensor’s written request, Licensee and its Affiliates shall destroy all supplies of Supervax Technology, and all documents describing Supervax Technology, and shall promptly thereafter confirm such destruction in writing to Licensor.   10.5.3   Return of Materials. Upon any termination of this Agreement, Licensee and Licensor shall promptly return to the other all Confidential Information received from the other (except one copy of which may be retained for archival purposes).   10.5.4   Stock on Hand. In the event this Agreement is terminated for any reason, the Licensee and their respective Affiliates and Sublicenses shall have the right to sell or otherwise dispose of the stock of any Supervax then on hand, subject to the payment of Profit Share as provided herein.   10.5.5   Survival on Termination. If this Agreement terminates or expires for any reason, Sections 1, 5.8, 6, 7, 8 (as applied to Damages resulting from Third-Party Claims arising out of activities occuring during the term of the Agreement and 9-12 shall survive such termination or expiration.   10.5.6   No Prejudice of Rights. Termination by either Party pursuant to this Article shall not prejudice any other remedy that a Party might have, nor shall it affect either Party’s accrued rights. SECTION 11: DISPUTE RESOLUTION 11.1   Disputes. The Parties recognize that disputes as to certain matters may from time to time arise during the Term, which disputes relate to either Party’s rights and/or [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 11 if and when a dispute arises under this Agreement. Unless otherwise specifically recited in this Agreement, disputes between the Parties will be resolved as recited in this Section 11. 11.2   Dispute Resolution through Party Management. If the Parties are unable to resolve a dispute within thirty (30) days of being requested by a Party to resolve a dispute, any Party may, by written notice to the other, have such dispute referred to their respective chief executive officers or duly authorized designees, for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. In the event the designated executive officers are not able to resolve such dispute within such period, either Party may at anytime after the thirty (30) day period invoke the provisions of Section 11.3 hereinafter.   11.3   Arbitration. Any controversy, dispute or claim which is not resolved pursuant to Section 11.2 and which may arise out of or in connection with this Agreement, including the exhibits attached hereto, or the interpretation, enforceability, performance, breach, termination or validity thereof, including disputes relating to alleged breach or termination of the foregoing (each a “Dispute”) shall be resolved by binding arbitration in accordance with the Rules of the London Court of International Arbitration then pertaining, except where this rules conflict with this provision, in which case this provision controls. The Arbitration shall be held in English and shall take place in London. Subject to Section 11.6, the Dispute shall be construed in accordance with the laws of [ * ] exclusive of its conflicts of law rules. The arbitration tribunal shall consist of three neutral arbitrators, each of whom shall be an attorney who has at least fifteen (15) years of experience in the biopharmaceutical field with a law firm or corporate law department or was a judge of a court of general jurisdiction who has at least fifteen (15) years of experience in the biopharmaceutical field. However: (X) at least one of the arbitrators must be an attorney described in clause (a) of the foregoing sentence; (Y) at least one of the arbitrators must be trained in [ * ] law and have been admitted to practice in [ * ] ; and (Z) at least one of the arbitrators must be a native English speaker. The arbitrators shall be neutral, independent, disinterested, and impartial. Each Party shall nominate in the request for arbitration and the answer thereto one arbitrator and the two arbitrators so named will then jointly appoint the third arbitrator as chairman of the arbitration tribunal. After appointment, the Parties shall have no ex-parte communication with their proposed arbitrator. If one Party fails to nominate its arbitrator or, if the Parties’ arbitrators cannot agree on the person to be named as chairman within thirty (30) days, the President of the London Court of International Arbitration shall make the necessary appointments. Within thirty (30) days of initiation of arbitration, the Parties shall reach agreement upon and thereafter follow procedures assuring that the arbitration will be concluded and the award rendered within no more than eight (8) months from selection of the arbitrators. Failing such agreement, the Arbitration [ * ] will control the procedures and scheduling and the Parties will follow such procedures and meet [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     such a time schedule. Each Party has the right before or, if the arbitrators cannot hear the matter within an acceptable period, during the arbitration to seek and obtain from any court of competent jurisdiction provisional remedies such as attachment, preliminary injunction, replevin, etc., to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration. Any request for such provisional measures by a Party to a court shall not be deemed a waiver of this agreement to arbitrate. In addition, the Arbitrator Tribunal may, at the request of a Party, order provisional or conservatory measures (including, without limitation, preliminary injunctions to prevent breaches hereof) and the Parties shall be able to enforce the terms and provisions of such orders in any court having jurisdiction. The decision of the arbitration tribunal must be in writing and must specify the basis on which the decision was made, and the award of the arbitration tribunal shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such an award and order of enforcement. THE ARBITRATOR SHALL NOT AWARD ANY PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK SUCH DAMAGES. NO PARTY MAY SEEK OR OBTAIN PREJUDGMENT INTEREST OR ATTORNEY’S FEES OR COSTS. 11.4   Enforcement. The arbitral award, including any injunctive relief granted, may be enforced in any court of competent jurisdiction (i.e. any court having subject matter jurisdiction over the dispute and personal jurisdiction over the Parties).   11.5   Confidential Information. With respect to any dispute relating to the misuse and/or misappropriation of a Party’s Confidential Information, in each case, a Party may seek preliminary injunctive relief pending resolution of the Dispute under Section 11.3, and submit such dispute to any court of competent jurisdiction (i.e. any court having subject matter jurisdiction over the dispute and personal jurisdiction over the Parties). SECTION 12: MISCELLANEOUS 12.1   Entire Agreement. This Agreement, together with the Definitive Commercial Agreement, contains the entire agreement of the Parties regarding the subject matter hereof and supersedes all prior agreements, understandings, and negotiations regarding the license rights to Supervax, including the Development Agreement, the Letter of Intent and the Option Agreement. Such superseded agreements shall not be used to interpret this Agreement. This Agreement may not be changed, modified, amended, or supplemented except by a written instrument signed by both Parties hereto.   12.2   Severability. If any portion of this Agreement shall be finally determined by any court or governmental agency of competent jurisdiction to violate applicable law or otherwise not to conform to requirements of law, then the remainder of the Agreement shall not be affected thereby; provided, however, that if any provision hereof is invalid or unenforceable, then a suitable and equitable provision shall be substituted therefore [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL     in order to carry out,so far as may be valid and enforceable, the intent and purpose of the Agreement including the invalid or unenforceable provision.   12.3   Force Majeure. Neither Party or its Affilaites shall be liable for any unforeseeable event beyond its reasonable control not caused by the fault or negligence of such Party, which causes such Party to be unable to perform its obligations under this Agreement, and which it has been unable to overcome by the exercise of due diligence. In the event of the occurrence of such a force majeure event, the Party unable to perform shall promptly notify the other Party. It shall further use its best efforts to resume performance as quickly as possible and shall suspend performance only for such period of time as is necessary as a result of the force majeure event..   12.4   Independent Contractors. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute Licensee and Licensor as partners or joint venturers with respect to this Agreement. Neither Party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement, or undertaking with any third party.   12.5   Notices Any notices required by this Agreement shall be in writing, shall specifically refer to this Agreement and shall be forwarded to the respective addresses set forth below unless subsequently changed by written notice to the other Party:                   If to Licensor:   Green Cross Vaccine Corp.             227-3, Kugai-Ri, Kiheung-Eup             Yongin City             Kyounggi Province             Republic of Korea             [ * ]                                  Required copy to Rhein Biotech NV:         Rhein Biotech NV             Oude Maasstraat 47,             NL 6229 BC Maastricht,             The Netherlands             [ * ]                       If to Licensee:   Rhein Biotech GmbH             Eichsfelder Strasse 11             Dusseldorf 40595             Germany             [ * ]                                 Required copy to Dynavax Technologies Corporation:         Dynavax Technologies Corporation             2929 Seventh Street, Suite 100             Berkeley, CA 94710             USA     [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL                   [ * ]         ATTN: LEGAL DEPARTMENT 12.6   Headings. The paragraph headings herein are inserted for convenience only and shall not be construed to limit or modify the scope of any provision of this Agreement.   12.7   Assignment and Successors Rights/Waiver. Except in connection with a sale by a Party of all or substantially all of its assets to which this Agreement relates, or a Party’s merger with another entity, or an assignment to a Party’s Affiliate, this Agreement may not be assigned without the prior written consent of either Party, and is binding upon and shall inure to the benefit of the Parties hereto, their representatives, successors and permitted assigns. No failure or successive failures on the part of either Party, its successors or permitted assigns, to enforce any covenant or agreement, and no waiver or successive waivers on its or their part of any condition of this Agreement, shall operate as a discharge of such covenant, agreement or condition, or render the same invalid, or impair the right of either Party, its successors and permitted assigns to enforce the same in the event of any subsequent breach or breaches by the other Party, its successors or permitted assigns.   12.8   Choice of Law. Subject to the bankruptcy treatment of intellectual property pursuant to Section 11.6, this Agreement shall be exclusively governed by and construed in accordance with the laws of [ * ] (without giving effect to its conflict of law rules and regulations). IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed, in two copies, each an original, by their respective duly authorized officers and representatives with effect as of the date first above written. RHEIN BIOTECH GmbH                       /s/ Frank Ubags               By:   Frank Ubags   By:   blank     Title:   CEO   Title:   blank     Date:   21 April, 2006   Date:   blank     GREEN CROSS VACCINE CORP                       /s/ C.P.E. Moonen               By:   C.P.E. Moonen   By:   blank     Title:   Managing Director   Title:   blank     Date:   21 April, 2006   Date:   blank     [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL Schedule 1.1 Examples of Supervax Technology [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   CONFIDENTIAL Schedule 1 Development Investment [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED  

Cartoon Acquisition, Inc., Form 8-K Current Report dated September 8, 2006 Exhibit 10.4 (Reproduction of) Non-Negotiable Form of Promissory Note to Michael H. Troso by Randolph S. Hudson PROMISSORY NOTE September 12, 2005                                                                                                                                                                                                                                                                                $8,300      FOR VALUE RECEIVED, Randolph S. Hudson, an individual principally residing in the State of New York, entitled to receive mail at Post Office Box 103, Wyoming, New York 14591-0103 (the "Maker"), promises to pay to the order of Michael H. Troso, an individual principally residing in the State of Florida, maintaining an address at 217 Sand Dollar Road, Indialantic, Florida 32903 (the "Holder"), or at such other place as the Holder hereof may from time to time designate in writing, in lawful money of the United States of America, the principal sum of Eight Thousand Three Hundred and 00/100 ($8,300). 1.      Payment Terms. The Maker shall pay the principal together with all accrued interest in one installment of $8,300 or by default until such date as the entire principal balance has been fully paid.     The payment is due and payable to the Holder hereof on the occurrence of the date of a change in control of Montana Acquisition Corporation, a Delaware corporation (or in its lawful successor) ("Montana"); whereby the corporation owned by the holder, named "M. H. T. of Brevard, Inc.", a Florida corporation, disposes of a five per cent (5%) or greater ownership interest in Montana.   2.      Prepayment Permitted. The Maker shall have the right to prepay the unpaid principal thereon in whole or in part at any time at his option, without penalty before the date upon which the principal and interest hereon are due and payable to the Holder hereof.   3.      Security. This Note is unsecured.   4.      Default. If the Maker shall fail to make full payment hereunder within ten (10) calendar days of the date when due, the Holder of this Note shall have the right to accelerate this Note and to cause all of the unpaid principal of this Note to become immediately due and payable without notice or demand, and said unpaid principal shall bear interest from such date of default at the maximum rate permitted by law and compounded annually; it being agreed that any delinquent and unpaid interest not paid when due shall, at the option of the Holder hereof, be added to the principal and shall draw interest at the rate provided in this paragraph. Failure to exercise any option shall not constitute a waiver of any right of the Holder hereof to exercise the same in the event of any subsequent default.   5.      Collection Costs. In the event that suit be brought hereon to collect the Maker's obligation hereunder, or an attorney be employed by Holder to compel Maker's payment of this Note, or any portion of the indebtedness evidenced hereby, the Maker promises to pay all such reasonable expenses and attorneys' fees and disbursements, including all fees and costs incurred by the Holder of this Note on appeal and in connection with any bankruptcy proceeding.   6.      Waiver of Presentment, Notice, Etc. The Maker of this Note hereby waives presentment, protest and demand, notice of protest and demand, notice of dishonor and/or nonpayment, and specifically consents to waive notice of (a) any renewals or extensions of this Note, whether made in favor of the Maker or any other person or entities and (b) the release, addition, or substitution of any party directly or indirectly liable for the obligations and indebtedness represented hereby.   Troso Promissory Note, September 12, 2005, Page 1 of 2 -------------------------------------------------------------------------------- Cartoon Acquisition, Inc., Form 8-K Current Report dated September 8, 2006 Exhibit 10.4 (Reproduction of) Non-Negotiable Form of Promissory Note to Michael H. Troso by Randolph S. Hudson 7.      Governing Law. This Agreement shall be construed in accordance with and governed by the substantive laws of the State of New York, without reference to principles governing choice or conflicts of laws.   8.      No Waiver. The failure of the Holder of this Note at any time to require performance by the Maker of any one or more of the provisions of this Note shall not affect the right to require such performance at any time thereafter, nor shall the waiver by the Holder hereof of a breach of any term or provision of this Note be interpreted or held to be a waiver of any succeeding breach of such term or provision or as a waiver of the term or provision itself.        IN WITNESS WHEREOF, the Maker has executed this Note as of the day, month, and year first written above. RANDOLPH S. HUDSON, An individual ("Maker") [NON-NEGOTIABLE FORM OF NOTE FOR SEC FILING AND ILLUSTRATIVE PURPOSES ONLY.] _____________________________________________ Randolph S. Hudson NOTICE TO HOLDER OR OTHER HAVING ANY MATERIAL INTEREST HEREIN: ANY FACSIMILE OF THIS NOTE IS NOT VALID FOR REDEMPTION OR FOR ANY OTHER PURPOSE. A LIGHT GREEN BACKGROUND APPEARS BEHIND THE SIGNATURE, THE SIGNATURE IS IN BLACK INK, AND THIS NOTICE APPEARS IN A LIGHT BLUE BANNER WITH A PINK BACKGROUND, RED TEXT ON YELLOW CANVAS. THE MAKER WILL DISHONOR THIS NOTE IF ANY ALTERATIONS HAVE MADE HEREUPON. THE FIRST PAGE OF THIS NOTE BEARS A PURPLE WATERMARK NEAR THE PAPER'S RIGHT EDGE. Troso Promissory Note, September 12, 2005, Page 2 of 2 --------------------------------------------------------------------------------

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Exhibit 10.157   [***] DENOTES CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.   INTEL/MICRON CONFIDENTIAL   MANUFACTURING SERVICES AGREEMENT   This MANUFACTURING SERVICES AGREEMENT (the “Agreement”), is made and entered into as of this 6th day of January, 2006 (the “Effective Date”), by and between Micron Technology, Inc., a Delaware corporation (“Micron”), and IM Flash Technologies, LLC, a Delaware limited liability company (“Joint Venture Company”).   RECITALS   A.            The Joint Venture Company is engaged in the manufacture, assembly and test of NAND Flash Memory Products (as defined hereinafter); and   B.            Micron possesses the ability to perform manufacturing services in connection with Probed Wafers for NAND Flash Memory Products; and   C.            Micron desires to provide and the Joint Venture Company desires to purchase manufacturing services upon the terms and subject to the conditions set forth in this Agreement (Micron and the Joint Venture Company are each, a “Party” and collectively, the “Parties”).   AGREEMENT   NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound do hereby agree as follows.   SECTION 1   DEFINITIONS; CERTAIN INTERPRETIVE MATTERS   1.1           DEFINITIONS.  IN ADDITION TO THE TERMS DEFINED ELSEWHERE IN THIS AGREEMENT, CAPITALIZED TERMS USED IN THIS AGREEMENT SHALL HAVE THE RESPECTIVE MEANINGS SET FORTH IN EXHIBIT A.   1.2           CERTAIN INTERPRETIVE MATTERS.   (A)             UNLESS THE CONTEXT REQUIRES OTHERWISE, (1) ALL REFERENCES TO SECTIONS, ARTICLES, EXHIBITS, APPENDICES OR SCHEDULES ARE TO SECTIONS, ARTICLES, EXHIBITS, APPENDICES OR SCHEDULES OF OR TO THIS AGREEMENT, (2) EACH OF THE SCHEDULES WILL APPLY ONLY TO THE CORRESPONDING SECTION OR SUBSECTION OF THIS AGREEMENT, (3) EACH ACCOUNTING TERM NOT OTHERWISE DEFINED IN THIS AGREEMENT HAS THE MEANING COMMONLY APPLIED TO IT IN ACCORDANCE WITH GAAP, (4) WORDS IN THE SINGULAR INCLUDE THE PLURAL AND VISA VERSA, (5) THE TERM “INCLUDING” MEANS “INCLUDING WITHOUT LIMITATION,” AND (6) THE TERMS “HEREIN,” “HEREOF,” “HEREUNDER” AND WORDS OF SIMILAR IMPORT SHALL MEAN REFERENCES TO THIS AGREEMENT AS A WHOLE AND NOT TO ANY INDIVIDUAL SECTION OR PORTION HEREOF.  ALL REFERENCES TO $ OR DOLLAR AMOUNTS WILL BE TO LAWFUL CURRENCY OF THE UNITED STATES OF AMERICA.  ALL REFERENCES TO “DAY” OR “DAYS” WILL MEAN CALENDAR DAYS AND ALL REFERENCES TO “QUARTER(LY)”, “MONTH” OR “YEAR” WILL MEAN FISCAL QUARTER, FISCAL MONTH OR FISCAL YEAR, RESPECTIVELY.   (B)             NO PROVISION OF THIS AGREEMENT WILL BE INTERPRETED IN FAVOR OF, OR AGAINST, ANY OF THE PARTIES BY REASON OF THE EXTENT TO WHICH ANY SUCH PARTY OR ITS COUNSEL PARTICIPATED IN THE DRAFTING THEREOF   --------------------------------------------------------------------------------   OR BY REASON OF THE EXTENT TO WHICH ANY SUCH PROVISION IS INCONSISTENT WITH ANY PRIOR DRAFT OF THIS AGREEMENT OR SUCH PROVISION.   SECTION 2   PROVISION OF MANUFACTURING SERVICES; CONTROLS   2.1           PROVISION OF MANUFACTURING SERVICES.  MICRON WILL PROVIDE TO THE JOINT VENTURE COMPANY MANUFACTURING SERVICES, AS DESCRIBED ON SCHEDULE 2.1 IN ACCORDANCE WITH THE TERMS AND CONDITIONS CONTAINED HEREIN.   2.2           LEVEL OF MANUFACTURING SERVICES.   THE JOINT VENTURE COMPANY SHALL PROVIDE MICRON WITH THE RAMP PLAN FOR THE SITE, AS INITIALLY SET FORTH IN THE INITIAL BUSINESS PLAN IN THE LLC OPERATING AGREEMENT AND SUBJECT TO ADJUSTMENT IN THE MANUFACTURING PLAN.  MICRON SHALL PREPARE FOR THE JOINT VENTURE COMPANY, IN RESPONSE TO THE RAMP PLAN, A PROPOSAL FOR THE LEVEL OF SERVICES TO BE PROVIDED AT THE SITE.  THE PARTIES SHALL REVIEW SUCH PROPOSAL AND MUTUALLY AGREE ON THE LEVEL OF MANUFACTURING SERVICES, SUBJECT TO MUTUALLY AGREEABLE ADJUSTMENT BASED UPON CHANGES IN THE INITIAL BUSINESS PLAN AND MANUFACTURING PLAN.  MICRON SHALL STAFF AND OPERATE THE SITE TO ENABLE MICRON TO PROVIDE THE AGREED LEVEL OF MANUFACTURING SERVICES.  THE PARTIES ACKNOWLEDGE THAT IN THE NORMAL COURSE OF PERFORMING MANUFACTURING SERVICES, VARIANCES IN OUTPUT MAY AND DO OCCUR AND THAT NOTHING IN THE APPROVED BUSINESS PLAN, MANUFACTURING PLAN OR THE AGREED LEVEL OF MANUFACTURING SERVICES IS A BINDING COMMITMENT TO ACHIEVE A SPECIFIC OUTPUT OF PROBED WAFERS.   2.3           CONTROL; PROCESSES. MICRON AND THE JOINT VENTURE COMPANY WILL PERIODICALLY REVIEW MICRON’S PROCESSES AND CONTROL MECHANISMS RELATING TO THE PERFORMANCE OF THE MANUFACTURING SERVICES, INCLUDING THE PERFORMANCE CRITERIA.  IF THE JOINT VENTURE COMPANY REQUESTS ANY CHANGES OR ADDITIONS TO MICRON’S EXISTING PROCESS AND CONTROL MECHANISMS, THE PARTIES SHALL WORK TOGETHER IN GOOD FAITH TO RESOLVE ANY SUCH REQUESTS.   2.4           Option to Designate WIP.  [***].   2.5           [***].  In addition to the quarterly review and monthly report requirements set forth in ARTICLE 5, Micron will notify the Joint Venture Company promptly of all [***].   2.6           Masks.  Masks required for the Manufacturing Services will either be provided by the Joint Venture Company or purchased by Micron hereunder.  Such masks will only be used to perform the Manufacturing Services for the Joint Venture Company.  Masks will be repaired and replaced solely at mask operations that have been approved by the Joint Venture Company, which approval shall not be unreasonably withheld.  [***].   2.7           Traceability and Data Retention. The Joint Venture Company and Micron shall review Micron’s Manufacturing Services process traceability system in regards to the manufacturing process [***]   2 --------------------------------------------------------------------------------   and will agree on the level of data to be traced through such system and which data shall be available with real-time access or as otherwise mutually agreed by the Parties.  Micron agrees to maintain such data for a minimum of [***] from completion of the Probed Wafer lot and [***] to the extent such level of data is offered real-time within Micron, subject to system limitations related to the exclusion of non-NAND data. The Joint Venture Company may provide its customers with access to such data, subject to any confidentiality requirements.   2.8           Business Continuity Plan.  Micron and the Joint Venture Company will review Micron’s Business Continuity Plan as it relates to the Manufacturing Services provided hereunder.  If the Joint Venture Company requests any changes or additions to Micron’s existing Business Continuity Plan, the Parties shall work together in good faith to resolve any such agreed resolutions.  The Joint Venture Company may provide Micron’s Business Continuity Plan to its customers, subject to any confidential requirements.   2.9           Additional Customer Requirements.  The Joint Venture Company will inform Micron in writing of any auditable supplier requirements relating to Manufacturing Services requested by the Joint Venture Company’s customers.  Micron and the Joint Venture Company shall work together in good faith to resolve any such requests.   2.10         Transfer of Manufacturing Technology; Equivalency of Operations.  [***].   SECTION 3   ITEMS TO BE SUPPLIED BY THE JOINT VENTURE COMPANY   3.1           LEASED SPACE AND MANUFACTURING EQUIPMENT; [***].  IN ORDER FOR MICRON TO PERFORM MANUFACTURING SERVICES HEREUNDER, THE JOINT VENTURE COMPANY SHALL PROVIDE MICRON WITH ACCESS TO ALL EQUIPMENT OWNED OR LEASED BY THE JOINT VENTURE COMPANY AND INSTALLED AT THE SITE, INCLUDING, BUT NOT LIMITED, TO THE AUTOMATED MATERIAL HANDLING SYSTEM, MANUFACTURING EQUIPMENT AND OTHER REQUIRED EQUIPMENT NOT PROVIDED BY MICRON HEREUNDER (COLLECTIVELY “JOINT VENTURE EQUIPMENT”).  [***].   3.2           [***].  [***].   3 --------------------------------------------------------------------------------   3.3           [***].   3.4           PROVISION OF TECHNICAL ASSISTANCE.  THE JOINT VENTURE COMPANY SHALL FURNISH OR HAVE FURNISHED TO MICRON IN ACCORDANCE WITH THE REQUIREMENTS OF THE JOINT VENTURE DOCUMENTS SUCH TECHNICAL ASSISTANCE AS THE PARTIES AGREE IS REASONABLY NECESSARY TO ENABLE MICRON TO PERFORM THE MANUFACTURING SERVICES HEREUNDER.   SECTION 4   ITEMS TO BE SUPPLIED BY MICRON   4.1           FACILITIES MAINTENANCE, MANUFACTURING SYSTEMS, SECONDARY EQUIPMENT AND SUPPORT.  MICRON SHALL UTILIZE CERTAIN OF ITS SITE SYSTEMS AND EQUIPMENT TO PERFORM THE MANUFACTURING SERVICES (COLLECTIVELY “MICRON EQUIPMENT”).  MICRON SHALL PROVIDE NECESSARY REPAIR AND MAINTENANCE OF THE MICRON EQUIPMENT AND JOINT VENTURE EQUIPMENT IN ORDER TO MAINTAIN SUCH EQUIPMENT IN GOOD WORKING ORDER AND IN ACCORDANCE WITH ANY APPLICABLE, RECOMMENDED MANUFACTURER’S GUIDELINES, UNTIL SUCH TIME AS ANY OF SUCH EQUIPMENT BECOMES OBSOLETE OR UNECONOMICAL TO MAINTAIN OR REPAIR.  ALL COSTS TO REPAIR OR REPLACE, MAINTAIN OR TO ADD TO OR EXPAND OR ENHANCE THE FACILITIES AND/OR THE MICRON EQUIPMENT AS REASONABLY REQUIRED TO PERFORM THE MANUFACTURING SERVICES HEREUNDER IN ACCORDANCE WITH JOINT VENTURE COMPANY’S REQUIREMENTS HEREUNDER SHALL BE EXPENSED OR CAPITALIZED IN ACCORDANCE WITH MICRON’S ACCOUNTING POLICIES AND CHARGED ACCORDINGLY IN THE PRICING SET FORTH ON SCHEDULE 6.5.  MICRON SHALL PROVIDE THE JOINT VENTURE COMPANY WITH NINETY (90) DAYS ADVANCE WRITTEN NOTICE OF ANY CHANGE IN MICRON’S ACCOUNTING POLICIES THAT WOULD MATERIALLY CHANGE THE MANNER OF CALCULATING THE PRICING HEREUNDER. TO THE EXTENT THAT ANY OF THE TERMS OF THIS SECTION 4.1 CONFLICT WITH THE TERMS OF THE MTV LEASE AGREEMENT, THE MTV LEASE AGREEMENT SHALL CONTROL, INCLUDING THE SECTION ENTITLED LIMITATION OF TENANTS CLAIMS.   4.2           MANUFACTURING SERVICES LOCATION.  UNLESS OTHERWISE AGREED TO BY THE JOINT VENTURE COMPANY, ALL MANUFACTURING SERVICES BY MICRON UNDER THIS AGREEMENT SHALL BE PERFORMED AT THE SITE SPECIFIED IN SCHEDULE 2.1.   4.3           SERVICE PROVIDERS.  MICRON SHALL STAFF THE SITE WITH THE QUANTITY OF SERVICE PROVIDERS REASONABLY NECESSARY FOR MICRON TO PROVIDE THE LEVEL OF MANUFACTURING SERVICES AGREED TO IN SECTION 2.2, ABOVE.  MICRON SHALL PROVIDE SERVICES PROVIDERS WITH SUBSTANTIALLY THE SAME LEVEL OF QUALIFICATION AND SKILLS AS MICRON REQUIRES FOR PERSONNEL PERFORMING SUCH SERVICES FOR ITS WHOLLY-OWNED FACILITIES. MICRON SHALL PROVIDE SUBSTANTIALLY THE SAME TRAINING FOR SUCH SERVICE PROVIDERS AS MICRON REQUIRES FOR PERSONNEL PERFORMING SUCH SERVICES AT ITS WHOLLY-OWNED FACILITIES.  THE PRICES FOR THE SERVICE PROVIDERS ARE INCLUDED IN THE PRICING SET FORTH ON SCHEDULE 6.5.   4.4           MATERIALS.  MICRON SHALL PROCURE ON BEHALF OF THE JOINT VENTURE COMPANY THE MATERIALS REQUIRED FOR PERFORMANCE OF THE MANUFACTURING SERVICES.  TO THE EXTENT THAT THE JOINT VENTURE COMPANY   4 --------------------------------------------------------------------------------   DESIRES TO PROVIDE CERTAIN MATERIALS, THE PARTIES SHALL WORK TOGETHER IN GOOD FAITH ON THE TIMING AND MANNER FOR PROVIDING SUCH MATERIALS SO THAT IT CAN BE ACCOMMODATED WITHIN MICRON’S BUSINESS AND MANUFACTURING SYSTEMS.  MICRON SHALL MANAGE THE USE OF MATERIALS AS NECESSARY TO PROVIDE THE MANUFACTURING SERVICES.  ALL SUCH MATERIALS ACQUIRED BY MICRON ARE INCLUDED IN THE PRICING SET FORTH ON SCHEDULE 6.5.   4.5           TITLE AND RISK OF LOSS OR DAMAGE TO MATERIALS AND MICRON EQUIPMENT.   (A)             MATERIALS.  [***].   (B)             MICRON EQUIPMENT.  [***].   ARTICLE 5   PLANNING MEETINGS AND FORECASTS;   PERFORMANCE REVIEWS AND REPORTS   5.1           Planning and Forecasting   (A)           STARTING UPON THE EFFECTIVE DATE AND CONTINUING ON A FISCAL QUARTER BASIS PURSUANT TO A SCHEDULE AGREED BY THE PARTIES, THE JOINT VENTURE COMPANY WILL PROVIDE MICRON A DEMAND FORECAST SETTING FORTH THE JOINT VENTURE COMPANY’S PROBED WAFER DEMAND.  THE FORECAST SHALL PROJECT PROBED WAFER DEMAND FOR THE NEXT [***] ([***]) FISCAL QUARTERS BY DESIGN ID, TECHNOLOGY NODE AND PROBE LEVEL (“DEMAND FORECAST”).   (B)           IN RESPONSE TO THE DEMAND FORECAST, MICRON SHALL FURNISH THE JOINT VENTURE COMPANY WITH A FISCAL QUARTER WRITTEN FORECAST OF MANUFACTURING SERVICES REASONABLY NECESSARY TO MEET THE DEMAND FORECAST, ON A SCHEDULE TO BE DETERMINED BY THE PARTIES.   THIS WRITTEN RESPONSE (THE “MANUFACTURING SERVICES FORECAST”), WILL INCLUDE:   [***].   (c)           Based on the Demand Forecast and the Manufacturing Services Forecast, the Joint Venture Company will prepare a [***] ([***]) Fiscal Quarter proposed loading plan (“Proposed Loading Plan”), which will be subject to review by the Manufacturing Committee.  The Joint Venture Company   5 --------------------------------------------------------------------------------   shall provide Micron with the Proposed Loading Plan at least [***] ([***]) Business Days prior to submission to the Manufacturing Committee.   (d)           The Joint Venture Company will submit the Proposed Loading Plan and other requested information to the Manufacturing Committee for endorsement.  Once endorsed by the Manufacturing Committee, the Proposed Loading Plan shall become part of the Manufacturing Plan.  Micron shall use the Manufacturing Plan as the basis for determining the final quantity of Manufacturing Services that Micron will provide to the Joint Venture Company pursuant to Section 2.2 above.   5.2           PERFORMANCE REVIEW AND MONTHLY REPORT ON PERFORMANCE. MICRON SHALL MEET WITH THE JOINT VENTURE COMPANY ON A QUARTERLY BASIS TO REVIEW MICRON’S PERFORMANCE OF MANUFACTURING SERVICES AND TO DETERMINE WHETHER SUCH SERVICES ARE RESULTING IN THE PRODUCTION OF PROBED WAFERS THAT MEET OR EXCEED THE DESIRED PERFORMANCE CRITERIA.  MICRON SHALL PROVIDE TO THE JOINT VENTURE COMPANY, ON A MONTHLY BASIS AS AGREED BY THE PARTIES, A WRITTEN REPORT THAT:   (a)           Describes [***];   (b)           Describes [***];   (c)           Describes [***];   (d)           Identifies [***];   (e)           Describes [***]; and   (f)            Identifies [***].   5.3           MONTHLY REVIEW.  IN ADDITION, THE PARTIES SHALL HOLD A MONTHLY MEETING, ON A SCHEDULE TO BE AGREED BY THE PARTIES, WITH THE PRIMARY PURPOSE OF [***].   ARTICLE 6 ORDER PLACEMENT, PRICING AND INVOICING   6.1           Placement of Purchase Orders.  Prior to the commencement of every Fiscal Quarter or another time period agreed by the Parties, the Joint Venture Company shall place a non-cancelable blanket purchase order in writing (via e-mail or facsimile transmission) for Manufacturing Services to be supplied by Micron in the following Fiscal Quarter as agreed in the Manufacturing Services Forecast and Manufacturing Plan (each such order, a “Purchase Order”).  The Joint Venture Company may issue change orders to such Purchase Orders to reflect approved changes in the Manufacturing Plan, provided   6 --------------------------------------------------------------------------------   that such changes can be reasonably accommodated within Micron’s performance of the Manufacturing Services without disrupting the on-going services in a manner to negatively impact the previously placed Purchase Orders.  The Joint Venture Company may also request Manufacturing Services relating to special engineering or hot lots in accordance with Section II of Schedule 6.5.  The terms and conditions of this Agreement supersede the terms and conditions contained in either Party’s sales or purchase documentation provided in connection herewith unless expressly agreed otherwise in a writing signed by each Party.   6.2           Shortfall.  Micron shall immediately notify the Joint Venture Company in writing of any inability to meet a Purchase Order commitment for Manufacturing Services to be provided to the Joint Venture Company and which may result in shortfall in achieving the quantity of Probed Wafers set forth in the approved Manufacturing Plan.   6.3           Acceptance of Purchase Order.  Each Purchase Order that corresponds to the Manufacturing Plan in the manner contemplated by Section 6.1 and, and is otherwise free of errors, shall be deemed accepted by Micron upon receipt and shall be binding on the Parties, to the extent not inconsistent with the Manufacturing Plan.   6.4           Content of Purchase Orders. Each Purchase Order shall specify the following information:   (a)           Purchase Order number;   (b)           Quantity of wafer starts by part number, design id, technology node and probe level;   (c)           Place of delivery of Probe Wafer output produced in the course of the Manufacturing Services; and   (d)           Other terms (if any).   6.5           Pricing and Invoicing.   Micron shall invoice the Joint Venture Company on a monthly basis for the Manufacturing Services provided hereunder in accordance with the pricing provided in Schedule 6.5. All amounts owed under this Agreement are stated, calculated and shall be paid in United States Dollars.  Except as otherwise specified in this Agreement, the Joint Venture Company shall pay Micron for the amounts due, owing, and duly invoiced under this Agreement within [***] ([***]) days following delivery of an invoice therefore to such place as Micron may reasonably direct therein.   6.6           Taxes.   (a)         General.  All sales, use and other transfer taxes imposed directly on or solely as a result of the Services and payments therefore provided herein shall be stated separately on Micron’s invoice, collected from the Joint Venture Company and shall be remitted by Micron to the appropriate tax authority (“Recoverable Taxes”), unless the Joint Venture Company provides valid proof of tax exemption. When property is delivered and/or services are provided or the benefit of services occurs within jurisdictions in which collection and remittance of taxes by the Joint Venture Company is required by law, Micron shall have sole responsibility for payment of said taxes to the appropriate tax authorities. In the event such taxes are Recoverable Taxes and Micron does not collect tax from the Joint Venture Company or pay such taxes to the appropriate Governmental Entity on a timely basis, and is subsequently audited by any tax authority, liability of the Joint Venture Company will be limited to the tax assessment for such Recoverable Taxes, with no reimbursement for penalty or interest charges or other amounts incurred in connection therewith. Notwithstanding anything herein to the contrary, taxes other than Recoverable Taxes shall not be reimbursed by the Joint Venture Company, and each Party is responsible   7 --------------------------------------------------------------------------------   for its own respective income taxes (including franchise and other taxes based on net income or a variation thereof), taxes based upon gross revenues or receipts, and taxes with respect to general overhead, including but not limited to business and occupation taxes, and such taxes shall not be Recoverable Taxes.   (b)         Withholding Taxes.  In the event that the Joint Venture Company is prohibited by law from making payments to Micron unless the Joint Venture Company deducts or withholds taxes therefrom and remits such taxes to the local taxing jurisdiction, then the Joint Venture Company shall duly withhold and remit such taxes and shall pay to Micron the remaining net amount after the taxes have been withheld.  Such taxes shall not be Recoverable Taxes and the Joint Venture Company shall not reimburse Micron for the amount of such taxes withheld.   6.7           Payment to Vendors.  Micron shall be responsible for and shall hold the Joint Venture Company harmless for any and all payments to Micron’s contractors or vendors utilized in the performance of Manufacturing Services under this Agreement.   6.8           Shipment.  Micron, in order to ensure timely and complete shipment of Probed Wafers to the Joint Venture Company, shall arrange for shipping to the Joint Venture Company’s customer or assembly services provider.  To the extent that the shipping charges, insurance, taxes, customs charges and any fees and duties in connection with such shipment are not charged to directly to a Joint Venture Company account, Micron shall pay such costs and invoice to the Joint Venture Company in under the appropriate services agreement between the Parties.  Micron shall mark all shipping containers with necessary lifting, handling, and shipping information, Purchase Order number, date of shipment, and the names of the Joint Venture Company and applicable customer, is any.  If no instructions are given, Micron shall select the most cost effective carrier, given the time constraints known to Micron.   At the Joint Venture Company’s request, Micron will provide drop-shipment of Probed Wafers to the Joint Venture Company’s customers or as otherwise directed by the Joint Venture Company.   6.9           Packaging. All shipment packaging of the Probed Wafers produced in the course of the Manufacturing Services hereunder shall be in conformance with: (i) the Specifications; (ii) the Joint Venture Company’s reasonable instructions; (iii) general industry standards to ensure resistance to damage that may occur during transportation. Marking on the packages shall be made by Micron in accordance with the Joint Venture Company’s instructions.   6.10         Customs Clearance.  Upon the Joint Venture Company’s request, Micron will promptly provide the Joint Venture Company with a statement of origin for all Probed Wafers produced in the course of the Manufacturing Services hereunder and with applicable customs documentation for Probed Wafers wholly or partially manufactured outside of the country of import.   ARTICLE 7   PROVISION OF MANUFACTURING SERVICES;  SECONDARY SILICON   7.1           PERFORMANCE CRITERIA.  MICRON WILL WORK WITH THE JOINT VENTURE COMPANY IN GOOD FAITH TO IMPROVE MANUFACTURING PERFORMANCE CRITERIA AND TO MINIMIZE PRICE.   7.2           SECONDARY SILICON.    ANY SECONDARY SILICON SEGREGATED AS A RESULT OF THE MANUFACTURING SERVICES SHALL BE PROVIDED BY MICRON TO THE JOINT VENTURE COMPANY, WHICH SHALL PROVIDE THE SECONDARY SILICON TO ITS CUSTOMERS IN ACCORDANCE WITH THE SHARING INTERESTS AT THE TIME.  ALL SECONDARY   8 --------------------------------------------------------------------------------   SILICON PROVIDED HEREUNDER IS PROVIDED “AS IS,” “WHERE IS” WITH ALL FAULTS AND DEFECTS BASIS WITHOUT WARRANTY OF ANY KIND.   ARTICLE 8   VISITATIONS AND AUDITS   8.1           Visits.  Micron will support the Joint Venture Company’s and its customers’ reasonable requests for visits to the facility where Micron performs the Manufacturing Services hereunder for the purpose of reviewing Micron’s performance of the Manufacturing Services, including requests for further information and assistance in troubleshooting performance issues. Such requests shall be reasonably granted by Micron so long as such visits and meetings do not unduly interfere with Micron’s performance of the Manufacturing Services and other operations.   8.2           Performance Audit.  The Joint Venture Company’s and its customers’ representatives upon reasonable advance notice,  shall have the right to observe Micron’s performance of Manufacturing Services at the Site during normal working hours as agreed by the Parties for the purposes of monitoring and auditing Micron’s performance of the Manufacturing Services and compliance with any requirements set forth in this Agreement.  Upon completion of the audit, Micron and the Joint Venture Company shall work in good faith to agree to an audit closure plan, which will be documented in the audit report issued by the Joint Venture Company.  The Joint Venture Company may provide such audit report to its customers, subject to any confidentiality requirements.   8.3           Financial Audit.  The Joint Venture Company reserves the right to have Micron’s books and records related to the pricing of Probed Wafers hereunder inspected and audited not more than [***] during any Fiscal Year to ensure compliance with Schedules 6.5 of this Agreement in regards to Pricing of Manufacturing Services.  Such audit will be performed by an independent third party auditor acceptable to both Parties at the Joint Venture Company’s expense.  The Joint Venture Company shall provide [***] ([***]) days advance written notice to Micron of its desire to initiate an audit and the audit shall be scheduled so that it does not adversely impact or interrupt Micron’s business operations. If the audit reveals any material discrepancies, Micron or the Joint Venture Company shall reimburse the other, as applicable, for any material discrepancies within [***] ([***]) days after completion of the audit.  The results of such audit shall be kept confidential by the auditor and only the discrepancies shall be reported to the Parties and the Joint Venture Company’s customers, and be limited to discrepancies identified by the audit.  Notwithstanding the foregoing, any auditor reports shall not disclose any Micron pricing or terms of purchase for any purchases of materials or equipment hereunder to the Joint Venture Company’s customers other than Micron, absent written agreement from the customers’ respective legal counsel.  If any audit reveals a material discrepancy, the Joint Venture Company may increase the frequency of such audits to quarterly for the subsequent [***] ([***]) month period.   8.4           Subcontractor; Vendor Visits.  Upon the Joint Venture Company’s reasonable written request, Micron shall take reasonable commercial efforts to request that its subcontractors or vendors, if any, utilized in the performance of the Manufacturing Services hereunder allow a Joint Venture Company or customer representative to visit the vendor or subcontractors’ site.   9 --------------------------------------------------------------------------------   ARTICLE 9   WARRANTY; DISCLAIMER; LIMIT OF LIABILITY   9.1           MANUFACTURING SERVICES WARRANTY.  MICRON WARRANTS THAT IT WILL PERFORM THE MANUFACTURING SERVICES IN A COMPETENT AND WORKMANLIKE MANNER, AND IN NO CASE WITH LESS THAN REASONABLE CARE AND THAT PROBED WAFERS WILL BE PROCESSED IN ACCORDANCE WITH THE PROCESS SPECIFICATION (THE “STANDARD OF CARE”).  FOR THE AVOIDANCE OF DOUBT, MICRON MAKES NO REPRESENTATION OR WARRANTY THAT MANUFACTURING SERVICES PROVIDED HEREUNDER SHALL RESULT IN (I) PROBED WAFERS THAT MEET A STATED PERFORMANCE LEVEL OR QUALITY UNDER THE PRODUCT SPECIFICATION OR ANY APPLICABLE PERFORMANCE CRITERIA, OR (II) THAT THE LEVEL OF MANUFACTURING SERVICES SUPPLIED BY MICRON WILL RESULT IN THE NUMBER OF PROBED WAFERS STATED IN THE MANUFACTURING PLAN.   9.2           WARRANTY CLAIMS.  [***].   9.3           Inspections.  The Joint Venture Company may, upon reasonable advance written notice, request samples of WIP upon which Micron is performing Manufacturing Services for purposes of determining whether the Manufacturing Services meet or exceed the Performance Criteria and are performed in accordance with Process Specification, provided that the provision of such samples shall not materially impact Micron’s performance of the Manufacturing Services or its ability to meet delivery requirements under any accepted Purchase Order.  Any samples provided hereunder shall be: (i) limited in quantity to the amount reasonably necessary for the purposes hereunder and (ii) included in the pricing.  Micron shall provide reasonable assistance for the safety and convenience of the Joint Venture Company in obtaining the samples in such manner as shall not unreasonably hinder or delay Micron’s performance.   9.4             HAZARDOUS MATERIALS.   (a)           If the Manufacturing Services performed hereunder include Hazardous Materials as determined in accordance with applicable law, Micron represents and warrants that Micron and Micron’s employees, agents, and subcontractors, if any, performing Manufacturing Services involving such materials shall be trained in accordance with applicable law regarding the nature of and hazards associated with the handling, transportation, and use of such Hazardous Materials, as applicable to Micron.   (b)           To the extent required by applicable law, Micron shall provide the Joint Venture Company with Material Safety Data Sheets (MSDS) either prior to or accompanying any delivery of Probed Wafers to the Joint Venture Company.   9.5             DISCLAIMER. [***].   10 --------------------------------------------------------------------------------   ARTICLE 10   CONFIDENTIALITY; OWNERSHIP   10.1         PROTECTION AND USE OF CONFIDENTIAL INFORMATION.  ALL INFORMATION PROVIDED, DISCLOSED OR OBTAINED IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF ANY OF THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT SHALL BE SUBJECT TO ALL APPLICABLE PROVISIONS OF THE CONFIDENTIALITY AGREEMENT.  FURTHERMORE, THE TERMS AND CONDITIONS OF THIS AGREEMENT SHALL BE CONSIDERED “CONFIDENTIAL INFORMATION” UNDER THE CONFIDENTIALITY AGREEMENT FOR WHICH EACH PARTY IS CONSIDERED A “RECEIVING PARTY” UNDER SUCH AGREEMENT.  TO THE EXTENT THERE IS A CONFLICT BETWEEN THIS AGREEMENT AND THE CONFIDENTIALITY AGREEMENT, THE TERMS OF THIS AGREEMENT SHALL CONTROL.   10.2         INTELLECTUAL PROPERTY OWNERSHIP.  OWNERSHIP OF ANY INTELLECTUAL PROPERTY DEVELOPED BY THE JOINT VENTURE COMPANY WILL BE GOVERNED BY EITHER THE TECHNOLOGY LICENSE AGREEMENT OR PRODUCT DESIGNS DEVELOPMENT AGREEMENT, AS THE CASE MAY BE.   ARTICLE 11   INDEMNIFICATION   11.1         Mutual General Indemnity.  [***].   11 --------------------------------------------------------------------------------   11.2         INDEMNIFICATION PROCEDURES.   (A)           PROMPTLY AFTER THE RECEIPT BY ANY INDEMNIFIED PARTY OF A NOTICE OF ANY THIRD PARTY CLAIM THAT AN INDEMNIFIED PARTY SEEKS TO BE INDEMNIFIED UNDER THIS AGREEMENT, SUCH INDEMNIFIED PARTY SHALL GIVE WRITTEN NOTICE OF SUCH THIRD PARTY CLAIM TO THE INDEMNIFYING PARTY, STATING IN REASONABLE DETAIL THE NATURE AND BASIS OF EACH ALLEGATION MADE IN THE THIRD PARTY CLAIM AND THE AMOUNT OF POTENTIAL INDEMNIFIED LOSSES WITH RESPECT TO EACH ALLEGATION, TO THE EXTENT KNOWN, ALONG WITH COPIES OF THE RELEVANT DOCUMENTS RECEIVED BY THE INDEMNIFIED PARTY EVIDENCING THE THIRD PARTY CLAIM AND THE BASIS FOR INDEMNIFICATION SOUGHT.  FAILURE OF THE INDEMNIFIED PARTY TO GIVE SUCH NOTICE SHALL NOT RELIEVE THE INDEMNIFYING PARTY FROM LIABILITY ON ACCOUNT OF THIS INDEMNIFICATION, EXCEPT IF AND ONLY TO THE EXTENT THAT THE INDEMNIFYING PARTY IS ACTUALLY PREJUDICED BY SUCH FAILURE OR DELAY.  THEREAFTER, THE INDEMNIFIED PARTY SHALL DELIVER TO THE INDEMNIFYING PARTY, PROMPTLY AFTER THE INDEMNIFIED PARTY’S RECEIPT THEREOF, COPIES OF ALL NOTICES AND DOCUMENTS (INCLUDING COURT PAPERS) RECEIVED BY THE INDEMNIFIED PARTY RELATING TO THE THIRD PARTY CLAIM.  THE INDEMNIFYING PARTY SHALL HAVE THE RIGHT TO ASSUME THE DEFENSE OF THE INDEMNIFIED PARTY WITH RESPECT TO SUCH THIRD PARTY CLAIM UPON WRITTEN NOTICE TO THE INDEMNIFIED PARTY DELIVERED WITHIN [***] ([***]) DAYS AFTER RECEIPT OF THE PARTICULAR NOTICE FROM THE INDEMNIFIED PARTY.  SO LONG AS THE INDEMNIFYING PARTY HAS ASSUMED THE DEFENSE OF THE THIRD PARTY CLAIM IN ACCORDANCE HEREWITH AND NOTIFIED THE INDEMNIFIED PARTY IN WRITING THEREOF, (I) THE INDEMNIFIED PARTY MAY RETAIN SEPARATE CO-COUNSEL AT ITS SOLE COST AND EXPENSE AND PARTICIPATE IN THE DEFENSE OF THE THIRD PARTY CLAIM, IT BEING UNDERSTOOD THAT THE INDEMNIFYING PARTY SHALL PAY ALL REASONABLE COSTS AND EXPENSES OF COUNSEL FOR THE INDEMNIFIED PARTY AFTER SUCH TIME AS THE INDEMNIFIED PARTY HAS NOTIFIED THE INDEMNIFYING PARTY OF SUCH THIRD PARTY CLAIM AND PRIOR TO SUCH TIME AS THE INDEMNIFYING PARTY HAS NOTIFIED THE INDEMNIFIED PARTY THAT IT HAS ASSUMED THE DEFENSE OF SUCH THIRD PARTY CLAIM, (II) THE INDEMNIFIED PARTY SHALL NOT FILE ANY PAPERS OR, OTHER THAN IN CONNECTION WITH A SETTLEMENT OF THE THIRD PARTY CLAIM, CONSENT TO THE ENTRY OF ANY JUDGMENT WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNIFYING PARTY (NOT TO BE UNREASONABLY WITHHELD, CONDITIONED OR DELAYED) AND (III) THE INDEMNIFYING PARTY WILL NOT CONSENT TO THE ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WITH RESPECT TO THE THIRD PARTY CLAIM (OTHER THAN A JUDGMENT OR SETTLEMENT THAT IS SOLELY FOR MONEY DAMAGES AND IS ACCOMPANIED BY A RELEASE OF ALL INDEMNIFIABLE CLAIMS AGAINST THE INDEMNIFIED PARTY) WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNIFIED PARTY (NOT TO BE UNREASONABLY WITHHELD, CONDITIONED OR DELAYED).  WHETHER OR NOT THE INDEMNIFYING PARTY SHALL HAVE ASSUMED THE DEFENSE OF THE INDEMNIFIED PARTY FOR A THIRD PARTY CLAIM, SUCH INDEMNIFYING PARTY SHALL NOT BE OBLIGATED TO INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTY HEREUNDER FOR ANY CONSENT TO THE ENTRY OF JUDGMENT OR SETTLEMENT ENTERED INTO WITH RESPECT TO SUCH THIRD PARTY CLAIM WITHOUT THE INDEMNIFYING PARTY’S PRIOR WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, CONDITIONED OR DELAYED.   (B)           EQUITABLE REMEDIES.  IN THE CASE OF ANY THIRD PARTY CLAIM WHERE THE INDEMNIFYING PARTY REASONABLY BELIEVES THAT IT WOULD BE APPROPRIATE TO SETTLE SUCH THIRD PARTY CLAIM USING EQUITABLE REMEDIES (I.E., REMEDIES INVOLVING THE FUTURE ACTIVITY AND CONDUCT OF THE JOINT VENTURE COMPANY), THE INDEMNIFYING PARTY AND THE INDEMNIFIED PARTY SHALL WORK TOGETHER IN GOOD FAITH TO AGREE TO A SETTLEMENT; PROVIDED, HOWEVER, THAT NO PARTY SHALL BE UNDER ANY OBLIGATION TO AGREE TO ANY SUCH SETTLEMENT.   (C)           TREATMENT OF INDEMNIFICATION PAYMENTS; INSURANCE RECOVERIES.  ANY INDEMNITY PAYMENT UNDER THIS AGREEMENT SHALL BE DECREASED BY ANY AMOUNTS ACTUALLY RECOVERED BY THE INDEMNIFIED PARTY UNDER THIRD PARTY INSURANCE POLICIES WITH RESPECT TO SUCH INDEMNIFIED LOSSES (NET OF ANY PREMIUMS PAID BY SUCH INDEMNIFIED PARTY UNDER THE RELEVANT INSURANCE POLICY), EACH PARTY AGREEING (I) TO USE ALL REASONABLE EFFORTS TO RECOVER ALL AVAILABLE INSURANCE PROCEEDS AND (II) TO THE EXTENT THAT ANY INDEMNITY PAYMENT UNDER THIS AGREEMENT HAS BEEN PAID BY THE INDEMNIFYING PARTY TO THE INDEMNIFIED PARTY PRIOR TO   12 --------------------------------------------------------------------------------   the recovery by the Indemnified Party of such insurance proceeds, the amount of such insurance proceeds actually recovered by the Indemnified Party shall be promptly paid to the Indemnifying Party.   (D)           CERTAIN ADDITIONAL PROCEDURES.  THE INDEMNIFIED PARTY SHALL COOPERATE AND ASSIST THE INDEMNIFYING PARTY IN DETERMINING THE VALIDITY OF ANY THIRD PARTY CLAIM FOR INDEMNITY BY THE INDEMNIFIED PARTY AND IN OTHERWISE RESOLVING SUCH MATTERS.  THE INDEMNIFIED PARTY SHALL COOPERATE IN THE DEFENSE BY THE INDEMNIFYING PARTY OF EACH THIRD PARTY CLAIM (AND THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY AGREE WITH RESPECT TO ALL SUCH THIRD PARTY CLAIM THAT A COMMON INTEREST PRIVILEGE AGREEMENT EXISTS BETWEEN THEM), INCLUDING, (I) PERMITTING THE INDEMNIFYING PARTY TO DISCUSS THE THIRD PARTY CLAIM WITH SUCH OFFICERS, EMPLOYEES, CONSULTANTS AND REPRESENTATIVES OF THE INDEMNIFIED PARTY AS THE INDEMNIFYING PARTY REASONABLY REQUESTS, (II)  PROVIDING TO THE INDEMNIFYING PARTY COPIES OF DOCUMENTS AND SAMPLES OF PRODUCTS AS THE INDEMNIFYING PARTY REASONABLY REQUESTS IN CONNECTION WITH DEFENDING SUCH THIRD PARTY CLAIM, (III)  PRESERVING ALL PROPERTIES, BOOKS, RECORDS, PAPERS, DOCUMENTS, PLANS, DRAWINGS, ELECTRONIC MAIL AND DATABASES OF THE JOINT VENTURE COMPANY AND RELATING TO MATTERS PERTINENT TO THE CONDUCT OF THE JOINT VENTURE COMPANY UNDER THE INDEMNIFIED PARTY’S CUSTODY OR CONTROL IN ACCORDANCE WITH SUCH PARTY’S CORPORATE DOCUMENTS RETENTION POLICIES, OR LONGER TO THE EXTENT REASONABLY REQUESTED BY THE INDEMNIFYING PARTY, (IV) NOTIFYING THE INDEMNIFYING PARTY PROMPTLY OF RECEIPT BY THE INDEMNIFIED PARTY OF ANY SUBPOENA OR OTHER THIRD PARTY REQUEST FOR DOCUMENTS OR INTERVIEWS AND TESTIMONY, (V) PROVIDING TO THE INDEMNIFYING PARTY COPIES OF ANY DOCUMENTS PRODUCED BY THE INDEMNIFIED PARTY IN RESPONSE TO OR COMPLIANCE WITH ANY SUBPOENA OR OTHER THIRD PARTY REQUEST FOR DOCUMENTS; AND (VI) EXCEPT TO THE EXTENT INCONSISTENT WITH THE INDEMNIFIED PARTY’S OBLIGATIONS UNDER APPLICABLE LAW AND EXCEPT TO THE EXTENT THAT TO DO SO WOULD SUBJECT THE INDEMNIFIED PARTY OR ITS EMPLOYEES, AGENTS OR REPRESENTATIVES TO CRIMINAL OR CIVIL SANCTIONS, UNLESS ORDERED BY A COURT TO DO OTHERWISE,  NOT PRODUCING DOCUMENTS TO A THIRD PARTY UNTIL THE INDEMNIFYING PARTY HAS BEEN PROVIDED A REASONABLE OPPORTUNITY TO REVIEW, COPY AND ASSERT PRIVILEGES COVERING SUCH DOCUMENTS.   ARTICLE 12   LIMITATION OF LIABILITY   12.1         DAMAGES LIMITATION.  [***].   12.2         [***].   12.3         DAMAGES CAP.  [***].   13 --------------------------------------------------------------------------------   12.4         EXCLUSIONS AND MITIGATION.  SECTIONS 12.1 AND 12.3 WILL NOT APPLY TO EITHER PARTY’S BREACH OF ARTICLE 10 OR ANY CLAIM THAT SHOULD BE BROUGHT UNDER THE [***].  SECTION 12.3 WILL NOT APPLY TO THE JOINT VENTURE COMPANY’S PAYMENT OBLIGATIONS FOR MANUFACTURING SERVICE HEREUNDER.  EACH PARTY SHALL HAVE A DUTY TO USE COMMERCIALLY REASONABLE EFFORTS TO MITIGATE DAMAGES FOR WHICH THE OTHER PARTY IS RESPONSIBLE.   12.5         Losses.  Except as provided under Section 11.1, the Joint Venture Company and Micron each shall be responsible for Losses to their respective tangible personal or real property (whether owned or leased), and each Party agrees to look only to their own insurance arrangements with respect to such damages.  The Joint Venture Company and Micron waive all rights to recover against each other, including each Party’s insurers’ subrogation rights, if any, for any loss or damage to their respective tangible personal property or real property (whether owned or leased) from any cause covered by insurance maintained by each of them, including their respective deductibles or self-insured retentions.  In the event of a loss hereunder involving a property, transit or crime event or occurrence that: (i) is insured under Micron’s insurance policies; (ii) a single insurance deductible applies; and (iii) the loss event or occurrence affects the insured ownership or insured legal interests of both Parties, then the Parties shall share the cost of the deductible in proportion to each Party’s insured ownership or legal interests in relative proportion to the total insured ownership or legal interests of the Parties.   ARTICLE 13   TERM AND TERMINATION; REMEDIES   13.1         Term. The term of this Agreement commences on the Effective Date and continues in effect until the earlier of: (i) a period of ten (10) years from the Effective Date; [***].   13.2         Termination for Cause.  Micron may terminate this Agreement for cause if the Joint Venture Company fails to make a payment which is due and payable under the terms of this Agreement and the Joint Venture Company fails to cure the same within one hundred eighty (180) days after receipt of written notice from the Micron, unless such failure to pay was in response to Micron’s material breach.  The Joint Venture Company may terminate this Agreement for cause as agreed in Section 13.4(c).   14 --------------------------------------------------------------------------------   13.3         Survival.  Termination of this Agreement shall not affect any of the Parties’ respective rights accrued or obligations owed before termination including any rights or obligations of the Parties in respect of any accepted Purchase Orders existing at the time of termination.  In addition, the following shall survive termination of this Agreement for any reason:  Sections 2.7, 3.3, 4.5, 6.7 and 13.3 and ARTICLE 1, 9, 10, 12 and 14.   13.4         FAILURE TO ADEQUATELY PERFORM SERVICES.  [***].   ARTICLE 14   MISCELLANEOUS   14.1         FORCE MAJEURE EVENTS.  THE PARTIES SHALL BE EXCUSED FROM ANY FAILURE TO PERFORM ANY OBLIGATION HEREUNDER TO THE EXTENT SUCH FAILURE IS CAUSED BY A FORCE MAJEURE EVENT.  A FORCE MAJEURE EVENT SHALL OPERATE TO EXCUSE A FAILURE TO PERFORM AN OBLIGATION HEREUNDER ONLY FOR THE PERIOD OF TIME DURING WHICH THE FORCE MAJEURE EVENT RENDERS PERFORMANCE IMPOSSIBLE OR INFEASIBLE AND ONLY IF THE PARTY ASSERTING FORCE MAJEURE AS AN EXCUSE FOR ITS FAILURE TO PERFORM HAS PROVIDED WRITTEN NOTICE TO THE OTHER PARTY SPECIFYING THE OBLIGATION TO BE EXCUSED AND DESCRIBING THE EVENTS OR CONDITIONS CONSTITUTING THE FORCE MAJEURE EVENT.  AS USED HEREIN, “FORCE MAJEURE EVENT” MEANS THE OCCURRENCE OF AN EVENT OR CIRCUMSTANCE BEYOND THE REASONABLE CONTROL OF THE PARTY FAILING TO PERFORM, INCLUDING, WITHOUT LIMITATION, (A) EXPLOSIONS, FIRES, FLOOD, EARTHQUAKES, CATASTROPHIC WEATHER CONDITIONS, OR OTHER ELEMENTS OF NATURE OR ACTS OF GOD; (B) ACTS OF WAR (DECLARED OR UNDECLARED), ACTS OF TERRORISM, INSURRECTION, RIOTS, CIVIL DISORDERS, REBELLION OR SABOTAGE; (C) ACTS OF FEDERAL, STATE, LOCAL OR FOREIGN GOVERNMENTAL AUTHORITIES OR COURTS; (D) LABOR DISPUTES, LOCKOUTS, STRIKES OR OTHER INDUSTRIAL ACTION, WHETHER DIRECT OR INDIRECT AND WHETHER LAWFUL OR UNLAWFUL; (E) FAILURES OR FLUCTUATIONS IN ELECTRICAL POWER OR TELECOMMUNICATIONS SERVICE OR EQUIPMENT; AND (F) DELAYS CAUSED BY THE OTHER PARTY’S NONPERFORMANCE HEREUNDER.   14.2         [***].   15 --------------------------------------------------------------------------------   14.3         ASSIGNMENT.  EXCEPT AS OTHERWISE PROVIDED IN THE JOINT VENTURE DOCUMENT, NEITHER THIS AGREEMENT NOR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE ASSIGNED OR DELEGATED BY EITHER PARTY IN WHOLE OR IN PART TO ANY OTHER PERSON, OTHER THAN A WHOLLY-OWNED SUBSIDIARY OF SUCH PARTY, WITHOUT THE PRIOR WRITTEN CONSENT OF THE NON-ASSIGNING PARTY.  ANY PURPORTED ASSIGNMENT IN VIOLATION OF THE PROVISIONS OF THIS SECTION SHALL BE NULL AND VOID AND HAVE NO EFFECT.  THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE SUCCESSORS AND ASSIGNS OF EACH PARTY HERETO.   14.4         COMPLIANCE WITH LAWS AND REGULATIONS.  EACH OF THE PARTIES SHALL COMPLY WITH, AND SHALL USE REASONABLE EFFORTS TO REQUIRE THAT ITS RESPECTIVE SUBCONTRACTORS COMPLY WITH, APPLICABLE LAWS RELATING TO THE MANUFACTURING SERVICES.   14.5         ON-SITE VISITATIONS.  EACH PARTY AND ITS EMPLOYEES, CONTRACTORS OR OTHER REPRESENTATIVES SHALL OBSERVE AND BE SUBJECT TO ALL SAFETY, SECURITY AND OTHER POLICIES AND REGULATIONS REGARDING VISITORS AND CONTRACTORS WHILE ON SITE AT A FACILITY OF THE OTHER PARTY OR ITS AFFILIATE.  A PARTY’S EMPLOYEES, CONTRACTORS OR OTHER REPRESENTATIVES WHO ACCESS ANY FACILITY OF THE OTHER PARTY OR ITS AFFILIATE SHALL NOT INTERFERE WITH, AND EXCEPT AS OTHERWISE AGREED BY THE PARTIES, SHALL NOT PARTICIPATE IN,  THE BUSINESS OR OPERATIONS OF THE FACILITY ACCESSED.   14.6         NOTICE.  ALL NOTICES AND OTHER COMMUNICATIONS HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN UPON (E) TRANSMITTER’S CONFIRMATION OF A RECEIPT OF A FACSIMILE TRANSMISSION, (F) CONFIRMED DELIVERY BY A STANDARD OVERNIGHT CARRIER OR WHEN DELIVERED BY HAND, (G) THE EXPIRATION OF FIVE (5) BUSINESS DAYS AFTER THE DAY WHEN MAILED IN THE UNITED STATES BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, OR (H) DELIVERY IN PERSON, ADDRESSED AT THE FOLLOWING ADDRESSES (OR AT SUCH OTHER ADDRESS FOR A PARTY AS SHALL BE SPECIFIED BY LIKE NOTICE):   In the case of IM Flash Technologies, LLC:   IM Flash Technologies, LLC. 1550 East 3400 North Lehi, Utah  84043 Attention:  David A. Baglee; Rodney Morgan Facsimile Number:  (801) 767-5370   With a mandatory copy to:   Intel Corporation 2200 Mission College Blvd. Mail-Stop SC4-203 Santa Clara, California 95054 Attention:  General Counsel Facsimile Number:  (408) 653-8050   16 --------------------------------------------------------------------------------   In the case of Micron:   Micron Technology, Inc. 8000 S. Federal Way Boise, Idaho  83707-0006 Attention:  General Counsel Facsimile Number:  (208) 368-4540.   Either Party may change its address for notices upon giving ten (10) days written notice of such change to the other Party in the manner provided above.   14.7         WAIVER.  THE FAILURE AT ANY TIME OF A PARTY TO REQUIRE PERFORMANCE BY THE OTHER PARTY OF ANY RESPONSIBILITY OR OBLIGATION REQUIRED BY THIS AGREEMENT SHALL IN NO WAY AFFECT A PARTY’S RIGHT TO REQUIRE SUCH PERFORMANCE AT ANY TIME THEREAFTER, NOR SHALL THE WAIVER BY A PARTY OF A BREACH OF ANY PROVISION OF THIS AGREEMENT BY THE OTHER PARTY CONSTITUTE A WAIVER OF ANY OTHER BREACH OF THE SAME OR ANY OTHER PROVISION NOR CONSTITUTE A WAIVER OF THE RESPONSIBILITY OR OBLIGATION ITSELF.   14.8         SEVERABILITY.  SHOULD ANY PROVISION OF THIS AGREEMENT BE DEEMED IN CONTRADICTION WITH THE LAWS OF ANY JURISDICTION IN WHICH IT IS TO BE PERFORMED OR UNENFORCEABLE FOR ANY REASON, SUCH PROVISION SHALL BE DEEMED NULL AND VOID, BUT THIS AGREEMENT SHALL REMAIN IN FULL FORCE IN ALL OTHER RESPECTS.  SHOULD ANY PROVISION OF THIS AGREEMENT BE OR BECOME INEFFECTIVE BECAUSE OF CHANGES IN APPLICABLE LAWS OR INTERPRETATIONS THEREOF, OR SHOULD THIS AGREEMENT FAIL TO INCLUDE A PROVISION THAT IS REQUIRED AS A MATTER OF LAW, THE VALIDITY OF THE OTHER PROVISIONS OF THIS AGREEMENT SHALL NOT BE AFFECTED THEREBY.  IF SUCH CIRCUMSTANCES ARISE, THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH APPROPRIATE MODIFICATIONS TO THIS AGREEMENT TO REFLECT THOSE CHANGES THAT ARE REQUIRED BY APPLICABLE LAW.   14.9         THIRD PARTY RIGHTS.  NOTHING IN THIS AGREEMENT, WHETHER EXPRESS OR IMPLIED, IS INTENDED OR SHALL BE CONSTRUED TO CONFER, DIRECTLY OR INDIRECTLY, UPON OR GIVE TO ANY PERSON, OTHER THAN THE PARTIES HERETO, ANY LEGAL OR EQUITABLE RIGHT, REMEDY OR CLAIM UNDER OR IN RESPECT OF THIS AGREEMENT OR ANY COVENANT, CONDITION OR OTHER PROVISION CONTAINED HEREIN.   14.10       AMENDMENT.  THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY OR ON BEHALF OF EACH OF THE PARTIES TO THIS AGREEMENT.   14.11       ENTIRE AGREEMENT.  THIS AGREEMENT AND THE APPLICABLE PROVISIONS OF THE CONFIDENTIALITY AGREEMENT, WHICH ARE INCORPORATED HEREIN AND MADE A PART HEREOF, TOGETHER WITH THE EXHIBITS AND SCHEDULES HERETO AND THE AGREEMENTS AND INSTRUMENTS EXPRESSLY PROVIDED FOR HEREIN, CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, ORAL AND WRITTEN, BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF.   14.12       CHOICE OF LAW.  [***].   14.13       JURISDICTION; VENUE.  [***].   17 --------------------------------------------------------------------------------   14.14       HEADINGS.  THE HEADINGS OF THE ARTICLES AND SECTIONS IN THIS AGREEMENT ARE PROVIDED FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT BE DEEMED TO CONSTITUTE A PART HEREOF.   14.15       COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN SEVERAL COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT.   Signature page follows   18 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, this Agreement has been duly executed by and on behalf of the Parties hereto as of the Effective Date.     MICRON TECHNOLOGY, INC. IM FLASH TECHNOLOGIES, LLC     By: /s/ STEVEN R. APPLETON   By: /s/ DAVID A. BAGLEE   Name: Steven R. Appleton Name: David A. Baglee Title: Chief Executive Officer and President Title: Authorized Officer       By: /s/ RODNEY MORGAN     Name: Rodney Morgan   Title: Authorized Officer   THIS IS THE SIGNATURE PAGE FOR THE MANUFACTURING SERVICES AGREEMENT ENTERED INTO BY AND BETWEEN MICRON TECHNOLOGY, INC. AND IM FLASH TECHNOLOGIES, LLC   19 --------------------------------------------------------------------------------   EXHIBIT A COMMON DEFINITIONS   “Affiliate” means, with respect to any specified Person, a Person that directly or indirectly, including through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.   “Agreement” shall have the meaning set forth in the preamble to this Agreement.   “Applicable Law” means any applicable laws, statutes, rules, regulations, ordinances, orders, codes, arbitration awards, judgments, decrees or other legal requirements of any Governmental Entity.   “Approved Business Plan” shall have the meaning set forth in the Definitions of the LLC Operating Agreement.   “Business Continuity Plan” means a plan to recover the production process in the event of a natural disaster or any other event that disrupts the production process.   “Business Day” means a day that is not a Saturday, Sunday or other day on which commercial banking institutions in the State of New York are authorized or required by Applicable Law to be closed.   “Confidentiality Agreement” means that Mutual Confidentiality Agreement by and among the Joint Venture Company, Intel and Micron dated as of the Effective Date.   “Confidential Information” shall have the meaning set forth in Section 10.1 hereof.   “Cycle-Time” means the time required to process a unit through a portion of the production process (e.g., FAB, assembly, or final test) or through the production process as a whole.   “Demand Forecast” shall have the meaning set forth in Section 5.1(a).   “Effective Date” shall have the meaning set forth in the preamble to this Agreement.   “Fiscal Quarter” means any of the four financial accounting quarters within Micron’s Fiscal Year.   “Fiscal Month” means any of the twelve financial accounting months within Micron’s Fiscal Year.   “Fiscal Year” means the fiscal year of Micron for financial accounting purposes   “Flash Memory Integrated Circuit” shall have the meaning set forth in the LLC Operating Agreement.   “Force Majeure Event” shall have the meaning set forth in Section 14.1, hereof.   “GAAP” means United States generally accepted accounting principles as in effect from time to time.   20 --------------------------------------------------------------------------------   “Governmental Entity” means any governmental authority or entity, including any agency, board, bureau, commission, court, department, subdivision or instrumentality thereof, or any arbitrator or arbitration panel.   “Hazardous Materials” means dangerous goods, chemicals, contaminants, substances, pollutants or any other materials that are defined as hazardous by relevant local, state, national, or international law, regulations and standards.   “Indemnified Party” shall mean any of the following to the extent entitled to seek indemnification under this Agreement: Intel, Micron, the Joint Venture Company, and their respective Affiliates, officers, directors, employees, agents, assigns and successors.   “Indemnified Losses” shall mean all direct, out-of-pocket liabilities, damages, losses, costs and expenses of any nature incurred by an Indemnified Party, including reasonable attorneys’ fees and consultants’ fees, and all damages, fines, penalties and judgments awarded or entered against an Indemnified Party, but specifically excluding any special, consequential or other types of indirect damages.   “Indemnifying Party” shall mean the Party owing a duty of indemnification to another Party with respect to a particular Third Party Claim.   “Intel” means Intel Corporation, a Delaware corporation.   “Initial Business Plan” shall have the meaning set forth in the LLC Operating Agreement.   “Joint Development Program Agreement” means that certain Joint Development by and between Intel and Micron dated as of the Effective Date.   “Joint Venture Company” means IM Flash Technologies, LLC, a Delaware limited liability company that is the subject of the Joint Venture Documents.   “Joint Venture Documents” shall have the meaning set forth in that certain Master Agreement by and between Intel and Micron.   “Joint Venture Equipment” shall have the meaning set forth in Section 3.1 hereof.   “Liquidation Date” shall have the meaning set forth in the LLC Operating Agreement.   “LLC Operating Agreement” means that Limited Liability Company Operating Agreement of the Joint Venture Company, LLC between Intel and Micron.   “Losses” shall mean, collectively, any and all insurable liabilities, damages, losses, costs and expenses (including reasonable attorneys’ and consultants’ fees and expenses).   “Manufacturing Committee” shall have the meaning set forth in Section 8.6 of the LLC Operating Agreement.   “Manufacturing Plan” shall have the meaning set forth in Section 11.6.A.1 of the LLC Operating Agreement.   “Manufacturing Services” shall have the meaning set forth on Schedule 2.1 hereof.   “Manufacturing Services Forecast” shall have the meaning set forth in Section 5.1(b) hereof.   21 --------------------------------------------------------------------------------   “Master Agreement” shall mean that certain Master Agreement by and between Intel and Micron dated November 18, 2005.   “Members” means Micron and Intel.   “Micron” means Micron Technology, Inc., a Delaware corporation.   “Micron Equipment” shall have the meaning set forth in Section 4.1 hereof.   “Minority Closing” shall have the meaning set forth in the LLC Operating Agreement.   “MTV Assets” shall have the meaning set forth in the LLC Operating Agreement.   “MTV Lease Agreement” shall mean that certain MTV Lease Agreement by and between Intel and Micron.   “NAND Flash Memory Integrated Circuit” means a Flash Memory Integrated Circuit, where the memory cells included in the Flash Memory Integrated Circuit are arranged in groups of serially connected memory cells (each such group of serially connected memory cells called a “string”) in which the drain of each memory cell of a string (other than the first memory cell in the string) is connected in series to the source of another memory cell in such string, the gate of each memory cell in such string is directly accessible, and the drain of the uppermost bit of such string is coupled to the bitline of the memory array.   “NAND Flash Memory Product” shall have the meaning set forth in the LLC Operating Agreement.   “Party” and “Parties” shall have the meaning set forth in the Recitals to this Agreement.   “Performance Criteria” means [***].   “Person” means any neutral person, corporation, joint stock company, limited liability company, association, partnership, firm joint venture, organization, individual, business, trust, estate or any other entity or organization of any kind or character from any form of association.   “Price” and “Pricing” shall have the meaning set forth in Schedule 6.5.   “Prime Wafer(s)” means raw silicon wafers.   “Probe Testing” means testing, using a probe test program as set forth in the applicable Specifications, of a wafer that has completed all processing steps deemed necessary to complete the creation of the desired NAND Flash Memory Integrated Circuits in the die on such wafer, the purpose of which test is to determine how many and which of the die constitute Probed Wafers, Secondary Silicon and Rejects.   “Probed Wafer” means a Prime Wafer that has been processed to the point of containing NAND Flash Memory Integrated Circuits organized in multiple semiconductor die and that has undergone Probe Testing to meet Specification, but before singulation of said die into individual semiconductor die.   “Process Specification” shall mean those specifications or documents used to describe, characterize, and define the process by which Prime Wafers become Probed Wafers.   22 --------------------------------------------------------------------------------   “Product Designs Development Agreement” means that Product Designs Development Agreement by and between Intel and Micron dated as of the Effective Date.   “Product Specifications” shall mean those specifications used to describe, characterize, and define the quality and performance of NAND Flash Memory Product, including any interim performance requirements at Probe Testing or back-end testing.   “Proposed Loading Plan” shall have the meaning set forth in Section 5.1(c) hereof.   “Provided Inputs” shall have the meaning set forth in Section 13.4 hereof.   “Purchase Order” shall have the meaning set forth in Section 6.1 hereof.   “Quality and Reliability” means Product quality and reliability standards as set forth in the Product Specification.   “Ramp Plan” means the document which defines the process and key milestone schedule to build and ramp a silicon fabrication facility.   “Receiving Party” shall have the meaning set forth in Section 10.1 hereof.   “Recoverable Taxes” shall have the meaning set forth in Section 6.6, hereof.   “Secondary Silicon” shall mean a Prime Wafer that has been processed to the point of containing NAND Flash Memory Integrated Circuits organized in multiple semiconductor die and that has undergone Probe Testing (a) would otherwise constitute a Probed Wafer but for failure to achieve qualification and (b) otherwise conform to the applicable Secondary Silicon Specifications.   “Semiconductor Manufacturing Technology” shall have the meaning set forth in the Process Joint Development Program Agreement.   “Site(s)” shall mean the facilities described on Schedule 2.1 hereof.   “Standard of Care” shall have the meaning set forth in Section 9.1 hereof.   “Subsidiary” shall have the meaning set forth in the LLC Operating Agreement.   “Technology License Agreement” means that Technology License Agreement by and among the Joint Venture Company, Intel and Micron dated as of the Effective Date.   “Term” shall have the meaning set forth in Section 13.1 hereof.   “Trigger Event” shall have the meaning set forth in Section 13.4 hereof.   “Third Party Claim” shall mean any claim, demand, action, suit or proceeding, and any actual or threatened lawsuit, complaint, cross-complaint or counter-complaint, arbitration or other legal or arbitral proceeding of any nature, brought in any court, tribunal or judicial forum anywhere in the world, regardless of the manner in which such proceeding is captioned or styled, by any Person other than Intel, Micron, the Joint Venture Company and Affiliates of the foregoing, against an Indemnified Party, in each case alleging entitlement to any Indemnified Losses pursuant to any indemnification obligation under this Agreement.   “Wafer Map” shall mean a map in electronic form or other form as mutually agreed of a Probed Wafers processed by Micron pursuant to this Agreement, such map depicting the location of each die on the wafer and whether it constitutes a Product, Secondary Silicon or a Reject.   23 --------------------------------------------------------------------------------   “Wafer Start” shall mean the initiation of Manufacturing Services with respect to a Prime Wafer.   “Warranty Notice Period” shall have the meaning set forth in Section 9.2 hereof.   “Wholly-Owned Subsidiary” shall have the meaning set forth in the LLC Operating Agreement.   “WIP” shall mean work in process of a Prime Wafer after Wafer Start towards but before becoming a NAND Flash Memory Wafer.   24 --------------------------------------------------------------------------------   SCHEDULES   Schedule 2.1   Manufacturing Services       Schedule 6.5   Pricing   25 --------------------------------------------------------------------------------

  EXHIBIT 10.3 EXECUTION VERSION RELEASE OF LIENS AND TERMINATION OF SECURITY DOCUMENTS November 6, 2006 Pursuant to Sections 3(b), 8 and 17(b) of the Intercreditor and Agency Agreement, dated as of April 19, 1995 (as amended, modified and supplemented, the “Intercreditor Agreement”), among AmeriGas Propane, Inc., Petrolane Incorporated, AmeriGas Propane, L.P. (the “Company”), AmeriGas Propane Parts & Service, Inc., the Note Holders (as defined therein), Wachovia Bank, National Association, in its capacity as Collateral Agent for the Secured Creditors, and Mellon Bank, N.A., in its capacity as Cash Collateral Sub-Agent for the Secured Creditors, the undersigned Collateral Agent hereby confirms to the Obligors the following: (i) the undersigned Collateral Agent has delivered to each of the Secured Creditors a written notification that the Obligors requested that the Collateral Agent release the Liens and terminate the Security Documents (other than the Intercreditor Agreement, which will survive only to the extent that the Liens of the Security Documents ever re-attach); (ii) the Requisite Percentage of the Secured Creditors has directed the Collateral Agent to release the Liens and terminate the Security Documents (other than the Intercreditor Agreement) pursuant to a Voting Action/Direction Notice, a copy of which is attached hereto as Exhibit A; (iii) the Secured Creditors agree to cooperate with the Collateral Agent and Obligors in order to terminate any outstanding financing statements, fixture filings, mortgages and other documents or instruments granting or purporting to perfect Liens of the Security Documents; (iv) the undersigned Collateral Agent hereby (A) releases all Liens and terminates the Security Documents (other than the Intercreditor Agreement), (B) agrees to return to the Company all General Collateral in its possession, including without limitation, the Intercompany Note, the related Loan Agreement, the share certificates representing the Capital Stock of Columbia Propane Corporation (n/k/a AmeriGas Eagle Propane, Inc.) and of CP Holdings (n/k/a AmeriGas Eagle Holdings, Inc.), (C) agrees to provide written instructions to any Intermediary under existing Control Agreement(s) among the Company, the Collateral Agent and the Intermediary, to terminate such Control Agreement(s) and (D) agrees to execute such other documents and instruments and cooperate with the Obligors in order to terminate any outstanding financing statements, fixture filings, mortgages and other documents or instruments granting or evidencing or purporting to perfect Liens of the Security Documents; (v) the undersigned Collateral Agent hereby grants the Obligors the authority to terminate any outstanding financing statements, fixture filings, mortgages and other documents or instruments granting or evidencing or purporting to perfect Liens of the Security Documents;     --------------------------------------------------------------------------------   (vi) the Obligors and their Subsidiaries shall no longer be obligated to comply with any covenant in the Parity Debt Agreements to deliver Mortgages, UCC-1 financing statements or any other Security Document (other than the Intercreditor Agreement), filing or instrument relating to the General Collateral or the Collateral Agent, or to take or refrain from taking any action required by any Security Document (other than the Intercreditor Agreement); and (vii) the Secured Creditors, the Collateral Agent and the Obligors acknowledge that the Intercreditor Agreement no longer governs the relationship between the holders of Parity Debt except (A) in the event that the liens securing the Parity Debt are reinstated and (B) with respect to those provisions of the Intercreditor Agreement that by their terms expressly survive the termination of the Intercreditor Agreement. Capitalized terms not otherwise defined herein shall have the meanings specified in the Intercreditor Agreement. [Signature pages follow]   2 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Collateral Agent has caused this Release of Liens and Termination of Security Documents to be executed as of the date first above written.             WACHOVIA BANK, NATIONAL ASSOCIATION, as Collateral Agent       By:           Name:   Lawrence P. Sullivan        Title:   Director      3 --------------------------------------------------------------------------------             ACKNOWLEDGED AND ACCEPTED:             AMERIGAS PROPANE, L.P.       By:   AmeriGas Propane, Inc., its General Partner         By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer        AMERIGAS PROPANE, INC.       By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer        PETROLANE INCORPORATED       By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer        AMERIGAS PROPANE PARTS AND SERVICES, INC.       By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer        AMERIGAS EAGLE PROPANE, INC.       By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer      [Signatures continue on next page]   4 --------------------------------------------------------------------------------   [Signatures continued from prior page]             AMERIGAS EAGLE HOLDINGS, INC.       By:           Name:   Robert W. Krick        Title:   Vice President and Treasurer        5

Exhibit 10.1   FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT   This FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is made and entered into as of the 18th day of April, 2006, by and among Dover Downs Gaming & Entertainment, Inc. (the “Borrower”) and Wilmington Trust Company, a Delaware banking corporation (“WTC”), PNC Bank, Delaware, a Delaware banking corporation (“PNC”), and Mercantile-Safe Deposit & Trust Company, a Maryland banking corporation (“Mercantile”, and together with WTC and PNC, the “Banks”) and WTC, as agent (the “Agent”).   WHEREAS, the Borrower, the WTC, PNC and the Agent have entered into an Amended and Restated Credit Agreement, dated as of March 25, 2002, as amended by the Amendment to Amended and Restated Credit Agreement, dated as of August 12, 2002, the Second Amendment to Amended and Restated Credit Agreement, dated as of February 19, 2004, the Third Amendment to Amended and Restated Credit Agreement, dated as of November 5, 2004, and the Fourth Amendment to Amended and Restated Credit Agreement, dated as of December 14, 2005 (as so amended, the “Agreement”), pursuant to which the WTC and PNC agreed to make available certain credit facilities to the Borrower; and   WHEREAS, the Borrower, the Banks and the Agent desire to amend the Agreement as set forth herein.   NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:   SECTION 1. DEFINED TERMS. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED ARE USED AS DEFINED IN THE AGREEMENT.   SECTION 2. AMENDMENTS.   2.1.          MERCANTILE SHALL BE A BANK UNDER THE AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND HEREBY AGREES TO BE BOUND BY THE TERMS THEREOF AND HEREOF.   2.2.          THE FOLLOWING DEFINITION OF APPLICABLE MARGIN IS ADDED TO SECTION 1.1 OF THE AGREEMENT:   ““Applicable Margin”: shall mean the rate per annum set forth below for the then applicable Leverage Ratio (tested quarterly pursuant to Sections 6.1(a) and 5.2(a) and applicable for the fiscal quarter immediately following the fiscal period tested):   --------------------------------------------------------------------------------   Leverage Ratio   Eurodollar Loans   Base Rate Loans   Applicable Margin Level                   Less than or equal to 1.75   .75 % 0 %   I                     Greater than 1.75 but less than or equal to 2.00   .95 % .25 %   II                     Greater than 2.00   1.25 % .50 %   III     2.3.          THE DEFINITION OF REQUIRED BANKS FOUND IN SECTION 1.1 OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:   ““Required Banks”:  shall mean Banks having in the aggregate sixty-six and two-thirds percent (66⅔%) or more of the Commitment.”   2.4.          THE DEFINITION OF TERMINATION DATE FOUND IN SECTION 1.1 OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:   ““Termination Date”:  the earlier of (a) April 17, 2011, or such later date to which the Termination Date shall have been extended pursuant to Section 2.10(d) and (b) the date the Commitments are terminated as provided herein.”   2.5.          SECTION 2.3(G) OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:   “(g)         At any time there may be more than one outstanding Swing Line Loan.”   2.6.          SECTION 2.6 OF THE AGREEMENT IS HEREBY AMENDED BY ADDING A NEW SUBSECTION (D) THERETO AS FOLLOWS:   “(d)         The Borrower agrees to pay the Agent for the account of the Agent an annual fee of $20,000.00 in immediately available funds, with $10,000.00 due and payable on April 15th of each year and $10,000.00 due and payable on October 15th of each year. Once paid, these fees shall not be refundable under any circumstances.”   2.7.          SECTIONS 2.8(A) AND 2.8(B) OF THE AGREEMENT ARE HEREBY AMENDED AND RESTATED IN THEIR ENTIRETY TO READ AS FOLLOWS:   2 --------------------------------------------------------------------------------   “(a)         Subject to the provisions of Section 2.9, each Base Rate Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) at a rate per annum equal to the Base Rate minus 1% plus the Applicable Margin (the “Base Rate Option”).   (b)           Subject to the provisions of Section 2.9, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Loan plus the Applicable Margin (the “Eurodollar Rate Option”).”   2.8.          SECTION 6.1(A) OF THE AGREEMENT IS HEREBY AMENDED BY REPLACING THE NUMBER “2.25” THEREIN WITH “2.75”.   2.9.          SECTION 6.1(C) OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:   “Permit Consolidated Tangible Net Worth to be less than the greater of $50,000,000 and (i) ninety percent (90%) of the Consolidated Tangible Net Worth of the Borrower as of March 31, 2006, plus (ii) an amount equal to twenty-five percent (25%) of the consolidated net income (if positive) of the Borrower and its Subsidiaries for each fiscal quarter ending after March 31, 2006, calculated on a cumulative basis.”   2.10.        SCHEDULE I OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS SET FORTH IN SCHEDULE I ATTACHED HERETO.   2.11.        EXHIBIT F OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS SET FORTH IN EXHIBIT F ATTACHED HERETO.   SECTION 3. REPRESENTATIONS AND WARRANTIES. THE BORROWER HEREBY REPRESENTS AND WARRANTS TO THE AGENT AND THE BANKS AS FOLLOWS:   (A)           EACH OF THE REPRESENTATIONS AND WARRANTIES OF THE BORROWER IN THE AGREEMENT IS TRUE AND CORRECT IN ALL MATERIAL RESPECTS ON AND AS IF MADE AS OF THE DATE HEREOF AFTER GIVING EFFECT TO THIS AMENDMENT.   (B)           AS OF THE DATE HEREOF, AND AFTER GIVING EFFECT TO THIS AGREEMENT, NO DEFAULT OR EVENT OF DEFAULT EXISTS.   (C)           NO CONSENT, APPROVAL OR AUTHORIZATION OF, OR REGISTRATION WITH ANY PERSON IS REQUIRED IN CONNECTION WITH THE EXECUTION, DELIVERY OR PERFORMANCE BY THE BORROWER OF THIS AMENDMENT.   3 --------------------------------------------------------------------------------   SECTION 4. Closing Fees. The Borrower shall pay to the Agent for the account of the Banks a closing fee in the amount of $70,000.00 payable upon the parties’ execution of this Amendment and to be distributed by the Agent to the Banks as follows:  (i) $25,000.00 to WTC, (ii) $25,000.00 to PNC and (iii) $20,000.00 to Mercantile. Notwithstanding Section 2.6 of this Amendment, the first installment of the fee described therein shall be payable upon the execution of this Amendment instead of on April 15th.   SECTION 5. BINDING EFFECT. THIS AMENDMENT SHALL BE BINDING UPON, AND SHALL INURE TO THE BENEFIT OF, THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.   SECTION 6. EXECUTION IN COUNTERPARTS. THIS AMENDMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, ALL OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT, AND ANY OF THE PARTIES HERETO MAY EXECUTE THIS AMENDMENT BY SIGNING ANY SUCH COUNTERPART.   SECTION 7. AGREEMENT IN EFFECT. EXCEPT AS HEREBY AMENDED, THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.   SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS, ALL RIGHTS AND REMEDIES BEING GOVERNED BY DELAWARE’S SUBSTANTIVE LAWS.   [SIGNATURE PAGE FOLLOWS]   4 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written.     DOVER DOWNS GAMING & ENTERTAINMENT, INC.           By: /s/ Timothy R. Horne       Name: Timothy R. Horne     Title: Sr. Vice President – Finance           WILMINGTON TRUST COMPANY, as Agent and as a Bank               By: /s/ Michael B. Gast       Name: Michael B. Gast     Title: Vice President           PNC BANK, DELAWARE, as a Bank               By: /s/ Warren C. Engle       Name: Warren C. Engle     Title: Senior Vice President           MERCANTILE-SAFE DEPOSIT & TRUST COMPANY, as a Bank               By: /s/ C. Douglas Sawyer       Name: C. Douglas Sawyer     Title: Senior Vice President     Acknowledged and Agreed as of     April 18, 2006.           DOVER DOWNS, INC., as Guarantor             By: /s/ Timothy R. Horne       Name: Timothy R. Horne     Title: Sr. Vice President – Finance     5 --------------------------------------------------------------------------------   SCHEDULE I   BANK AND COMMITMENT INFORMATION   Bank and Address   Commitment   Swing Line Commitment               Wilmington Trust Company   $ 50,000,000   $ 5,000,000   121 South State Street           Dover, DE 19901           Attn: Commercial Banking Department                       PNC Bank, Delaware   $ 35,000,000       222 Delaware Avenue           18th Floor           Wilmington, DE 19801           Attn: Warren C. Engle                       Mercantile-Safe Deposit & Trust Company   $ 20,000,000       Two Hopkins Plaza, 5th Floor           Baltimore, MD 21203           Attn:  C. Douglas Sawyer                       Total:   $ 105,000,000   $ 5,000,000     --------------------------------------------------------------------------------

Exhibit 10.18 SETTLEMENT AGREEMENT This Settlement Agreement (the “Agreement”) is made and effective the 24th day of March, 2006, by and between Microsemi Corporation, with offices at 2381 Morse Avenue, Irvine, CA 92614 (“Microsemi”) and Monolithic Power Systems, Inc., with offices at 983 University Avenue, Building A, Los Gatos, CA 95032 (“MPS”). Microsemi and MPS are collectively referred to as the “Parties”, and each separately as a “Party”. WHEREAS, Microsemi is the assignee and owner of all rights, title and interest in and to United States Patent Nos. 5,615,093 (the “‘093 Patent”), 5,923,129 (the “‘129 Patent”), 5,930,121 (the “‘121 Patent”) and 6,198,234 (the “‘234 Patent”) (collectively the “Patents-in-Suit”); WHEREAS, the Parties have been parties to a patent infringement lawsuit filed in the United States District Court, Central District of California, Southern Division, styled Microsemi Corporation v. Monolithic Power Systems, Inc., Case No. SACV 04-1174 CJC (the “Litigation”); WHEREAS, MPS has filed an amended answer and counterclaims alleging that the Patents-in-Suit are invalid, unenforceable and/or not infringed with Microsemi filing a corresponding answer denying these counterclaims; WHEREAS, MPS and Microsemi desire to avoid the time and expense of litigation, to compromise the disputed claims, and to fully and finally resolve and settle the Litigation through the exchange of mutual releases, a covenant not to sue and other valuable and adequate considerations as set forth in this Agreement; and WHEREAS, Microsemi and MPS desire to explore the possibility of a mutually beneficial cooperative business relationship: NOW, THEREFORE, in consideration of mutual promises and obligations recited herein, the Parties agree as follows: -------------------------------------------------------------------------------- I. DEFINITIONS 1.1 An “Affiliate” of a Party means any other Person controlled by or under direct or indirect common control with such Party, as of the Settlement Date. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 50% or more of the Voting Stock of a Person will be deemed to be control. For avoidance of doubt, where a Party and/or its Affiliates are required to do or refrain from any act(s) under this Agreement (e.g. provide the other Party a release or a covenant), the Party shall cause its Affiliates to do or refrain from any such acts. 1.2 “Claims” shall mean any and all claims, counterclaims, demands, actions and causes of action, and any related damages, liabilities, losses, payments, obligations, costs and expenses (including, without limitation, attorneys’ fees and costs), of any kind or nature, fixed or contingent, direct or indirect, in law or equity, several or otherwise, known or unknown, suspected or unsuspected. 1.3 “Microsemi Patents” shall mean the Patents-in-Suit as well as their related provisionals, continuations, continuations-in-part, divisionals, or reissues or re-examinations thereof, and all foreign patents and foreign patent applications counterpart thereto. 1.4 “MPS’s and Affiliates’ Products” shall mean products of MPS and/or its Affiliates that were designed in substantial part by MPS and/or its Affiliates. 1.5 “Person” shall mean an individual, trust, corporation, partnership, joint venture, limited liability, association, unincorporated organization or other legal or governmental entity. 1.6 “Settlement Date” means the date that this Agreement is fully executed. 1.7 “Voting Stock” of any specified Person as of any date means the capital stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. -------------------------------------------------------------------------------- II. SETTLEMENT AND RELEASE 2.1 The Parties agree to dismiss with prejudice the Litigation. Each Party shall pay its own attorney fees, expenses, expert fees, and costs incurred as a result of the Litigation. No later than (3) three days after the Settlement Date, the Parties shall execute and file a stipulation and order in the form set forth in Exhibit A dismissing with prejudice all claims, affirmative defenses, and any counterclaims in the Litigation. The Parties shall proceed promptly with any and all additional procedures needed or necessary to dismiss with prejudice the Litigation. Microsemi represents and warrants that it has the right, power and authority to cause its counsel to take any and all actions necessary in order to dismiss the Litigation with prejudice, grant all of the releases and covenants to MPS as set forth herein and otherwise comply with all Microsemi’s obligations under this Agreement. Likewise, MPS represents and warrants that it has the right, power and authority to cause its counsel to take any and all actions necessary in order to dismiss the Litigation with prejudice and otherwise comply with all MPS’s obligations under this Agreement. 2.2 Microsemi and its Affiliates release MPS and its Affiliates from any and all Claims (and liability) for any alleged past infringement of the Microsemi Patents. Microsemi further agrees that it and its Affiliates will not assert and, do release, any Claims for past infringement of the Microsemi Patents against MPS and its Affiliates or its or their direct or indirect customers, end users, agents, suppliers or distributors for use, manufacture, having manufactured, importation, offer for sale, sale or other distribution of any products that were sold prior to the Settlement Date of this Agreement by or on behalf of MPS or its Affiliates, its or their customers, end users, agents, licensees, suppliers or distributors. 2.3 Microsemi and MPS and their respective Affiliates irrevocably and perpetually release and waive worldwide any and all Claims pled in the Litigation and any and all Claims that are compulsory thereto against each other and each of the other’s Affiliates or their respective directors, officers, employees or agents. Each party and its respective Affiliates expressly waives any rights or benefits available to it in any capacity under the provisions of Section 1542 of the California Civil Code and of any similar statute, law, regulation, principle of judicial interpretation or other rule (of California or any other jurisdiction). Such Section 1542 provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. -------------------------------------------------------------------------------- 2.4 Each Party shall be responsible for and pay its own costs, expenses and attorneys’ fees in connection with the Litigation and settlement thereof. III. COVENANT NOT TO SUE 3.1 Microsemi covenants that it and its Affiliates will not sue MPS, its Affiliates and their respective directors, officers, employees, contractors, agents, end users, customers, suppliers or distributors anywhere in the world at any time for any and all claims (and liability) for any alleged future infringement of the Microsemi Patents arising from MPS’s and Affiliates’ Products that are used, manufactured, having manufactured, imported, offered for sale, sold by or on behalf of MPS or its Affiliates, or otherwise distributed until the expiration of the last to expire Microsemi Patent. IV. CONSIDERATION 4.1 In consideration of the settlement of the Litigation and, in particular, the release and covenant not to sue under this Agreement, MPS will make a one-time payment to Microsemi in the amount of one million five hundred thousand dollars (US$ 1,500,000.00) not later than April 3, 2006. 4.2 The payment set forth under Sub-Section 4.1 shall be the sole and exclusive payment obligation of MPS in connection with this Agreement and shall be Microsemi’s sole remuneration hereunder. The payment shall be made by wire transfer not later than April 3, 2006 to an account designated by Microsemi in writing no later than the Settlement Date. V. CONFIDENTIALITY 5.1 Except as permitted in Sub-Section 8.6 or as may otherwise be required by law, including public financial filing requirements, each Party shall keep the financial terms of Section IV of this Agreement confidential and shall not disclose such terms or provisions without first obtaining the written consent of the other Party. Subject to the foregoing, the Parties agree to redact such financial terms and conditions from any required public version of this Agreement. The confidentiality obligations hereunder do not apply to the disclosure of the existence of this Agreement to existing and potential customers, end users, agents, suppliers, distributors and investors. Furthermore, the Parties may disclose to existing and -------------------------------------------------------------------------------- potential customers, end users, agents, suppliers, distributors and investors that the Litigation concluded with an agreement pursuant to which Microsemi and its Affiliates covenanted not to assert the Microsemi Patents against MPS and its Affiliates, their customers, end users, agents, suppliers, and distributors. MPS and Microsemi may issue a joint press release, the content of which is set forth in Exhibit B attached hereto. VI. VENUE AND GOVERNING LAW 6.1 This Agreement is to be construed in accordance with and governed by the laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the laws of the State of California to the rights and obligations of the Parties. The Parties agree that any action arising out of or otherwise relating to this Agreement, including, without limitation, any action relating to the breach, interpretation or enforceability of this Agreement, shall be brought in the United States District Court for the Central District of California, Santa Ana Division or, if such court lacks jurisdiction, the courts of the State of California for the County of Orange. Each party hereby consents to the personal jurisdiction of, and waives any objection to venue in, such court. VII. RETURN OF DOCUMENTS 7.1 Not later than sixty (60) days after the Settlement Date, all copies of documents containing confidential or proprietary information of a Party produced in the Litigation by such Party to the other Party or otherwise obtained in the course of the litigation shall be destroyed or returned to counsel for the producing Party, with the exception of an archival copy of pleadings, correspondence, work product, interrogatory responses, depositions, deposition exhibits, court exhibits and other documents which may be retained by outside counsel for each Party, subject, however, to compliance with any protective orders. Each Party and its outside counsel shall certify compliance with the obligations of this Sub-Section 7.1. VIII. MISCELLANEOUS 8.1 MPS and Microsemi each represents and warrants to the other that it is duly existing; that it has the full power and authority to enter into this Settlement Agreement; that it has not previously assigned to any person any Claim or prospective Claim against the other; that this Agreement does not and will not interfere with any other agreement to which it or any of its Affiliates is a party and that it and its Affiliates will not enter into any agreement the execution and/or performance of which would violate or interfere with this Agreement. -------------------------------------------------------------------------------- 8.2 As of the Settlement Date, Microsemi represents and warrants that (i) it owns the Microsemi Patents or has the right to grant releases and covenants with respect to such Microsemi Patents in the full scopes set forth herein; (ii) no payment of consideration to any third party is required for the releases and covenants granted with respect to the Microsemi Patents; (iii) Microsemi has no parent or Affiliate who owns or controls any Microsemi Patents; and (iv) Microsemi has not entered into any agreement or arrangement under which it assigns or otherwise transfers the Microsemi Patents into a holding company or other person for enforcement of such Microsemi Patents. 8.3 Microsemi and its Affiliates shall not assign, grant, sell or otherwise transfer any right under the Microsemi Patents which are subject to MPS’ rights pursuant to this Agreement unless such assignment, grant, sale or other transfer is made subject to the terms and conditions of this Agreement. MPS and its Affiliates shall not assign, grant, sell or otherwise transfer any right under the Microsemi Patents which are subject to MPS’ rights pursuant to this Agreement except with written consent from Microsemi. 8.4 If one or more of the provisions of this Agreement is ruled wholly or partly invalid or unenforceable by the court, arbitrator or other government body of competent jurisdiction, then the validity and enforceability of all of the other provisions of this Agreement will be unaffected; and the provisions held wholly or partly invalid or unenforceable will be deemed amended, and the court, arbitrator or other government body shall reform the offending provision or provisions to the minimum extent necessary to render such provision or provisions valid and enforceable and, as so reformed, this Agreement shall be fully enforced. 8.5 Microsemi and MPS each represents that it has had the opportunity to be represented by counsel of its own choice in negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and instruction of Microsemi and MPS, at arms length, with the advice and participation of counsel, and will be interpreted in accordance with its terms without favor to either Microsemi or MPS. 8.6 Each Party agrees that neither this Settlement Agreement nor any act under it constitutes or shall be construed to constitute an admission of liability or fault of any kind by the other Party or its Affiliates, which liability or fault of the other Party expressly denies. Furthermore, each Party maintains the positions it asserted in the Litigation. Each Party agrees that it will not seek to admit into evidence or otherwise use this Agreement in any way, except specifically to enforce the terms and conditions of this Agreement or as permitted in Sub-Section 5.1. -------------------------------------------------------------------------------- 8.7 Microsemi and MPS agree that they will each sign such further documents and take such further acts as may be necessary to carry out the intent of this Agreement. 8.8 This Agreement may be signed in counterparts and shall be effective only when signed by Microsemi and MPS. 8.9 Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, by telecopy or facsimile at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than a Business Day during normal business hours where such notice is to be received), or (b) on the second Business Day following the date of mailing by express courier service, full prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:   If to Microsemi:    Microsemi Corporation 2381 Morse Avenue Irvine, CA 92614 ATTN: CEO Fax: (949) 756-2602   with a mandatory copy to:   Winstead Sechrest & Minick P.C. 5400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 ATTN: Jay J. Madrid and E.E. (“Jack”) Richards, II Fax: (214) 745-5390 -------------------------------------------------------------------------------- If to MPS:    Monolithic Power Systems, Inc. 983 University Avenue Building A Los Gatos, California 92618 ATTN: CEO Fax: (408) 357-6601   with a mandatory copy to:   Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, CA 90071 ATTN: Robert Steinberg Fax: (213) 891-8763 Either party may change its address by the notice given to the other party in the manner set forth. 8.10 The Parties agree that except as expressly recited herein, no other rights, licenses, permissions, or the like (express or implied) are granted herein. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the Settlement Date.   Date: March 24, 2006   Microsemi Corporation   By:   /s/ DAVID R. SONKSEN   Title:   Executive VP and     Chief Financial Officer Date: March 24, 2006   Monolithic Power Systems, Inc.   By:   /s/ MICHAEL R. HSING   Title:   Chief Executive Officer -------------------------------------------------------------------------------- EXHIBIT “A” Stipulation and [Proposed] Order of Dismissal -------------------------------------------------------------------------------- EXHIBIT “B” Joint Press Release

Exhibit 10.27   SECOND AMENDMENT OF THE SKY FINANCIAL GROUP, INC. 2004 RESTRICTED STOCK PLAN   WHEREAS, this corporation maintains the Sky Financial Group, Inc. 2004 Restricted Stock Plan (the “Plan”); and   WHEREAS, the Company’s Board of Directors has delegated authority to amend the Plan to the Compensation Committee (the “Committee”), and the Committee has determined that amendment of the Plan is necessary and desirable.   NOW, THEREFORE, IT IS RESOLVED that, pursuant to the power reserved to the Company by Article VI of the Plan, and by virtue of the authority delegated to the Committee, the Plan be and is hereby amended, effective as of February 1, 2005, by substituting the following for the definition of “Retirement” in Article I of the Plan:   “Retirement. ‘Retirement’ shall mean the termination of a Participant’s employment after age 55, except in the case of a Just Cause Termination.”   *        *        *   I, W. Granger Souder, Jr., Secretary of Sky Financial Group, Inc., hereby certify that the foregoing is a correct copy of resolutions duly adopted by the Compensation Committee of the Board of Directors of said corporation on December 13, 2005, and that the resolutions have not been changed or repealed.       /s/ W. Granger Souder, Jr. --------------------------------------------------------------------------------     Secretary as Aforesaid (Corporate Seal)

EXHIBIT 10.3 EXHIBIT A MENTOR CORPORATION  CHRIS FAWZY CONSULTING AGREEMENT   This Agreement is entered into as of June 24, 2006 by and between Mentor Corporation (the "Company") and A. Chris Fawzy ("Consultant") (collectively referred to as the "Parties"). 1.             Duties and Scope of Services. (a)                 Positions and Duties.  As of the Effective Date as defined below, Consultant will serve as a Consultant to the Company.  Consultant will report to the Chief Executive Officer (the "CEO") of the Company.  As an independent contractor, Consultant will render such business and professional services, in ways and at times as reasonably directed by the CEO, which are consistent with his role as a consultant. (b)                 Obligations.  The Consultant will render services to the Company as may be requested from time to time that may include, but not be limited to, assisting with the Company's agreements and other existing or potential arrangements such as acquisitions or licensing arrangements, SEC and other filings, and the management and oversight of the Company's transition services agreement obligations relating to the recent divestiture to Coloplast, as such efforts and time requirements are described in Exhibit A, attached hereto. 2.           Term of Agreement.  This Agreement will have a term of approximately sixteen (16) months commencing on June 24, 2006 (the "Effective Date") and ending October 31, 2007 (the "Consulting Term"); provided however, the Agreement may be renewable thereafter by agreement of the Parties. 3.            Compensation. (a)                Total Cash Compensation.  The Company will pay Consultant the compensation set forth in Exhibit A for the performance of services. (b)               Options and Restricted Stock.  During the Consulting Term, the Consultant's existing stock options and restricted stock grants will continue in accordance with the Consultant's stock option agreements and restricted stock agreements including, but not limited to, the continuation of vesting in accordance with the current vesting schedules (collectively, the "Award Agreements").  The Parties acknowledge that the Consultant is and at all time during the Consulting Term shall remain an Eligible Person under the Awards Agreements as defined therein. 4.             Employee Benefits.  Consultant will be ineligible to participate in any of the Company employee benefit plans, policies, and arrangements that are applicable to employees of the Company; as such plans, policies, and arrangements may exist from time to time. 5.             Expenses.  The Company will reimburse Consultant for all reasonable travel, entertainment, and other expenses incurred by Consultant in the furtherance of the performance of Consultant's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time.   -------------------------------------------------------------------------------- 6.             Termination of Consulting. (a)               Consultant and the Company acknowledge that this Agreement may be terminated by the Company only for Gross Misconduct which means (i) Consultant's willful failure to perform his assigned duties and responsibilities reasonably assigned to him that are not corrected within a fifteen (15) day correction period, after there has been delivered to Consultant a written demand for performance from the CEO which describes the basis for the belief of the CEO that Consultant has not substantially performed his duties and provides Consultant with fifteen (15) days to take corrective action; (ii) any act of personal dishonesty taken by Consultant in connection with his responsibilities as a consultant of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of Consultant; (iii) Consultant's conviction of, or plea of nolo contendere to, a felony which the Board reasonably believes has had or will have a material detrimental effect on the Company's reputation or business, or (iv) Consultant materially breaching Consultant's Confidential Information Agreement (defined below), which breach is (if capable of cure) not cured within fifteen (15) days after the Company gives written notice to the Consultant of the breach. (b)                In the event that Company appropriately terminates this Agreement pursuant to Paragraph 6(a) above, or in the event that the Consultant terminates this Agreement for any reason, the Consultant shall be entitled only to (a) all Compensation accrued up to the effective date of termination, (b) all vesting of options up to the effective date of termination, as provided under the terms of the applicable option agreements applicable to the Consultant, (c) all vesting of restricted shares up to the effective date of termination, as provided under the terms of the applicable restricted stock agreements applicable to the Consultant and (d) all business expenses required to reimbursed under the Company's expense reimbursement policy to the Consultant with respect to business expenses incurred prior to termination. 7.             Release of Claims.  Upon termination of this Agreement, Consultant agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Consultant by the Company and its officers, directors, managers, supervisors, agents and employees.  In consideration for the mutual covenants contained in this Agreement, including but not limited to the compensation provided hereunder, Consultant and the Company, on behalf of themselves, and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, hereby fully and forever release each other and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations and assigns, from, and agree not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Consultant or Company may possess arising from any omissions, acts or facts that have occurred up until and including the date of such termination including, without limitation: (a)                 any and all claims relating to or arising from Consultant's employment relationship with the Company and the termination of that relationship; (b)                 any and all claims relating to, or arising from, Consultant's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; (c)                 any and all claims under the law of any jurisdiction including, but not limited to, wrongful discharge of employment, constructive discharge from employment, termination in violation of public policy, discrimination, harassment, retaliation, breach of contract, both express and implied, breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract or prospective economic advantage, unfair business practices, defamation, libel, slander, negligence, personal injury, assault, battery, invasion of privacy, false imprisonment, and conversion; (d)                 any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, the Older Workers Benefit Protection Act; the California Fair Employment and Housing Act, and the California Labor Code, including, but not limited to Labor Code sections 1400-1408;   -2- -------------------------------------------------------------------------------- (e)                 any and all claims for violation of the federal, or any state, constitution; (f)                  any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; (g)                 any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Consultant as a result of this Agreement; and (h)                 any and all claims for attorneys' fees and costs. The Company and Consultant agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released.  This release does not extend to any obligations incurred under this Agreement. The Parties acknowledge and agree that any judicial or arbitral determination of a material breach of any provision of this Agreement will entitle the non-breaching party to any legal or equitable remedies available to such non-breaching party, including but not limited to the right to immediately to recover and/or cease the severance benefits provided under this Agreement. 8.             Civil Code Section 1542.  The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement.  Consultant and the Company acknowledge that they have been advised by legal counsel and are familiar with the 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 SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR. Consultant and the Company, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 9.             Indemnification.  The indemnification provisions of the Separation and Release of Claims Agreement dated June 24, 2006 between Consultant and the Company (the "Indemnification Provisions") shall remain in full force and effect and shall not be amended or modified by this Agreement. 10.           Nondisclosure of Confidential Information. (a)                 "Confidential Information" includes all information, data, concepts, ideas, methods, processes, techniques, formulae, know-how, trade secrets, and improvements relating to the research, development, manufacturing, or marketing activities of Mentor that are confidential and proprietary to Mentor, or any subsidiary of Mentor Corporation, together with all analyses, compilations, studies, and other documents prepared by the Consultant that contain or otherwise reflect any Confidential Information.  During the term of this Agreement, Mentor may disclose Confidential Information to the Consultant so that the Consultant can render Services.  The Consultant agrees that Confidential Information is confidential and proprietary to Mentor and shall remain the property of Mentor. (b)                 The Consultant will: (i)            hold all Confidential Information in strict confidence and with the same degree of care to prevent disclosure to others that he takes to preserve and safeguard his own proprietary and confidential information, but not less than a reasonable degree of care, and not disclose or otherwise disseminate Confidential Information to others, except as may be required by law; (ii)           not use Confidential Information commercially or for any purpose other than in rendering Services; -3- -------------------------------------------------------------------------------- (iii)          limit the dissemination of and access to Confidential Information to those who have a need for access to such Confidential Information for the rendering of Services and who are under an obligation of confidence consistent with this Agreement; (iv)          not disclose to others that Confidential Information is known to or used by Mentor or those associated with Mentor; and (v)           return to Mentor, within thirty (30) calendar days of its request or upon termination of this Agreement, all Confidential Information and any other records containing Confidential Information. (c)                 Excepted from these obligations of confidentiality and nondisclosure is information that: (i)            was or becomes public knowledge through no fault of the Consultant; (ii)           was known to the Consultant prior to the date of disclosure, as evidenced by his written records or other proof; or (iii)          is disclosed to the Consultant by an independent third party who had the lawful right to disclose it. (d)                 The Consultant's obligations of confidentiality and nondisclosure shall survive termination of this Agreement. (e)                 If the Consultant is requested to disclose any Confidential Information, he shall immediately notify Mentor of such request so that Mentor can seek appropriate protection for its Confidential Information.  The Consultant shall inform the requesting party of the confidential and proprietary nature of the requested materials, and Mentor shall have the right to participate in the Consultant's response to any such request.  The Consultant shall cooperate fully with Mentor's efforts to narrow the scope of any request for Confidential Information, to obtain a protective order limiting use or disclosure of any Confidential Information sought, or in any other lawful way to obtain continued protection for Mentor's Confidential Information.  If disclosure is required by law, disclosure shall be limited to the specific Confidential Information that is legally required to be disclosed and to the persons or entities to whom disclosure is required. (f)                  All memoranda, notes, records, papers, design specifications, and other documents and all copies thereof relating to Mentor's business activities and all objects related thereto, including but not limited to documents and information generated by the Consultant as a result of performing the Services, are and shall remain the property of Mentor.  The Consultant will take any action necessary to perfect Mentor's ownership interest in such documents and information.  Upon termination of this Agreement, the Consultant shall return to Mentor all documents, objects, and information provided to the Consultant by Mentor or generated by the Consultant as a result of performing the Services. 11.          Notices.  All notices, requests, demands, and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally, (b) on the date of delivery to Consultant's Company email address with email return receipt notification, (c) one day after being sent overnight by a well established commercial overnight service, or (d) four days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to the Company: > Attn: Vice President of Human Resources > Mentor Corporation > 201 Mentor Drive > Santa Barbara, CA  93111 If to Consultant: > at the last residential address known by the Company. -4- -------------------------------------------------------------------------------- 12.           Arbitration.  The Parties agree that any and all disputes arising out of, or relating to, the terms of this Agreement, their interpretation, and any of the matters herein released, will be subject to binding arbitration in Santa Barbara County before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes.  The Parties agree that the prevailing party in any arbitration will be awarded its reasonable attorneys' fees and costs. The Parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury.  Notwithstanding the foregoing, the Parties agree that the prevailing party in any arbitration matter contemplated hereunder will be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award, and nothing in this section will prevent either party from seeking such injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of their dispute relating to the Parties' obligations under this Agreement and the agreements incorporated herein by reference. 13.            Costs.  The Parties will each bear their own costs, expert fees, attorneys' fees and other fees incurred in connection with this Agreement. 14.            No Representations.  Each party represents that it has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement.  Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 15.            Severability.  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, then (a) the provision will be amended automatically to the minimum extent necessary to cure the illegality or invalidity and permit enforcement and (b) the remainder of this Agreement will continue in full force and effect so long as the remaining provisions remain intelligible and continue to reflect the original intent of the Parties. 16.            Entire Agreement.  This Agreement and its attachments, together with the Award Agreements, represent the entire agreement and understanding between the Company and Consultant concerning the Consulting subject matter of this Agreement and Consultant's relationship with the Company, and supersedes and replaces any and all prior agreements and understandings between the Parties concerning the Consulting subject matter of this Agreement and Consultant's relationship with the Company. 17.            No Waiver.  The failure of any party to insist upon the performance of any of the terms and conditions in this Agreement, or the failure to prosecute any breach of any of the terms and conditions of this Agreement, will not be construed thereafter as a waiver of any such terms or conditions.  This entire Agreement will remain in full force and effect as if no such forbearance or failure of performance had occurred. 18.            No Oral Modification.  Any modification or amendment of this Agreement, or additional obligation assumed by either party in connection with this Agreement, will be effective only if placed in writing and signed by both Parties or by authorized representatives of each party. 19.             Headings.  All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. 20.            Governing Law.  This Agreement will be deemed to have been executed and delivered within the State of California, and it will be construed, interpreted, governed, and enforced in accordance with the laws of the State of California, without regard to conflict of law principles. 21.            Counterparts.  This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.   -5- -------------------------------------------------------------------------------- 22.           Voluntary Execution of Agreement.  This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims.  The Parties acknowledge that: (a)                 They have read this Agreement; (b)                 They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c)                 They understand the terms and consequences of this Agreement and of the releases it contains; and (d)                 They are fully aware of the legal and binding effect of this Agreement.   IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below. COMPANY: MENTOR CORPORATION       /s/Joshua H. Levine                                             Joshua H. Levine President and Chief Executive Officer Date: June 24, 2006                               CONSULTANT:       /s/A. Chris Fawzy                                                A. Chris Fawzy Date:  June 24, 2006                           SIGNATURE PAGE TO C. FAWZY CONSULTING AGREEMENT   -6- -------------------------------------------------------------------------------- EXHIBIT A SERVICES AND COMPENSATION   1.             Contact.                 Consultant's principal Company contact:                 Name:                     Joshua Levine                 Title:                       President and Chief Executive Officer 2.             Services.                 The Consultant will render services to the Company as may be requested from time to time by the Chief Executive Officer of the Company, including, but not be limited to, assisting with the Company's agreements and other existing or potential arrangements such as acquisitions or licensing arrangements, SEC and other filings, and the management and oversight of the Company's transition services agreement obligations relating to the recent divestiture to Coloplast dealing with the numerous services that the Company is obligated to undertake to facilitate a smooth transition of the divestiture.  The Company's obligations under the transition services agreement for which Consultant will provide services include accounting, regulatory, clinical, information technology, customer support, and use of facilities services.  It is anticipated that the transition services agreement will continue for a period of twelve months.  3.             Compensation.                 (a)           Through the end of 2006, the Consultant will provide up to thirty-six (36) hours of services per month and the Company will pay for such services a rate of $9,000 per month.  If any additional time is requested by the Company and agreed to by Consultant above and beyond the thirty-six (36) hours per month, such services will be paid at a rate of $250 per hour.                 (b)           Beginning in January of 2007 through October of 2007, and thereafter if agreed upon by the Parties, the Consultant will provide up to eight (8) hours of services per month and the Company will pay for such services a rate of $2,400 per month.  If any additional time is requested by the Company and agreed to by Consultant above and beyond the eight (8) hours per month, such services will be paid at a rate of $300 per hour.                 (c)           Consultant will be entitled to receive Milestone Bonus payments totaling $120,000 based upon the completion of phases of various projects relating to the transition services agreement with Coloplast, which is anticipated to continue for a period of up to 12 months from the date of the close of the Coloplast divestiture (i.e., through June, 2007).  As such milestones are met, such milestone bonus will be paid in two installments: (i) the first payment of $40,000 less applicable withholdings, is payable in a lump sum within fifteen (15) days of December 2, 2006; and (ii) the second payment of $80,000 less applicable withholdings, is payable in a lump sum within fifteen (15) days of June 2, 2007.                 (d)           Mentor will reimburse the Consultant for any actual and reasonable out-of-pocket expenses for authorized travel, including hotels, meals, transportation costs, and all other reasonable expenses incurred by the Consultant to provide Services.  Any travel, whether domestic or international, must be approved by Mentor in writing prior to such travel.                 (e)           Consultant will submit all receipts or other written documentation for any expenses incurred in a form prescribed by the Company and such reimbursement will be approved by the contact person listed above or other designated agent of the Company.                 (f)            In addition, for any additional time paid at the hourly rates as described above, Consultant will submit a statement of services in a form prescribed by the Company every month and the contact person listed above or other designated agent of the Company will approve such statement.  Payment for the statement of services will be within fifteen (15) days of receipt.    -7- --------------------------------------------------------------------------------

Exhibit 10.3 NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS. AEOLUS PHARMACEUTICALS, INC. WARRANT TO PURCHASE [•] SHARES OF COMMON STOCK   June 5, 2006  Warrant No. [•]   For value received, Aeolus Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby certifies that [name of Investor], or its registered transferees, successors or assigns (each person or entity holding all or part of this Warrant being referred to as a “Holder”), is the registered holder of a warrant (the “Warrant”) to subscribe for and purchase [______] ([______]) shares (as adjusted pursuant to Section 3 hereof, the “Warrant Shares”) of the fully paid and nonassessable common stock, par value $0.01 per share, of the Company (the “Common Stock”), at a purchase price per share initially equal to Seventy-Five Cents ($0.75) (the “Warrant Price”), on or before 5:00 P.M., Eastern Time, on June 5, 2011 (the “Expiration Date”), subject to the provisions and upon the terms and conditions hereinafter set forth. As used in this Warrant, the term “Business Day” means any day other than a Saturday or Sunday on which commercial banks located in New York, New York are open for the general transaction of business.   This Warrant is one of a number of Warrants (collectively, the “Warrants”) being issued pursuant that certain Subscription Agreement dated as of June 5, 2006, by and among the Company and the Investors party thereto (the “Subscription Agreement”). Section 1. Method of Exercise; Payment; Issuance of New Warrant. (a) Subject to the provisions hereof, the Holder may exercise this Warrant, in whole or in part and from time to time, by the surrender of this Warrant (with the Notice of Exercise attached hereto as Appendix A duly executed) at the principal office of the Company, or such other office or agency of the Company as it may reasonably designate by written notice to the Holder, during normal business hours on any Business Day, and the payment by the Holder by cash, certified check payable to the Company or wire transfer of immediately available funds to an account designated to the exercising Holder by the Company of an amount equal to the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased. On the date on which the Holder shall have satisfied in full the Holder’s obligations set forth herein regarding an exercise of this Warrant (provided such date is no later than the Expiration Date), the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such date.   --------------------------------------------------------------------------------   (b) In the event of any exercise of the rights represented by this Warrant, certificates for the whole number of shares of Common Stock so purchased shall be delivered to the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) as promptly as is reasonably practicable (but not later than three (3) Business Days) after such exercise at the Company’s expense, and, unless this Warrant has been fully exercised, a new Warrant representing the whole number of Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder as soon as reasonably practicable thereafter (but not later than three (3) Business Days) after such exercise. (c) Certificates for Warrant Shares purchased hereunder shall be transmitted by the Company or its transfer agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three (3) Business Days from the delivery to the Company of each of the Notice of Exercise, payment of the Warrant Price multiplied by the number of Warrant Shares being purchased (the “Purchase Price”) and surrender of this Warrant (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the latest date on which the Notice of Exercise, this Warrant or the applicable Purchase Price is received by the Company (the latest date being the “Receipt Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the later of the Receipt Date and the date that all taxes required to be paid by the Holder, if any, prior to the issuance of such Warrant Shares have been paid. (d) If this Warrant shall have been exercised in part, the Company shall at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. (e) If the Company or its transfer agent fails to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to Section 1(c) hereof by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise by delivering a written notice of rescission to the Company within three (3) Business Days of the Warrant Share Delivery Date. The Company shall be liable to the Holder for liquidated damages in an amount equal to 1.5% of the aggregate price of the Warrant Shares, as adjusted pursuant to Section 3 hereof, evidenced by such certificate for each thirty (30)-day period (or portion thereof) beyond such three (3)-Business Day period that the certificates have not been so delivered.   -2- --------------------------------------------------------------------------------   (f) If any portion of this Warrant remains unexercised as of the Expiration Date and the Fair Market Value (as defined in Section 9 hereof) of one share of Common Stock as of the Expiration Date is greater than the applicable Warrant Price as of the Expiration Date, then this Warrant shall be deemed to have been automatically exercised as of immediately prior to the close of business on the Expiration Date (or in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) (the “Automatic Exercise Date”); provided that the Holder submits to the Company no later than ten (10) Business Days following the Automatic Exercise Date payment (the “Payment”) by cash, certified check payable to the Company or wire transfer of immediately available funds to an account designated to the exercising Holder by the Company of an amount equal to the Warrant Price applicable as of the Automatic Exercise Date multiplied by the number of Warrant Shares then being purchased pursuant to this Section 1(f). The Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on the date the Payment is received by the Company. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 1(f) without any action by the Holder; provided that the Holder shall be required to surrender this Warrant to the Company with the Payment. As soon as is reasonably practicable after the Payment and Warrant are received by the Company pursuant to this Section 1(f), the Company, at its expense, shall issue and deliver to the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) a certificate or certificates for the number of Warrant Shares issuable upon such exercise in accordance with this Section 1(f). Section 2. Reservation of Shares; Stock Fully Paid; Listing. The Company shall keep reserved a sufficient number of shares of the authorized and unissued shares of Common Stock to provide for the exercise of the rights of purchase represented by this Warrant in compliance with its terms. All Warrant Shares issued upon exercise of this Warrant shall be, at the time of delivery of the certificates for such Warrant Shares upon payment in full of the Warrant Price therefor in accordance with the terms of this Warrant, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock. The Company shall, prior to the Expiration Date when the shares of Common Stock issuable upon the exercise of this Warrant are authorized for listing or quotation on a national securities exchange, a Nasdaq quotation system, the Over-the-Counter Bulletin Board or the “pink sheets”, as the case may be, use commercially reasonable efforts to keep the shares of Common Stock issuable upon the exercise of this Warrant authorized for listing or quotation on such national securities exchange, Nasdaq quotation system, the Over-the-Counter Bulletin Board or the “pink sheets”, as the case may be. Section 3. Adjustments and Distributions. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:   (a) If the Company shall at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then the number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective shall be proportionally adjusted by the Company so that the Holder thereafter exercising this Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Holder would have received if this Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that has been proportionally adjusted to reflect such event. Such adjustments shall be made successively whenever any event listed above shall occur.   -3- --------------------------------------------------------------------------------   (b) If any recapitalization, reclassification or reorganization of the capital stock of the Company (other than a change in par value or a subdivision or combination as provided for in Section 3(a) above) shall be effected in such a manner (including, without limitation, in connection with a consolidation or merger in which the Company is the continuing corporation), that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (a “Reorganization”), then, as a condition of such Reorganization, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable in such Reorganization with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock purchasable and receivable immediately prior to such Reorganization upon the exercise of this Warrant. In the event of any Reorganization, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Warrant Price and of the number of Warrant Shares) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The provisions of this Section 3(b) shall similarly apply to successive Reorganizations. (c) If any consolidation or merger of the Company with another entity in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another entity shall be effected (a “Change in Control”), then, as a condition of such consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price and of the number of Warrant Shares) shall thereafter be applicable, as nearly equivalent as may be practicable, in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor entity (if other than the Company) resulting from such consolidation or merger, or the entity purchasing or otherwise acquiring such assets or other appropriate entity shall assume the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this Section 3(c) shall similarly apply to successive consolidations, mergers, sales, transfers or other dispositions.   -4- --------------------------------------------------------------------------------   (d) In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock of evidences of indebtedness or assets (other than dividends or distributions referred to in Section 3(a) hereof), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Fair Market Value (as defined in Section 9 hereof) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors (the “Board”) in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Fair Market Value per share of Common Stock immediately prior to such payment date. Such adjustment shall be made successively whenever such a payment date is fixed. In the event that: (i) any dividend or distribution for which this Section 3(d) would require an adjustment is not so paid or made, the Warrant Price shall be adjusted to be the Warrant Price which would then be in effect if such dividend or distribution had not been declared; or (ii) the Company implements a new shareholder rights plan, such rights plan shall provide that upon exercise of this Warrant the Holder will receive, in addition to the Common Stock issuable upon such exercise, the rights issued under such rights plan (as if the Holder had exercised this Warrant prior to implementing the rights plan and notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of exercise). Any distribution of rights or warrants pursuant to a shareholder rights plan complying with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants for the purposes of this Section 3(d). (e) An adjustment to the Warrant Price under the terms hereof shall become effective immediately after the payment date, in the case of each dividend or distribution, and immediately after the effective date of each other event which requires an adjustment. No adjustment to the Warrant Price shall be made in an amount less than $0.01, but any such lesser amount shall be carried forward and shall be given effect in the next Warrant Price adjustment, if any. (f) In the event that, as a result of an adjustment made pursuant to this Section 3, the Holder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.   -5- --------------------------------------------------------------------------------   (g) With each adjustment pursuant to this Section 3, the Company shall deliver a certificate signed by its chief financial or executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Warrant Shares purchasable hereunder after giving effect to such adjustment, which shall be mailed by first class mail, postage prepaid to the Holder. (h) If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Reorganization or a Change in Control, then the Holder shall be given the same choice as to the type and form of consideration it receives upon any exercise of this Warrant following such Reorganization or Change in Control. (i) The Company may at any time during the term of this Warrant reduce the then current Warrant Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. (j) If: (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any Reorganization or Change in Control whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Company’s Warrant register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distribution, redemption, rights or warrants are to be determined, or (y) the date on which such Reorganization or Change in Control is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon consummation of such Reorganization or Change in Control; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period immediately following the date of such notice. Section 4. Transfer Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered Holder of this Warrant in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.   -6- --------------------------------------------------------------------------------   Section 5. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company. Section 6. Fractional Shares. No fractional shares of Common Stock shall be issued in connection with any exercise hereunder, and in lieu of any such fractional shares the Company shall make a cash payment therefor to the Holder (or such other person or persons as directed by the Holder, subject to compliance with all applicable laws) based on the Fair Market Value of a share of Common Stock on the date of exercise of this Warrant. Section 7. Compliance with Securities Act and Legends. The Holder, by acceptance hereof, agrees that it will not offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder, as amended (the “Act”), or any state’s securities laws. All shares of Common Stock issued upon exercise of this Warrant (unless registered under the Act) shall be stamped or imprinted with a legend as follows: “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE (i) NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND (ii) BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.” Section 8.  Rights as a Stockholder. Except as expressly provided in this Warrant, no Holder, as such, shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of the directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Section 9.  The “Fair Market Value” of a share of Common Stock as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national securities exchange, the average of the closing sale prices of one share of Common Stock on such exchange on the ten (10) consecutive trading days ending on the last trading day prior to the Valuation Date; provided that if such stock has not traded in the ten (10) consecutive trading days prior to the Valuation Date, the Fair Market Value shall be the average of the closing sale prices of one share of Common Stock in the most recent ten (10) trading days during which the Common Stock has traded prior to the Valuation Date;   -7- --------------------------------------------------------------------------------   (b) if the Common Stock is then included in The Nasdaq Stock Market, Inc., including without limitation the NASDAQ Capital Market or the NASDAQ National Market (“Nasdaq”), the average of the closing sale prices of one share of Common Stock on Nasdaq on the ten (10) consecutive trading days ending on the last trading day prior to the Valuation Date or, if no closing sale price is available for any of such ten (10) trading days, the closing sale price for such day shall be determined as the average of the high bid and the low ask price quoted on Nasdaq as of the end of such trading day; provided that if the Common Stock has not traded in the ten (10) consecutive trading days prior to the Valuation Date, the Fair Market Value shall be the average of the closing sale prices of one share of Common Stock in the most recent ten (10) trading days during which the Common Stock has traded prior to the Valuation Date; (c) If the Common Stock is then included in the Over-the-Counter Bulletin Board, the average of the closing sale prices of one share of Common Stock on the Over-the-Counter Bulletin Board over the ten (10) consecutive trading days ending on the last trading day prior to the Valuation Date or, if no closing sale price is available for any of such ten (10) trading days, the closing sale price for such day shall be determined as the average of the high bid and the low ask price quoted on the Over-the-Counter Bulletin Board as of the end of such trading day; provided that if the Common Stock has not traded in the ten (10) consecutive trading days prior to the Valuation Date, the Fair Market Value shall be the average of the closing sale prices of one share of Common Stock in the most recent ten (10) trading days during which the Common Stock has traded prior to the Valuation Date; (d) if the Common Stock is then included in the “pink sheets,” the average of the closing sale prices of one share of Common Stock on the “pink sheets” over the ten (10) consecutive trading days ending on the last trading day prior to the Valuation Date or, if no closing sale price is available for any of such ten (10) trading days, the closing sale price for such day shall be determined as the average of the high bid and the low ask price quoted on the “pink sheets” as of the end of such trading day; provided that if the Common Stock has not traded in the ten (10) consecutive trading days prior to the Valuation Date, the Fair Market Value shall be the average of the closing sale prices of one share of Common Stock in the most recent ten (10) trading days during which the Common Stock has traded prior to the Valuation Date; or (e) if the Common Stock is not then listed on a national securities exchange or quoted on Nasdaq or the Over-the-Counter Bulletin Board or the “pink sheets,” the Fair Market Value of one share of Common Stock as of the Valuation Date shall be determined in good faith by mutual agreement of the Board and the Holder; provided that if, in such case, the Board and the Holder are unable to agree as to the Fair Market Value of a share of Common Stock, such Fair Market Value shall be determined by an investment banker of national reputation selected by the Company and reasonably acceptable to the Holder, the fees and expenses of which shall be borne by the Company. The Board shall respond promptly in writing to a written inquiry by the Holder prior to the exercise hereunder as to the Fair Market Value of a share of Common Stock.   -8- --------------------------------------------------------------------------------   Section 10.  Restrictions on Exercise Amount. Unless a Holder delivers to the Company irrevocable written notice prior to the date of issuance hereof or sixty-one (61) days prior to the effective date of such notice that this Section 10 shall not apply to such Holder, then, notwithstanding anything herein to the contrary, the Holder shall not be entitled to exercise this Warrant for a number of Warrant Shares to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (including shares held by any “group” of which the holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 4.99% of the total number of shares of Common Stock of the Company then issued and outstanding immediately following such exercise. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission (“SEC”), and the percentage held by the Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Each delivery of a Notice of Exercise by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this Section 10 and determined, based on the most recent public filings by the Company with the SEC, that the issuance of the full number of Warrant Shares requested in such Notice of Exercise is permitted under this Section 10. Section 11.   Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the then current Holder, and such change, waiver, discharge or termination shall be binding on any future Holder. Section 12.  Notices. Unless otherwise specifically provided herein, all communications under this Warrant shall be in writing and shall be deemed to have been duly given (a) on the date personally delivered to the party to whom notice is to be given, (b) on the day of transmission if sent by facsimile transmission to, in the case of the registered Holder, the facsimile number shown on the books of the Company and, in the case of the Company, the facsimile number set forth in Section 9.3 of the Subscription Agreement, if sent during normal business hours; if not, then at the commencement of the next Business Day, in each case provided that the sending party receives confirmation of the completion of such transmission, (c) on the Business Day after submitted for next day delivery to Federal Express or similar overnight courier which utilizes a written form of receipt, or (d) on the fifth (5th) day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to the registered Holder at its address as shown on the books of the Company or to the Company at the address indicated in Section 9.3 of the Subscription Agreement. Any party hereto may change its address for purposes of this Section 12 by giving the other party written notice of the new address in the manner set forth herein.   Section 13.  Descriptive Headings. The descriptive headings contained in this Warrant are inserted for convenience only and do not constitute a part of this Warrant.   -9- --------------------------------------------------------------------------------   Section 14.  Governing Law. The validity, interpretation and performance of this Warrant shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts made and to be performed entirely within such State, regardless of the law that might be applied under principles of conflicts of law. The Company and, by accepting this Warrant, the Holder, each irrevocably submits to the exclusive jurisdiction of the state and federal courts located in California for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Section 15.  Acceptance. Receipt and execution of this Warrant by the Holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions. Section 16.  Identity of Transfer Agent. The transfer agent for the Common Stock is American Stock Transfer and Trust Company. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by this Warrant, the Company will mail to the Holder a statement setting forth the name and address of such transfer agent. Section 17.  No Impairment of Rights. The Company will not, by amendment of its Certificate of Incorporation or through any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against material impairment. Section 18.  Transferability. Subject to compliance with applicable federal and state securities laws, this Warrant may be transferred by the Holder with respect to any or all of the Warrant Shares then purchasable hereunder. Upon surrender of this Warrant to the Company, together with a properly endorsed notice of transfer, for transfer of this Warrant in its entirety by the Holder, the Company shall issue a new warrant of the same denomination to the designated transferee. Upon surrender of this Warrant to the Company, together with a properly endorsed notice of transfer, by the Holder for transfer with respect to a portion of the Warrant Shares then purchasable hereunder, the Company shall issue a new warrant to the designated transferee, in such denomination as shall be requested by the Holder hereof, and shall issue to such Holder a new warrant covering the number of Warrant Shares in respect of which this Warrant shall not have been transferred. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]   -10- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its behalf by one of its officers thereunto duly authorized.           AEOLUS PHARMACEUTICALS, INC.               By:   /s/ Richard P. Burgoon, Jr.     Name:  --------------------------------------------------------------------------------   Richard P. Burgoon, Jr.   Title: --------------------------------------------------------------------------------   Chief Executive Officer     --------------------------------------------------------------------------------   -11- --------------------------------------------------------------------------------   APPENDIX A NOTICE OF EXERCISE To: AEOLUS PHARMACEUTICALS, INC. 1. The undersigned hereby irrevocably elects to purchase ________ shares of Common Stock of Aeolus Pharmaceuticals, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, by [cash, certified check or wire transfer] [select the applicable method of payment]. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: ______________________________ ______________________________ (Name) ______________________________ (Address) _________________________ (Signature) __________________(Date) 3. Please issue a new Warrant of equivalent form and tenor for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:   ____________________________________ Date:  ________________________________   (Warrantholder)  ________________________ Name: (Print)  __________________________ By: __________________________________ --------------------------------------------------------------------------------

  Exhibit 10.2 UAW-GM-DELPHI SPECIAL ATTRITION PROGRAM       Due to the extraordinary circumstances in the domestic auto industry and the Delphi bankruptcy, the parties agree to the following special one-time program:       1. GM and the UAW agree on a Special Attrition Program at GM:         a. $35,000 for normal or early voluntary retirements retroactive to October 1, 2005.           b. 50 & 10 Mutually Satisfactory Retirement (MSR).           c. Any employee with at least 27 and less than 30 years of credited service regardless of age will be eligible for special voluntary placement in a pre-retirement program under the following terms:         i. Employees electing this pre-retirement program must be eligible no later than July 1, 2006.           ii. Employees will retire without additional incentives when they first accrue 30 years of credited service under the provisions of the General Motors Hourly-Rate Employees Pension Plan.           iii. The gross monthly wages while in the program will be:         1. 29 years credited service $2,900           2. 28 years credited service $2,850           3. 27 years credited service $2,800           Wages will be paid weekly on an hourly basis (2,080 hours per year) and will remain at that rate until 30 years of credited service is accrued.         d. Due to their unique situations, Oklahoma City, Linden, Muncie, Lansing Craft Centre and Baltimore plants will have the following additional option:         i. Employees with 26 years of credited service will be eligible for the pre-retirement program.           ii. The monthly wages while in the program for those who sign up with 26 years credited service will be $2,750 paid weekly on an hourly basis and will remain at that rate until 30 years of credited service is accrued.         e. Buy out of $140,000 (10 or more years seniority) or $70,000 (less than 10 years seniority) to sever all ties with GM and Delphi except any vested pension benefits.           f. This program will be offered on a nation-wide basis immediately. The application period, timing of the retirements and release dates will be determined by the joint UAW-GM National Parties.       2. GM and the UAW agree on the following items related to flowbacks from Delphi:         a. GM commits to 5,000 Delphi flowbacks. The target date for reaching this level is September 1, 2007. This date may be extended by mutual agreement of the UAW-GM National Parties through December 31, 2007. To further extend the target date will require the agreement of the UAW, GM, and Delphi. The order of placement will continue to be governed by Appendix A and the Flowback Agreement.           b. Employees who flowed from GM to Delphi will have the same flowback rights as other Delphi employees covered by the Flowback Agreement.           c. Any Delphi employee with flowback rights who turned down an area hire offer will be given one more area hire offer to return to GM.           d. The employees who were hired at Delphi after October 18, 1999, who were on-roll at the time the Delphi bankruptcy was declared (October 8, 2005) will be given two opportunities to fill openings at GM after all GM employee or Delphi flowback applications have been exhausted. One will be within a --------------------------------------------------------------------------------     reasonable distance from their plant (either in the area hire or a location to be determined jointly by GM and the UAW) and one will be anywhere in the country.       3. Delphi and the UAW agree on the following Special Attrition Program for Delphi employees:         a. An attrition program will be run for Delphi employees as follows:         i. $35,000 for normal or early voluntary retirements retroactive to October 1, 2005.           ii. 50 & 10 Mutually Satisfactory Retirement (MSR).         b. Any employee with at least 27 and less than 30 years of credited service regardless of age will be eligible for special voluntary placement in a pre-retirement program under the following terms:         i. Employees electing this pre-retirement program must be eligible no later than July 1, 2006.           ii. Employees will retire without additional incentives when they first accrue 30 years of credited service under the provisions of the Delphi Hourly-Rate Employees Pension Plan.           iii. The gross monthly wages while in the program will be:           1. 29 years credited service $2,900           2. 28 years credited service $2,850           3. 27 years credited service $2,800           Wages will be paid weekly on an hourly basis (2,080 hours per year) and will remain at that rate until 30 years of credited service is accrued.           iv. Within ten (10) business days after the first date on which any employees are eligible to receive wage payments in accordance with Paragraph 3.b.iii. above, Delphi will establish a segregated payment account (the “Account”) in the amount of $75 million (the “Ceiling Amount”). The funds in the Account will be available to reimburse Delphi for the payment of weekly wage payments (which will be paid through Delphi’s normal payroll process) under Paragraph 3.b.iii. above or for direct wage payments to employees entitled to receive such payments, as described in this Paragraph.         1. Delphi shall not draw funds from the Account for purposes of this Paragraph until a date (the “Permitted Draw Down Date”), which shall be the later of the Final Election Date or the Adequate Funding Date (see definitions below). Prior to the Permitted Draw Down Date, payments to satisfy the obligations to employee participants pursuant to this Paragraph will be drawn from Delphi’s available cash.           2. If, on the Permitted Draw Down Date, the Anticipated Liability is less than the Ceiling Amount, Delphi shall be permitted to draw such funds out of the Account so that the balance remaining in the Account is equal to the Anticipated Liability.         The Final Election Date shall be the first of the month following the last day on which employees at any UAW-Delphi facility can make an election to participate in the pre-retirement program described in Paragraph 3.b., or sooner if determined by the UAW-Delphi National Parties.           The Adequate Funding Date shall be the date on which the Ceiling Amount is greater than or equal to the Anticipated Liability.           The Anticipated Liability shall be an amount, calculated after the Final Election Date, sufficient to pay all of the remaining liabilities under Paragraph 3.b.iii. for all employees who have elected to participate in such program for the full remaining duration of such program. The Anticipated Liability shall be calculated based on the number of eligible employees, the remaining duration of the wage payments, and the applicable pay rates. --------------------------------------------------------------------------------           3. The funds in the Account shall be available to satisfy the obligations of this Paragraph and for no other purpose. The Bankruptcy Court order approving this Agreement shall specifically provide that under no circumstances (including but not limited to conversion of Delphi’s Chapter 11 cases to Chapter 7 proceedings) shall the assets in the Account be available to satisfy the claims of any party other than the employees. This Agreement is, in its entirety, contingent on entry of an order which, to the satisfaction of the UAW and Delphi National Parties provides the protections described in this Paragraph.         c. This program will be offered on a nation-wide basis immediately. The application period, timing of retirements, release dates, and number of sign-up dates will be determined jointly by Delphi and the UAW. These dates may vary by location.       4. GM, the UAW and Delphi agree that any employee electing to retire under option 3.a.i. or 3.a.ii., or electing to retire under 3.b. above will be permitted to either retire from Delphi or flowback to GM for purposes of retirement (“check the box”). Any employee choosing GM under this provision will be considered a flowback to GM effective the day of retirement for purposes of the U.S. Employee Matters Agreement and all GM, UAW and Delphi agreements governing flowbacks, including this Agreement.         a. Any employee choosing option 3.b. above will be considered a Delphi employee until they retire.           b. Flowbacks under “check the box” retirements will not reduce the 5,000 commitment in 2.a.       5. GM and the UAW agree to the following:         a. Oklahoma City will be given closed plant treatment for purposes of placement under Appendix A.           b. Lordstown will be included in the area hire for Pittsburgh as of June 1, 2007. Any move greater than 50 miles will be eligible for relocation.           c. Employees at Spring Hill who have made application for transfer to Bowling Green as of a mutually agreed-upon date will be given on a one-time basis the same preference as volunteers from plants with closed plant treatment.           d. After the Special Attrition Program has been run, or no later than December 31, 2006, GM and the UAW agree to discuss:         i. Options to address remaining surplus people at specific locations. These options may include expanding the area hire and other options covered in the National Agreement.           ii. All areas in which the parties can work together to close GM’s competitive gap with the foreign competition and reduce GM’s structural cost.         e. Following the implementation of this program, if there are still employees at Delphi who wish to leave Delphi (including those who want to flowback to GM), the UAW, GM, and Delphi agree to implement a mutually acceptable resolution to this matter.           f. GM will use temporary employees as needed to bridge any difficulties arising from the implementation of the Special Attrition Program subject to the approval of the UAW-GM National Parties.           g. During the course of this nationwide Special Attrition Program certain obligations from Appendix K will be “frozen.” This means:         i. No additional obligations from attrition.           ii. No one for two hires from Delphi flowbacks.           iii. No credit against obligations from Delphi flowbacks.       6. Delphi and the UAW agree to the following:         a. Delphi will use temporary employees as needed to bridge any difficulties arising from the implementation of the Special Attrition Program subject to the approval of the UAW-Delphi National Parties. --------------------------------------------------------------------------------           b. Delphi and the UAW may agree to use separated employees as contract personnel on a case by case basis as needed to bridge any difficulties arising from the implementation of the Special Attrition Program.           c. During the course of the Special Attrition Program, the eligibility of GM employees to flow to Delphi will be suspended and no additional hiring obligations due to attrition or flowbacks from Delphi to GM will accrue.       7. The parties acknowledge the following matters regarding the Special Attrition Program:         a. Delphi’s participation in this Agreement is subject to the approval of the U.S. Bankruptcy Court; which approval Delphi will seek promptly at the April 7, 2006 omnibus hearing should this Agreement be finalized in time for Delphi to file a motion by March 22, 2006 or as otherwise permitted by the Case Management Order in Delphi’s Chapter 11 cases. In the event such participation is not allowed by the Bankruptcy Court, GM and the UAW will have no obligations hereunder.           b. For the avoidance of doubt, any obligations assumed by GM under this Agreement with respect to OPEB under Paragraph 4. above or active health care and life insurance under 7.d. below shall be conclusively deemed to be comprehended by, included within, and shall constitute a prepetition, general unsecured claim assertable by GM against the estate of Delphi Corporation under the U.S. Employee Matters Agreement (including without limitation, related flowback agreements and the UAW-GM-Delphi Memorandum of Understanding — Benefit Plan Treatment and the UAW-GM-Delphi Flowback Agreements contained in the 1999 and 2003 GM-UAW and Delphi-UAW Contract Settlement Agreements), Delphi’s Agreement dated December 22, 1999 to indemnify GM for its liability under the Benefit Guarantee as if all conditions for the triggering of GM’s claim shall have occurred, and Delphi’s general indemnity of GM under the Master Separation Agreement. GM agrees to assume and pay OPEB payments to Delphi employees who “check the box” and/or flow back to GM for purposes of retirement, and to pay the amounts due under Paragraph 3.a.i. above. The presumed triggering of GM’s claim against Delphi Corporation described above is only for purposes of this Agreement and does not trigger any contractual claims against either Delphi or GM beyond their respective obligations under this Agreement.           c. This Agreement shall not be subject to abrogation, modification or rejection without the mutual consent of the UAW, GM and Delphi (with the exception of bilateral agreements of the UAW and GM that do not affect Delphi such as Paragraphs 1 and 5a.-d., f., and g. obligations, which may be modified by the UAW-GM National Parties), and the order obtained in the Bankruptcy Court by Delphi approving this Agreement shall so provide. The parties further agree (and the Bankruptcy Court order shall also provide) that this Agreement is without prejudice to any interested party (including the parties to this Agreement and the Official Committee of Unsecured Creditors) in all other aspects of Delphi’s Chapter 11 cases, including by illustration, Delphi’s and GM’s respective positions in all commercial discussions and claims matters between them, all collective bargaining matters involving the parties, in any potential proceedings under Sections 1113 and/or 1114 of the Bankruptcy Code with respect to the UAW and under Section 365 of the Bankruptcy Code with respect to GM’s contracts with Delphi, in any pension termination proceeding under ERISA and/or the Bankruptcy Code, and all claims administration and allowance matters.           d. Nothing in this Agreement shall limit or otherwise modify (a) Delphi’s rights under Section 4041 of ERISA, or (b) Delphi’s rights under Section 1113 and/or 1114 of the Bankruptcy Code with regard to any obligations which pre-existed this Agreement (including pre-existing obligations referenced within this Agreement), such as (by way of illustration only) the obligation to maintain the hourly pension plan or provide retirees or active employees (including employees/retirees participating in the attrition programs contained in this Agreement) with levels of healthcare or other benefits as specified in pre-existing labor agreements. Under no circumstances shall Delphi freeze its pension plan in a manner that prevents employees in the pre-retirement program described in Paragraph 3.b. above from receiving on-going credited service sufficient to reach 30 years of credited service. Delphi shall provide the same healthcare and life insurance coverage to employees participating in Paragraph 3.b. above that it provides to its other active UAW employees; provided, however, that if Delphi reduces or eliminates such coverage provided to its active UAW employees, GM shall subsidize such coverage provided to --------------------------------------------------------------------------------     employees participating in Paragraph 3.b. above up to the level provided to GM-UAW active employees. Except as otherwise expressly provided herein, nothing in this Agreement shall limit, expand or otherwise modify the rights or obligations of any party under the Benefit Guarantee between GM and the UAW.           e. Nothing contained herein shall constitute an assumption of any agreement described herein, including, without limitation any collective bargaining agreement between the UAW and Delphi or any commercial agreement between GM and Delphi, nor shall anything herein be deemed to create an administrative or priority claim with respect to GM or convert a prepetition claim into a postpetition claim or an administrative expense with respect to any party.           f. For the avoidance of doubt, any employee participating in the Special Attrition Program for Delphi Employees under 3. above, who elects to flowback to GM for purposes of retirement (“check the box”), will be eligible to retire in accordance with Sections 3.a.6. and 3.b.6. of the UAW-GM-Delphi Memorandum of Understanding Benefit Plan Treatment (MOU). For illustrative purposes, as provided in the MOU, such Delphi employees will be eligible for pro-rata pension benefits as defined in the MOU, including but not limited to eligibility for all basic benefits and supplements. For example, such employees checking the box who have 100% of his/her credited service in the Delphi Plan will receive 100% of their pension benefit from the Delphi Plan. Similarly, any employee retiring from GM under 1.b. with credited service under the Delphi Plan shall be considered eligible to retire under the Delphi Plan with eligibility for pro-rata pension benefits.                     General Motors Corporation   Delphi Corporation   International Union, UAW             General Motors Corporation   Delphi Corporation   International Union, UAW             General Motors Corporation   Delphi Corporation   International Union, UAW Date:         

Exhibit 10.2 [FORM OF SENIOR CONVERTIBLE NOTE] NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. IMAGE ENTERTAINMENT, INC. SENIOR CONVERTIBLE NOTE Issuance Date: August 30, 2006   Original Principal Amount: U.S. $17,000,000.00   FOR VALUE RECEIVED, Image Entertainment, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of PORTSIDE GROWTH AND OPPORTUNITY FUND or registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), on any Installment Date with respect to the Installment Amount due on such Installment Date (each, as defined herein), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the rate of seven and seven-eighths percent (7.875%) per annum (the “Interest Rate”), from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), any Installment Date or, the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).  This Senior Convertible Note (including all Senior Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior Convertible Notes issued pursuant to the Securities Purchase Agreement (as defined below) on the Closing Date (collectively, the “Notes” and such other Senior Convertible Notes, the “Other Notes”).  Certain capitalized terms used herein are defined in Section 28. -------------------------------------------------------------------------------- (1)           PAYMENTS OF PRINCIPAL.  ON THE MATURITY DATE, THE COMPANY SHALL PAY TO THE HOLDER AN AMOUNT IN CASH REPRESENTING ALL OUTSTANDING PRINCIPAL, ACCRUED AND UNPAID INTEREST AND ACCRUED AND UNPAID LATE CHARGES, IF ANY, ON SUCH PRINCIPAL AND INTEREST.  THE “MATURITY DATE” SHALL BE AUGUST 30, 2011, AS MAY BE EXTENDED AT THE OPTION OF THE HOLDER (I) IN THE EVENT THAT, AND FOR SO LONG AS, AN EVENT OF DEFAULT (AS DEFINED IN SECTION 4(A)) SHALL HAVE OCCURRED AND BE CONTINUING ON THE MATURITY DATE (AS MAY BE EXTENDED PURSUANT TO THIS SECTION 1) OR ANY EVENT THAT SHALL HAVE OCCURRED AND BE CONTINUING THAT WITH THE PASSAGE OF TIME AND THE FAILURE TO CURE WOULD RESULT IN AN EVENT OF DEFAULT AND (II) THROUGH THE DATE THAT IS TEN (10) BUSINESS DAYS AFTER THE CONSUMMATION OF A CHANGE OF CONTROL IN THE EVENT THAT A CHANGE OF CONTROL IS PUBLICLY ANNOUNCED OR A CHANGE OF CONTROL NOTICE (AS DEFINED IN SECTION 5(B)) IS DELIVERED PRIOR TO THE MATURITY DATE.  ON EACH INSTALLMENT DATE, IF THE HOLDER SHOULD DELIVER AN INSTALLMENT NOTICE, THE COMPANY SHALL PAY TO THE HOLDER AN AMOUNT EQUAL TO THE INSTALLMENT AMOUNT DUE ON SUCH INSTALLMENT DATE IN ACCORDANCE WITH SECTION 8.  OTHER THAN AS SPECIFICALLY PERMITTED BY THE NOTE, THE COMPANY MAY NOT PREPAY ANY PORTION OF THE OUTSTANDING PRINCIPAL, ACCRUED AND UNPAID INTEREST OR ACCRUED AND UNPAID LATE CHARGES, IF ANY, ON PRINCIPAL AND INTEREST. (2)           INTEREST; INTEREST RATE.  (A) INTEREST ON THIS NOTE SHALL COMMENCE ACCRUING ON THE ISSUANCE DATE AND SHALL BE COMPUTED ON THE BASIS OF A 365-DAY YEAR AND ACTUAL DAYS ELAPSED AND SHALL BE PAYABLE IN ARREARS FOR EACH CALENDAR QUARTER ON THE FIRST DAY OF THE SUCCEEDING CALENDAR QUARTER DURING THE PERIOD BEGINNING ON THE ISSUANCE DATE AND ENDING ON, AND INCLUDING, THE MATURITY DATE (EACH, AN “INTEREST DATE”) WITH THE FIRST INTEREST DATE BEING OCTOBER 1, 2006.  INTEREST SHALL BE PAYABLE ON EACH INTEREST DATE, TO THE RECORD HOLDER OF THIS NOTE ON THE APPLICABLE INTEREST DATE, IN SHARES OF COMMON STOCK (“INTEREST SHARES”) SO LONG AS THERE HAS BEEN NO EQUITY CONDITIONS FAILURE; PROVIDED HOWEVER, THAT THE COMPANY MAY, AT ITS OPTION FOLLOWING NOTICE TO THE HOLDER, PAY INTEREST ON ANY INTEREST DATE IN CASH (“CASH INTEREST”) OR IN A COMBINATION OF CASH INTEREST AND INTEREST SHARES.  THE COMPANY SHALL DELIVER A WRITTEN NOTICE (EACH, AN “INTEREST ELECTION NOTICE”) TO EACH HOLDER OF THE NOTES ON OR PRIOR TO THE INTEREST NOTICE DUE DATE (THE DATE SUCH NOTICE IS DELIVERED TO ALL OF THE HOLDER, THE “INTEREST NOTICE DATE”) WHICH NOTICE (I) EITHER (A) CONFIRMS THAT INTEREST TO BE PAID ON SUCH INTEREST DATE SHALL BE PAID ENTIRELY IN INTEREST SHARES OR (B) ELECTS TO PAY INTEREST AS CASH INTEREST OR A COMBINATION OF CASH INTEREST AND INTEREST SHARES AND SPECIFIES THE AMOUNT OF INTEREST THAT SHALL BE PAID AS CASH INTEREST AND THE AMOUNT OF INTEREST, IF ANY, THAT SHALL BE PAID IN INTEREST SHARES AND (II) CERTIFIES THAT THERE HAS BEEN NO EQUITY CONDITIONS FAILURE.  IF ANY PORTION OF INTEREST FOR A PARTICULAR INTEREST DATE SHALL BE PAID IN INTEREST SHARES, THEN THE COMPANY SHALL PAY TO THE HOLDER, IN ACCORDANCE WITH SECTION 2(B), A NUMBER OF SHARES OF COMMON STOCK EQUAL TO (X) THE AMOUNT OF INTEREST PAYABLE ON THE APPLICABLE INTEREST DATE IN INTEREST SHARES DIVIDED BY (Y) THE APPLICABLE INTEREST CONVERSION PRICE.  INTEREST TO BE PAID ON AN INTEREST DATE IN INTEREST SHARES SHALL BE PAID IN A NUMBER OF FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK (ROUNDED TO THE NEAREST WHOLE SHARE).  IF THE EQUITY CONDITIONS ARE NOT SATISFIED AS OF THE INTEREST NOTICE DATE, THEN UNLESS THE COMPANY HAS ELECTED TO PAY SUCH INTEREST IN CASH, THE INTEREST NOTICE SHALL INDICATE THAT UNLESS THE HOLDER WAIVES THE EQUITY CONDITIONS, THE INTEREST SHALL BE PAID IN CASH.  IF THE EQUITY CONDITIONS WERE SATISFIED AS OF THE INTEREST NOTICE DATE BUT THE EQUITY CONDITIONS ARE NO LONGER SATISFIED AT ANY TIME PRIOR TO THE INTEREST DATE, THE COMPANY SHALL PROVIDE THE HOLDER A SUBSEQUENT NOTICE TO THAT EFFECT INDICATING THAT UNLESS THE HOLDER WAIVES THE EQUITY CONDITIONS, THE INTEREST SHALL BE PAID IN CASH.  INTEREST TO BE PAID ON AN INTEREST DATE IN INTEREST SHARES SHALL BE PAID IN A NUMBER OF FULLY PAID AND NONASSESSABLE SHARES (ROUNDED TO THE NEAREST WHOLE SHARE IN 2 -------------------------------------------------------------------------------- ACCORDANCE WITH SECTION 3(A)) OF COMMON STOCK EQUAL TO THE QUOTIENT OF (1) THE AMOUNT OF INTEREST PAYABLE ON SUCH INTEREST DATE LESS ANY CASH INTEREST PAID AND (2) THE INTEREST CONVERSION PRICE IN EFFECT ON THE APPLICABLE INTEREST DATE.  (A)   WHEN ANY INTEREST SHARES ARE TO BE PAID ON AN INTEREST DATE, THE COMPANY SHALL (I) (X) PROVIDED THAT THE COMPANY’S TRANSFER AGENT (THE “TRANSFER AGENT”) IS PARTICIPATING IN THE DEPOSITORY TRUST COMPANY (“DTC”) FAST AUTOMATED SECURITIES TRANSFER PROGRAM AND SUCH ACTION IS NOT PROHIBITED BY APPLICABLE LAW OR REGULATION OR ANY APPLICABLE POLICY OF DTC, CREDIT SUCH AGGREGATE NUMBER OF INTEREST SHARES TO WHICH THE HOLDER SHALL BE ENTITLED TO THE HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH DTC THROUGH ITS DEPOSIT WITHDRAWAL AGENT COMMISSION SYSTEM, OR (Y) IF THE FOREGOING SHALL NOT APPLY, ISSUE AND DELIVER ON THE APPLICABLE INTEREST DATE, TO THE ADDRESS SET FORTH IN THE REGISTER MAINTAINED BY THE COMPANY FOR SUCH PURPOSE PURSUANT TO THE SECURITIES PURCHASE AGREEMENT OR TO SUCH ADDRESS AS SPECIFIED BY THE HOLDER IN WRITING TO THE COMPANY AT LEAST TWO (2) BUSINESS DAYS PRIOR TO THE APPLICABLE INTEREST DATE, A CERTIFICATE, REGISTERED IN THE NAME OF THE HOLDER OR ITS DESIGNEE, FOR THE NUMBER OF INTEREST SHARES TO WHICH THE HOLDER SHALL BE ENTITLED AND (II) WITH RESPECT TO EACH INTEREST DATE, PAY TO THE HOLDER, IN CASH BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS, THE AMOUNT OF ANY CASH INTEREST.  NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL NOT BE ENTITLED TO PAY INTEREST IN INTEREST SHARES AND SHALL BE REQUIRED TO PAY SUCH INTEREST IN CASH AS CASH INTEREST ON THE APPLICABLE INTEREST DATE IF, UNLESS WAIVED IN WRITING BY THE HOLDER, THERE HAS BEEN AN EQUITY CONDITIONS FAILURE.  IF AN EVENT OF DEFAULT OR EQUITY CONDITIONS FAILURE OCCURS DURING THE INTEREST MEASURING PERIOD, THEN ON THE INTEREST DATE, AT THE HOLDER’S OPTION, THE HOLDER MAY REQUIRE THE COMPANY TO PAY ALL OR ANY SPECIFIED PORTION OF THE INTEREST DUE ON THE APPLICABLE INTEREST DATE AS CASH INTEREST. (B)   PRIOR TO THE PAYMENT OF INTEREST ON AN INTEREST DATE, INTEREST ON THIS NOTE SHALL ACCRUE AT THE INTEREST RATE AND BE PAYABLE BY WAY OF INCLUSION OF THE INTEREST IN THE CONVERSION AMOUNT IN ACCORDANCE WITH SECTION 3(B)(I).  FROM AND AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE INTEREST RATE SHALL BE INCREASED TO TWELVE PERCENT (12.0%).  IN THE EVENT THAT SUCH EVENT OF DEFAULT IS SUBSEQUENTLY CURED, THE ADJUSTMENT REFERRED TO IN THE PRECEDING SENTENCE SHALL CEASE TO BE EFFECTIVE AS OF THE DATE OF SUCH CURE; PROVIDED THAT THE INTEREST AS CALCULATED AND UNPAID AT SUCH INCREASED RATE DURING THE CONTINUANCE OF SUCH EVENT OF DEFAULT SHALL CONTINUE TO APPLY TO THE EXTENT RELATING TO THE DAYS AFTER THE OCCURRENCE OF SUCH EVENT OF DEFAULT THROUGH AND INCLUDING THE DATE OF CURE OF SUCH EVENT OF DEFAULT.  THE COMPANY SHALL PAY ANY AND ALL TAXES THAT MAY BE PAYABLE WITH RESPECT TO THE ISSUANCE AND DELIVERY OF INTEREST SHARES; PROVIDED THAT THE COMPANY SHALL NOT BE REQUIRED TO PAY ANY TAX THAT MAY BE PAYABLE IN RESPECT OF ANY ISSUANCE OF INTEREST SHARES TO ANY PERSON OTHER THAN THE HOLDER OR WITH RESPECT TO ANY INCOME TAX DUE BY THE HOLDER WITH RESPECT TO SUCH INTEREST SHARES. (3)   CONVERSION OF NOTES.  THIS NOTE SHALL BE CONVERTIBLE INTO SHARES OF THE COMPANY’S COMMON STOCK, PAR VALUE $0.0001 PER SHARE (THE “COMMON STOCK”), ON THE TERMS AND CONDITIONS SET FORTH IN THIS SECTION 3. (A)   CONVERSION RIGHT.  SUBJECT TO THE PROVISIONS OF SECTION 3(D), AT ANY TIME OR TIMES ON OR AFTER THE ISSUANCE DATE, THE HOLDER SHALL BE ENTITLED TO CONVERT ANY PORTION OF THE OUTSTANDING AND UNPAID CONVERSION AMOUNT (AS DEFINED BELOW) INTO FULLY PAID AND 3 -------------------------------------------------------------------------------- NONASSESSABLE SHARES OF COMMON STOCK IN ACCORDANCE WITH SECTION 3(C), AT THE CONVERSION RATE (AS DEFINED BELOW).  THE COMPANY SHALL NOT ISSUE ANY FRACTION OF A SHARE OF COMMON STOCK UPON ANY CONVERSION.  IF THE ISSUANCE WOULD RESULT IN THE ISSUANCE OF A FRACTION OF A SHARE OF COMMON STOCK, THE COMPANY SHALL ROUND SUCH FRACTION OF A SHARE OF COMMON STOCK UP TO THE NEAREST WHOLE SHARE.  THE COMPANY SHALL PAY ANY AND ALL TAXES THAT MAY BE PAYABLE WITH RESPECT TO THE ISSUANCE AND DELIVERY OF COMMON STOCK UPON CONVERSION OF ANY CONVERSION AMOUNT; PROVIDED THAT THE COMPANY SHALL NOT BE REQUIRED TO PAY ANY TAX THAT MAY BE PAYABLE IN RESPECT OF ANY ISSUANCE OF COMMON STOCK TO ANY PERSON OTHER THAN THE CONVERTING HOLDER OR WITH RESPECT TO ANY INCOME TAX DUE BY THE HOLDER WITH RESPECT TO SUCH COMMON STOCK. (B)   CONVERSION RATE.  THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF ANY CONVERSION AMOUNT PURSUANT TO SECTION 3(A) SHALL BE DETERMINED BY DIVIDING (X) SUCH CONVERSION AMOUNT BY (Y) THE CONVERSION PRICE (THE “CONVERSION RATE”). (I)            “CONVERSION AMOUNT” MEANS THE SUM OF (A) THE PORTION OF THE PRINCIPAL TO BE CONVERTED, REDEEMED OR OTHERWISE WITH RESPECT TO WHICH THIS DETERMINATION IS BEING MADE, (B) ACCRUED AND UNPAID INTEREST WITH RESPECT TO SUCH PRINCIPAL AND (C) ACCRUED AND UNPAID LATE CHARGES WITH RESPECT TO SUCH PRINCIPAL AND INTEREST. (II)           “CONVERSION PRICE” MEANS, AS OF ANY CONVERSION DATE (AS DEFINED BELOW) OR OTHER DATE OF DETERMINATION, $4.25, SUBJECT TO ADJUSTMENT AS PROVIDED HEREIN. (C)   MECHANICS OF CONVERSION. (I)            OPTIONAL CONVERSION.  TO CONVERT ANY CONVERSION AMOUNT INTO SHARES OF COMMON STOCK ON ANY DATE (A “CONVERSION DATE”), THE HOLDER SHALL (A) TRANSMIT BY FACSIMILE (OR OTHERWISE DELIVER), FOR RECEIPT ON OR PRIOR TO 11:59 P.M., NEW YORK TIME, ON SUCH DATE, A COPY OF AN EXECUTED NOTICE OF CONVERSION IN THE FORM ATTACHED HERETO AS EXHIBIT I (THE “CONVERSION NOTICE”) TO THE COMPANY AND (B) IF REQUIRED BY SECTION 3(C)(III), SURRENDER THIS NOTE TO A COMMON CARRIER FOR DELIVERY TO THE COMPANY AS SOON AS PRACTICABLE ON OR FOLLOWING SUCH DATE (OR AN INDEMNIFICATION UNDERTAKING WITH RESPECT TO THIS NOTE IN THE CASE OF ITS LOSS, THEFT OR DESTRUCTION).  ON OR BEFORE THE FIRST (1ST) TRADING DAY FOLLOWING THE DATE OF RECEIPT OF A CONVERSION NOTICE, THE COMPANY SHALL TRANSMIT BY FACSIMILE A CONFIRMATION OF RECEIPT OF SUCH CONVERSION NOTICE TO THE HOLDER AND THE TRANSFER AGENT.  ON OR BEFORE THE SECOND (2ND) TRADING DAY FOLLOWING THE DATE OF RECEIPT OF A CONVERSION NOTICE (THE “SHARE DELIVERY DATE”), THE COMPANY SHALL (X) PROVIDED THAT THE TRANSFER AGENT IS PARTICIPATING IN THE DTC FAST AUTOMATED SECURITIES TRANSFER PROGRAM, CREDIT SUCH AGGREGATE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER SHALL BE ENTITLED TO THE HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH DTC THROUGH ITS DEPOSIT WITHDRAWAL AGENT COMMISSION SYSTEM OR (Y) IF THE TRANSFER AGENT IS NOT PARTICIPATING IN THE DTC FAST AUTOMATED SECURITIES TRANSFER PROGRAM, ISSUE AND DELIVER TO THE ADDRESS AS SPECIFIED IN THE CONVERSION NOTICE, A CERTIFICATE, REGISTERED IN THE NAME OF THE HOLDER OR ITS DESIGNEE, FOR THE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER SHALL BE ENTITLED.  IF THIS NOTE IS PHYSICALLY SURRENDERED FOR CONVERSION AS REQUIRED BY SECTION 3(C)(III) AND THE OUTSTANDING PRINCIPAL OF THIS NOTE IS GREATER THAN THE PRINCIPAL PORTION OF THE CONVERSION AMOUNT BEING CONVERTED, THEN THE COMPANY SHALL AS SOON AS PRACTICABLE AND IN NO EVENT LATER THAN THREE (3) BUSINESS DAYS AFTER RECEIPT OF THIS NOTE AND AT ITS OWN EXPENSE, ISSUE AND DELIVER TO THE HOLDER A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)) REPRESENTING THE OUTSTANDING PRINCIPAL NOT 4 -------------------------------------------------------------------------------- CONVERTED.  THE PERSON OR PERSONS ENTITLED TO RECEIVE THE SHARES OF COMMON STOCK ISSUABLE UPON A CONVERSION OF THIS NOTE SHALL BE TREATED FOR ALL PURPOSES AS THE RECORD HOLDER OR HOLDERS OF SUCH SHARES OF COMMON STOCK ON THE CONVERSION DATE.  (II)           COMPANY’S FAILURE TO TIMELY CONVERT.  IF THE COMPANY SHALL FAIL TO ISSUE A CERTIFICATE TO THE HOLDER OR CREDIT THE HOLDER’S BALANCE ACCOUNT WITH DTC FOR THE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER IS ENTITLED UPON CONVERSION OF ANY CONVERSION AMOUNT ON OR PRIOR TO THE DATE WHICH IS FIVE (5) TRADING DAYS AFTER THE CONVERSION DATE (A “CONVERSION FAILURE “), THEN (A) THE COMPANY SHALL PAY DAMAGES IN CASH TO THE HOLDER FOR EACH DATE OF SUCH CONVERSION FAILURE IN AN AMOUNT EQUAL TO 1.0% OF THE PRODUCT OF (I) THE SUM OF THE NUMBER OF SHARES OF COMMON STOCK NOT ISSUED TO THE HOLDER ON OR PRIOR TO THE SHARE DELIVERY DATE AND TO WHICH THE HOLDER IS ENTITLED, AND (II) THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE SHARE DELIVERY DATE AND (B) THE HOLDER, UPON WRITTEN NOTICE TO THE COMPANY, MAY VOID ITS CONVERSION NOTICE WITH RESPECT TO, AND RETAIN OR HAVE RETURNED, AS THE CASE MAY BE, ANY PORTION OF THIS NOTE THAT HAS NOT BEEN CONVERTED PURSUANT TO SUCH CONVERSION NOTICE; PROVIDED THAT THE VOIDING OF A CONVERSION NOTICE SHALL NOT AFFECT THE COMPANY’S OBLIGATIONS TO MAKE ANY PAYMENTS WHICH HAVE ACCRUED PRIOR TO THE DATE OF SUCH NOTICE PURSUANT TO THIS SECTION 3(C)(II) OR OTHERWISE.  IN ADDITION TO THE FOREGOING, IF WITHIN THREE (3) TRADING DAYS AFTER THE COMPANY’S RECEIPT OF THE FACSIMILE COPY OF A CONVERSION NOTICE THE COMPANY SHALL FAIL TO ISSUE AND DELIVER A CERTIFICATE TO THE HOLDER OR CREDIT THE HOLDER’S BALANCE ACCOUNT WITH DTC FOR THE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER IS ENTITLED UPON SUCH HOLDER’S CONVERSION OF ANY CONVERSION AMOUNT, AND IF ON OR AFTER SUCH TRADING DAY THE HOLDER PURCHASES (IN AN OPEN MARKET TRANSACTION OR OTHERWISE) COMMON STOCK TO DELIVER IN SATISFACTION OF A SALE BY THE HOLDER OF COMMON STOCK ISSUABLE UPON SUCH CONVERSION THAT THE HOLDER ANTICIPATED RECEIVING FROM THE COMPANY (A “BUY-IN”), THEN THE COMPANY SHALL, WITHIN FIVE (5) BUSINESS DAYS AFTER THE HOLDER’S REQUEST AND IN THE HOLDER’S DISCRETION, EITHER (I) PAY CASH TO THE HOLDER IN AN AMOUNT EQUAL TO THE HOLDER’S TOTAL PURCHASE PRICE (INCLUDING BROKERAGE COMMISSIONS AND OTHER OUT-OF-POCKET EXPENSES, 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 (AND TO ISSUE SUCH COMMON STOCK) SHALL TERMINATE, OR (II) PROMPTLY HONOR ITS OBLIGATION TO DELIVER TO THE HOLDER A CERTIFICATE OR CERTIFICATES REPRESENTING SUCH COMMON STOCK AND PAY CASH TO THE HOLDER 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, TIMES (B) THE CLOSING BID PRICE ON THE CONVERSION DATE. (III)          BOOK-ENTRY. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREIN, UPON CONVERSION OF ANY PORTION OF THIS NOTE IN ACCORDANCE WITH THE TERMS HEREOF, THE HOLDER SHALL NOT BE REQUIRED TO PHYSICALLY SURRENDER THIS NOTE TO THE COMPANY UNLESS (A) THE FULL CONVERSION AMOUNT REPRESENTED BY THIS NOTE IS BEING CONVERTED OR (B) THE HOLDER HAS PROVIDED THE COMPANY WITH PRIOR WRITTEN NOTICE (WHICH NOTICE MAY BE INCLUDED IN A CONVERSION NOTICE) REQUESTING REISSUANCE OF THIS NOTE UPON PHYSICAL SURRENDER OF THIS NOTE.  THE HOLDER AND THE COMPANY SHALL MAINTAIN RECORDS SHOWING THE PRINCIPAL, INTEREST AND LATE CHARGES CONVERTED AND THE DATES OF SUCH CONVERSIONS OR SHALL USE SUCH OTHER METHOD, REASONABLY SATISFACTORY TO THE HOLDER AND THE COMPANY, SO AS NOT TO REQUIRE PHYSICAL SURRENDER OF THIS NOTE UPON CONVERSION. (IV)          PRO RATA CONVERSION; DISPUTES.  IN THE EVENT THAT THE COMPANY RECEIVES A CONVERSION NOTICE FROM MORE THAN ONE HOLDER OF NOTES FOR THE SAME CONVERSION DATE AND THE COMPANY CAN CONVERT SOME, BUT NOT ALL, OF SUCH PORTIONS OF THE NOTES 5 -------------------------------------------------------------------------------- SUBMITTED FOR CONVERSION, THE COMPANY, SUBJECT TO SECTION 3(D), SHALL CONVERT FROM EACH HOLDER OF NOTES ELECTING TO HAVE NOTES CONVERTED ON SUCH DATE A PRO RATA AMOUNT OF SUCH HOLDER’S PORTION OF ITS NOTES SUBMITTED FOR CONVERSION BASED ON THE PRINCIPAL AMOUNT OF NOTES SUBMITTED FOR CONVERSION ON SUCH DATE BY SUCH HOLDER RELATIVE TO THE AGGREGATE PRINCIPAL AMOUNT OF ALL NOTES SUBMITTED FOR CONVERSION ON SUCH DATE.  IN THE EVENT OF A DISPUTE AS TO THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE TO THE HOLDER IN CONNECTION WITH A CONVERSION OF THIS NOTE, THE COMPANY SHALL ISSUE TO THE HOLDER THE NUMBER OF SHARES OF COMMON STOCK NOT IN DISPUTE AND RESOLVE SUCH DISPUTE IN ACCORDANCE WITH SECTION 23. (V)           COMPANY’S RIGHT OF MANDATORY CONVERSION.  (A)          MANDATORY CONVERSION.  IF AT ANY TIME FROM AND AFTER THE ONE (1) YEAR ANNIVERSARY OF THE ISSUANCE DATE (THE “MANDATORY CONVERSION ELIGIBILITY DATE”), (I) (A) FROM THE PERIOD BEGINNING FROM THE MANDATORY CONVERSION ELIGIBILITY DATE UNTIL THE TWO (2) YEAR ANNIVERSARY OF THE ISSUANCE DATE, THE CLOSING SALE PRICE OF THE COMMON STOCK EXCEEDS FOR EACH OF ANY TWENTY (20) CONSECUTIVE TRADING DAYS FOLLOWING THE MANDATORY CONVERSION ELIGIBILITY DATE (THE “MANDATORY CONVERSION MEASURING PERIOD”) 150% OF THE CONVERSION PRICE ON THE ISSUANCE DATE (AS ADJUSTED FOR ANY STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS, COMBINATIONS, REVERSE STOCK SPLITS OR OTHER SIMILAR EVENTS DURING SUCH PERIOD) AND (B) ON AND AFTER THE TWO (2) YEAR ANNIVERSARY OF THE ISSUANCE DATE, THE CLOSING SALE PRICE OF THE COMMON STOCK EXCEEDS FOR EACH OF ANY TWENTY (20) CONSECUTIVE TRADING DAYS 180% OF THE CONVERSION PRICE ON THE ISSUANCE DATE (AS ADJUSTED FOR ANY STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS, COMBINATIONS, REVERSE STOCK SPLITS OR OTHER SIMILAR EVENTS DURING SUCH PERIOD) AND (II) THERE SHALL NOT HAVE BEEN ANY EQUITY CONDITIONS FAILURE, THE COMPANY SHALL HAVE THE RIGHT TO REQUIRE THE HOLDER TO CONVERT ALL, OR ANY PORTION, OF THE CONVERSION AMOUNT THEN REMAINING UNDER THIS NOTE INTO FULLY PAID, VALIDLY ISSUED AND NONASSESSABLE SHARES OF COMMON STOCK IN ACCORDANCE WITH SECTION 3(C) HEREOF AT THE CONVERSION RATE AS OF THE MANDATORY CONVERSION DATE (AS DEFINED BELOW) WITH RESPECT TO THE CONVERSION AMOUNT (A “MANDATORY CONVERSION”).  THE COMPANY MAY EXERCISE ITS RIGHT TO REQUIRE CONVERSION UNDER THIS SECTION 3(C)(V)(A) BY DELIVERING WITHIN NOT MORE THAN TWO (2) TRADING DAYS FOLLOWING THE END OF ANY SUCH MANDATORY CONVERSION MEASURING PERIOD A WRITTEN NOTICE THEREOF BY FACSIMILE AND OVERNIGHT COURIER TO ALL, BUT NOT LESS THAN ALL, OF THE HOLDERS OF NOTES AND THE TRANSFER AGENT (THE “MANDATORY CONVERSION NOTICE” AND THE DATE ALL OF THE HOLDERS RECEIVED SUCH NOTICE IS REFERRED TO AS THE “MANDATORY CONVERSION NOTICE DATE”).  THE MANDATORY CONVERSION NOTICE SHALL BE IRREVOCABLE.  THE MANDATORY CONVERSION NOTICE SHALL STATE (1) THE TRADING DAY SELECTED FOR THE MANDATORY CONVERSION IN ACCORDANCE HEREWITH, WHICH TRADING DAY SHALL BE AT LEAST TWENTY (20) TRADING DAYS BUT NOT MORE THAN SIXTY (60) TRADING DAYS FOLLOWING THE MANDATORY CONVERSION NOTICE DATE (THE “MANDATORY CONVERSION DATE”), (2) THE AGGREGATE CONVERSION AMOUNT OF THE NOTES SUBJECT TO MANDATORY CONVERSION FROM ALL OF THE HOLDERS OF THE NOTES PURSUANT HERETO (AND ANALOGOUS PROVISIONS UNDER THE OTHER NOTES) AND (3) THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED TO.  ALL CONVERSION AMOUNTS CONVERTED BY THE HOLDER AFTER THE MANDATORY CONVERSION NOTICE DATE SHALL REDUCE THE CONVERSION AMOUNT OF THIS NOTE REQUIRED TO BE CONVERTED ON THE MANDATORY CONVERSION DATE.  THE MECHANICS OF CONVERSION SET FORTH IN SECTION 3(C) SHALL APPLY TO ANY MANDATORY CONVERSION AS IF THE COMPANY AND THE TRANSFER AGENT HAD RECEIVED FROM THE HOLDER ON THE MANDATORY 6 -------------------------------------------------------------------------------- CONVERSION DATE A CONVERSION NOTICE WITH RESPECT TO THE CONVERSION AMOUNT BEING CONVERTED PURSUANT TO THE MANDATORY CONVERSION. (B)             PRO RATA CONVERSION REQUIREMENT.  IF THE COMPANY ELECTS TO CAUSE A CONVERSION OF ANY CONVERSION AMOUNT OF THIS NOTE PURSUANT TO SECTION 3(C)(V)(A), THEN IT MUST SIMULTANEOUSLY TAKE THE SAME ACTION IN THE SAME PROPORTION WITH RESPECT TO THE OTHER NOTES.  IF THE COMPANY ELECTS A MANDATORY CONVERSION OF THIS NOTE PURSUANT TO SECTION 3(C)(V)(A) (OR SIMILAR PROVISIONS UNDER THE OTHER NOTES) WITH RESPECT TO LESS THAN ALL OF THE CONVERSION AMOUNTS OF THE NOTES THEN OUTSTANDING, THEN THE COMPANY SHALL REQUIRE CONVERSION OF A CONVERSION AMOUNT FROM EACH OF THE HOLDERS OF THE NOTES EQUAL TO THE PRODUCT OF (I) THE AGGREGATE CONVERSION AMOUNT OF NOTES WHICH THE COMPANY HAS ELECTED TO CAUSE TO BE CONVERTED PURSUANT TO SECTION 3(C)(V)(A), MULTIPLIED BY (II) THE FRACTION, THE NUMERATOR OF WHICH IS THE SUM OF THE AGGREGATE ORIGINAL PRINCIPAL AMOUNT OF THE NOTES PURCHASED BY SUCH HOLDER OF OUTSTANDING NOTES AND THE DENOMINATOR OF WHICH IS THE SUM OF THE AGGREGATE ORIGINAL PRINCIPAL AMOUNT OF THE NOTES PURCHASED BY ALL HOLDERS HOLDING OUTSTANDING NOTES (SUCH FRACTION WITH RESPECT TO EACH HOLDER IS REFERRED TO AS ITS “CONVERSION ALLOCATION PERCENTAGE,” AND SUCH AMOUNT WITH RESPECT TO EACH HOLDER IS REFERRED TO AS ITS “PRO RATA CONVERSION AMOUNT”); PROVIDED, HOWEVER, THAT IN THE EVENT THAT ANY HOLDER’S PRO RATA CONVERSION AMOUNT EXCEEDS THE OUTSTANDING PRINCIPAL AMOUNT OF SUCH HOLDER’S NOTE, THEN SUCH EXCESS PRO RATA CONVERSION AMOUNT SHALL BE ALLOCATED AMONGST THE REMAINING HOLDERS OF NOTES IN ACCORDANCE WITH THE FOREGOING FORMULA.  IN THE EVENT THAT THE INITIAL HOLDER OF ANY NOTES SHALL SELL OR OTHERWISE TRANSFER ANY OF SUCH HOLDER’S NOTES, THE TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF SUCH HOLDER’S CONVERSION ALLOCATION PERCENTAGE AND THE PRO RATA CONVERSION AMOUNT. (D)   LIMITATIONS ON CONVERSIONS.  (I)            BENEFICIAL OWNERSHIP.  THE COMPANY SHALL NOT EFFECT ANY CONVERSION OF THIS NOTE, AND THE HOLDER OF THIS NOTE SHALL NOT HAVE THE RIGHT TO CONVERT ANY PORTION OF THIS NOTE PURSUANT TO SECTION 3(A), TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH CONVERSION, THE HOLDER (TOGETHER WITH THE HOLDER’S AFFILIATES) WOULD BENEFICIALLY OWN IN EXCESS OF 4.99% (THE “MAXIMUM PERCENTAGE”) OF THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY AFTER GIVING EFFECT TO SUCH CONVERSION.  FOR PURPOSES OF THE FOREGOING SENTENCE, THE NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED BY THE HOLDER AND ITS AFFILIATES SHALL INCLUDE THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE WITH RESPECT TO WHICH THE DETERMINATION OF SUCH SENTENCE IS BEING MADE, BUT SHALL EXCLUDE THE NUMBER OF SHARES OF COMMON STOCK WHICH WOULD BE ISSUABLE UPON (A) CONVERSION OF THE REMAINING, NONCONVERTED PORTION OF THIS NOTE BENEFICIALLY OWNED BY THE HOLDER OR ANY OF ITS AFFILIATES AND (B) EXERCISE OR CONVERSION OF THE UNEXERCISED OR NONCONVERTED PORTION OF ANY OTHER SECURITIES OF THE COMPANY (INCLUDING, WITHOUT LIMITATION, ANY OTHER NOTES OR WARRANTS) SUBJECT TO A LIMITATION ON CONVERSION OR EXERCISE ANALOGOUS TO THE LIMITATION CONTAINED HEREIN BENEFICIALLY OWNED BY THE HOLDER OR ANY OF ITS AFFILIATES.  EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, FOR PURPOSES OF THIS SECTION 3(D)(I), BENEFICIAL OWNERSHIP SHALL BE CALCULATED IN ACCORDANCE WITH SECTION 13(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “EXCHANGE ACT”).  FOR PURPOSES OF THIS SECTION 3(D)(I), IN DETERMINING THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK, THE HOLDER MAY RELY ON THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK AS REFLECTED IN (X) THE 7 -------------------------------------------------------------------------------- COMPANY’S MOST RECENT FORM 10-K, FORM 10-Q OR FORM 8-K, AS THE CASE MAY BE, (Y) A MORE RECENT PUBLIC ANNOUNCEMENT BY THE COMPANY OR (Z) ANY OTHER NOTICE BY THE COMPANY OR THE TRANSFER AGENT SETTING FORTH THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING.  FOR ANY REASON AT ANY TIME, UPON THE WRITTEN OR ORAL REQUEST OF THE HOLDER, THE COMPANY SHALL WITHIN ONE (1) BUSINESS DAY CONFIRM ORALLY AND IN WRITING TO THE HOLDER THE NUMBER OF SHARES OF COMMON STOCK THEN OUTSTANDING.  IN ANY CASE, THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK SHALL BE DETERMINED AFTER GIVING EFFECT TO THE CONVERSION OR EXERCISE OF SECURITIES OF THE COMPANY, INCLUDING THIS NOTE, BY THE HOLDER OR ITS AFFILIATES SINCE THE DATE AS OF WHICH SUCH NUMBER OF OUTSTANDING SHARES OF COMMON STOCK WAS REPORTED.  BY WRITTEN NOTICE TO THE COMPANY, THE HOLDER MAY INCREASE OR DECREASE THE MAXIMUM PERCENTAGE TO ANY OTHER PERCENTAGE NOT IN EXCESS OF 9.99% SPECIFIED IN SUCH NOTICE; PROVIDED THAT (I) ANY SUCH INCREASE WILL NOT BE EFFECTIVE UNTIL THE SIXTY-FIRST (61ST) DAY AFTER SUCH NOTICE IS DELIVERED TO THE COMPANY, AND (II) ANY SUCH INCREASE OR DECREASE WILL APPLY ONLY TO THE HOLDER AND NOT TO ANY OTHER HOLDER OF NOTES. (II)           PRINCIPAL MARKET REGULATION.  THE COMPANY SHALL NOT BE OBLIGATED TO ISSUE ANY SHARES OF COMMON STOCK UPON CONVERSION OF THIS NOTE, AND THE HOLDER OF THIS NOTE SHALL NOT HAVE THE RIGHT TO RECEIVE UPON CONVERSION OF THIS NOTE ANY SHARES OF COMMON STOCK, IF THE ISSUANCE OF SUCH SHARES OF COMMON STOCK WOULD EXCEED THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK WHICH THE COMPANY MAY ISSUE UPON CONVERSION OR EXERCISE, AS APPLICABLE, OF THE NOTES AND WARRANTS WITHOUT BREACHING THE COMPANY’S OBLIGATIONS UNDER THE RULES OR REGULATIONS OF THE PRINCIPAL MARKET (THE “EXCHANGE CAP”), EXCEPT THAT SUCH LIMITATION SHALL NOT APPLY IN THE EVENT THAT THE COMPANY (A) OBTAINS THE APPROVAL OF ITS STOCKHOLDERS AS REQUIRED BY THE APPLICABLE RULES OF THE PRINCIPAL MARKET FOR ISSUANCES OF COMMON STOCK IN EXCESS OF SUCH AMOUNT OR (B) OBTAINS A WRITTEN OPINION FROM OUTSIDE COUNSEL TO THE COMPANY THAT SUCH APPROVAL IS NOT REQUIRED, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE REQUIRED HOLDERS.  UNTIL SUCH APPROVAL OR WRITTEN OPINION IS OBTAINED, NO PURCHASER OF THE NOTES PURSUANT TO THE SECURITIES PURCHASE AGREEMENT (THE “PURCHASERS”) SHALL BE ISSUED IN THE AGGREGATE, UPON CONVERSION OR EXERCISE, AS APPLICABLE, OF NOTES OR WARRANTS, SHARES OF COMMON STOCK IN AN AMOUNT GREATER THAN THE PRODUCT OF THE EXCHANGE CAP MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE PRINCIPAL AMOUNT OF NOTES ISSUED TO SUCH PURCHASER PURSUANT TO THE SECURITIES PURCHASE AGREEMENT ON THE CLOSING DATE AND THE DENOMINATOR OF WHICH IS THE AGGREGATE PRINCIPAL AMOUNT OF ALL NOTES ISSUED TO THE PURCHASERS PURSUANT TO THE SECURITIES PURCHASE AGREEMENT ON THE CLOSING DATE (WITH RESPECT TO EACH PURCHASER, THE “EXCHANGE CAP ALLOCATION”).  IN THE EVENT THAT ANY PURCHASER SHALL SELL OR OTHERWISE TRANSFER ANY OF SUCH PURCHASER’S NOTES, THE TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF SUCH PURCHASER’S EXCHANGE CAP ALLOCATION, AND THE RESTRICTIONS OF THE PRIOR SENTENCE SHALL APPLY TO SUCH TRANSFEREE WITH RESPECT TO THE PORTION OF THE EXCHANGE CAP ALLOCATION ALLOCATED TO SUCH TRANSFEREE.  IN THE EVENT THAT ANY HOLDER OF NOTES SHALL CONVERT ALL OF SUCH HOLDER’S NOTES INTO A NUMBER OF SHARES OF COMMON STOCK WHICH, IN THE AGGREGATE, IS LESS THAN SUCH HOLDER’S EXCHANGE CAP ALLOCATION, THEN THE DIFFERENCE BETWEEN SUCH HOLDER’S EXCHANGE CAP ALLOCATION AND THE NUMBER OF SHARES OF COMMON STOCK ACTUALLY ISSUED TO SUCH HOLDER SHALL BE ALLOCATED TO THE RESPECTIVE EXCHANGE CAP ALLOCATIONS OF THE REMAINING HOLDERS OF NOTES ON A PRO RATA BASIS IN PROPORTION TO THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN HELD BY EACH SUCH HOLDER. 8 -------------------------------------------------------------------------------- (4)   RIGHTS UPON EVENT OF DEFAULT. (A)   EVENT OF DEFAULT.  EACH OF THE FOLLOWING EVENTS SHALL CONSTITUTE AN “EVENT OF DEFAULT”: (I)            THE FAILURE OF THE APPLICABLE REGISTRATION STATEMENT REQUIRED TO BE FILED PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT TO BE DECLARED EFFECTIVE BY THE SEC ON OR PRIOR TO THE DATE THAT IS SIXTY (60) DAYS AFTER THE APPLICABLE EFFECTIVENESS DEADLINE (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT), OR, WHILE THE APPLICABLE REGISTRATION STATEMENT IS REQUIRED TO BE MAINTAINED EFFECTIVE PURSUANT TO THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, THE EFFECTIVENESS OF THE APPLICABLE REGISTRATION STATEMENT LAPSES FOR ANY REASON (INCLUDING, WITHOUT LIMITATION, THE ISSUANCE OF A STOP ORDER) OR IS UNAVAILABLE TO ANY HOLDER OF THE NOTES FOR SALE OF ALL OF SUCH HOLDER’S REGISTRABLE SECURITIES (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) IN ACCORDANCE WITH THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, AND SUCH LAPSE OR UNAVAILABILITY CONTINUES FOR A PERIOD OF TEN (10) CONSECUTIVE DAYS OR FOR MORE THAN AN AGGREGATE OF THIRTY (30) DAYS IN ANY 365-DAY PERIOD (OTHER THAN DAYS DURING AN ALLOWABLE GRACE PERIOD (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT)); (II)           THE SUSPENSION FROM TRADING OR FAILURE OF THE COMMON STOCK TO BE LISTED ON AN ELIGIBLE MARKET FOR A PERIOD OF FIVE (5) CONSECUTIVE TRADING DAYS OR FOR MORE THAN AN AGGREGATE OF TEN (10) TRADING DAYS IN ANY 365-DAY PERIOD; (III)          THE COMPANY’S (A) FAILURE TO CURE A CONVERSION FAILURE BY DELIVERY OF THE REQUIRED NUMBER OF SHARES OF COMMON STOCK WITHIN TEN (10) BUSINESS DAYS AFTER THE APPLICABLE CONVERSION DATE OR (B) NOTICE, WRITTEN OR ORAL, TO ANY HOLDER OF THE NOTES, INCLUDING BY WAY OF PUBLIC ANNOUNCEMENT OR THROUGH ANY OF ITS AGENTS, AT ANY TIME, OF ITS INTENTION NOT TO COMPLY WITH A REQUEST FOR CONVERSION OF ANY NOTES INTO SHARES OF COMMON STOCK THAT IS TENDERED IN ACCORDANCE WITH THE PROVISIONS OF THE NOTES; (IV)          AT ANY TIME FOLLOWING THE TENTH (10TH) CONSECUTIVE BUSINESS DAY THAT THE HOLDER’S AUTHORIZED SHARE ALLOCATION IS LESS THAN THE NUMBER OF SHARES OF COMMON STOCK THAT THE HOLDER WOULD BE ENTITLED TO RECEIVE UPON A CONVERSION OF THE FULL CONVERSION AMOUNT OF THIS NOTE (WITHOUT REGARD TO ANY LIMITATIONS ON CONVERSION SET FORTH IN SECTION 3(D) OR OTHERWISE); (V)           THE COMPANY’S FAILURE TO PAY TO THE HOLDER ANY AMOUNT OF PRINCIPAL (INCLUDING, WITHOUT LIMITATION, ANY REDEMPTION PAYMENTS), INTEREST, LATE CHARGES OR OTHER AMOUNTS WHEN AND AS DUE UNDER THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT (AS DEFINED IN THE SECURITIES PURCHASE AGREEMENT) OR ANY OTHER AGREEMENT, DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT DELIVERED IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY TO WHICH THE HOLDER IS A PARTY, EXCEPT, IN THE CASE OF A FAILURE TO PAY INTEREST AND LATE CHARGES WHEN AND AS DUE, IN WHICH CASE ONLY IF SUCH FAILURE CONTINUES FOR A PERIOD OF AT LEAST FIVE (5) BUSINESS DAYS; (VI)          ANY DEFAULT UNDER, REDEMPTION OF OR ACCELERATION PRIOR TO MATURITY OF ANY INDEBTEDNESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES (AS DEFINED IN SECTION 3(A) OF THE SECURITIES PURCHASE AGREEMENT) OTHER THAN WITH RESPECT TO ANY OTHER NOTES; 9 -------------------------------------------------------------------------------- (VII)         THE COMPANY OR ANY OF ITS SUBSIDIARIES, PURSUANT TO OR WITHIN THE MEANING OF TITLE 11, U.S. CODE, OR ANY SIMILAR FEDERAL, FOREIGN OR STATE LAW FOR THE RELIEF OF DEBTORS (COLLECTIVELY, “BANKRUPTCY LAW”), (A) COMMENCES A VOLUNTARY CASE, (B) CONSENTS TO THE ENTRY OF AN ORDER FOR RELIEF AGAINST IT IN AN INVOLUNTARY CASE, (C) CONSENTS TO THE APPOINTMENT OF A RECEIVER, TRUSTEE, ASSIGNEE, LIQUIDATOR OR SIMILAR OFFICIAL (A “CUSTODIAN”), (D) MAKES A GENERAL ASSIGNMENT FOR THE BENEFIT OF ITS CREDITORS OR (E) ADMITS IN WRITING THAT IT IS GENERALLY UNABLE TO PAY ITS DEBTS AS THEY BECOME DUE; (VIII)        A COURT OF COMPETENT JURISDICTION ENTERS AN ORDER OR DECREE UNDER ANY BANKRUPTCY LAW THAT (A) IS FOR RELIEF AGAINST THE COMPANY OR ANY OF ITS SUBSIDIARIES IN AN INVOLUNTARY CASE, (B) APPOINTS A CUSTODIAN OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR (C) ORDERS THE LIQUIDATION OF THE COMPANY OR ANY OF ITS SUBSIDIARIES; (IX)           A FINAL JUDGMENT OR JUDGMENTS FOR THE PAYMENT OF MONEY AGGREGATING IN EXCESS OF $500,000 ARE RENDERED AGAINST THE COMPANY OR ANY OF ITS SUBSIDIARIES AND WHICH JUDGMENTS ARE NOT, WITHIN SIXTY (60) DAYS AFTER THE ENTRY THEREOF, BONDED, DISCHARGED OR STAYED PENDING APPEAL, OR ARE NOT DISCHARGED WITHIN SIXTY (60) DAYS AFTER THE EXPIRATION OF SUCH STAY; PROVIDED, HOWEVER, THAT ANY JUDGMENT WHICH IS COVERED BY INSURANCE OR AN INDEMNITY FROM A CREDIT WORTHY PARTY SHALL NOT BE INCLUDED IN CALCULATING THE $500,000 AMOUNT SET FORTH ABOVE SO LONG AS THE COMPANY PROVIDES THE HOLDER A WRITTEN STATEMENT FROM SUCH INSURER OR INDEMNITY PROVIDER (WHICH WRITTEN STATEMENT SHALL BE REASONABLY SATISFACTORY TO THE HOLDER) TO THE EFFECT THAT SUCH JUDGMENT IS COVERED BY INSURANCE OR AN INDEMNITY AND THE COMPANY WILL RECEIVE THE PROCEEDS OF SUCH INSURANCE OR INDEMNITY WITHIN THIRTY (30) DAYS OF THE ISSUANCE OF SUCH JUDGMENT; (X)            THE COMPANY BREACHES ANY REPRESENTATION, WARRANTY, COVENANT OR OTHER TERM OR CONDITION OF ANY TRANSACTION DOCUMENT, EXCEPT, IN THE CASE OF A BREACH OF A COVENANT WHICH IS CURABLE, ONLY IF SUCH BREACH CONTINUES FOR A PERIOD OF AT LEAST TEN (10) CONSECUTIVE BUSINESS DAYS; (XI)           ANY BREACH OR FAILURE IN ANY RESPECT TO COMPLY WITH EITHER OF SECTION 8 OR SECTION 14 OF THIS NOTE OR SECTION 4(P)(II) OF THE SECURITIES PURCHASE AGREEMENT; OR (XII)          ANY EVENT OF DEFAULT (AS DEFINED IN THE OTHER NOTES) OCCURS WITH RESPECT TO ANY OTHER NOTES. (B)   REDEMPTION RIGHT.  UPON THE OCCURRENCE OF AN EVENT OF DEFAULT WITH RESPECT TO THIS NOTE OR ANY OTHER NOTE, THE COMPANY SHALL WITHIN (1) BUSINESS DAY DELIVER WRITTEN NOTICE THEREOF VIA FACSIMILE AND OVERNIGHT COURIER (AN “EVENT OF DEFAULT NOTICE”) TO THE HOLDER.  AT ANY TIME AFTER THE EARLIER OF THE HOLDER’S RECEIPT OF AN EVENT OF DEFAULT NOTICE AND THE HOLDER BECOMING AWARE OF AN EVENT OF DEFAULT, THE HOLDER MAY REQUIRE THE COMPANY TO REDEEM ALL OR ANY PORTION OF THIS NOTE BY DELIVERING WRITTEN NOTICE THEREOF (THE “EVENT OF DEFAULT REDEMPTION NOTICE”) TO THE COMPANY, WHICH EVENT OF DEFAULT REDEMPTION NOTICE SHALL INDICATE THE PORTION OF THIS NOTE THE HOLDER IS ELECTING TO REDEEM.  EACH PORTION OF THIS NOTE SUBJECT TO REDEMPTION BY THE COMPANY PURSUANT TO THIS SECTION 4(B) SHALL BE REDEEMED BY THE COMPANY AT A PRICE EQUAL TO THE GREATER OF (I) THE PRODUCT OF (X) THE CONVERSION AMOUNT TO BE 10 -------------------------------------------------------------------------------- REDEEMED AND (Y) THE REDEMPTION PREMIUM AND (II) THE PRODUCT OF (A) THE CONVERSION RATE WITH RESPECT TO SUCH CONVERSION AMOUNT IN EFFECT AT SUCH TIME AS THE HOLDER DELIVERS AN EVENT OF DEFAULT REDEMPTION NOTICE AND (B) THE GREATER OF (1) THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE DATE IMMEDIATELY PRECEDING SUCH EVENT OF DEFAULT, (2) THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE DATE IMMEDIATELY AFTER SUCH EVENT OF DEFAULT AND (3) THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE DATE THE HOLDER DELIVERS THE EVENT OF DEFAULT REDEMPTION NOTICE (THE “EVENT OF DEFAULT REDEMPTION PRICE”).  REDEMPTIONS REQUIRED BY THIS SECTION 4(B) SHALL BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12.  TO THE EXTENT REDEMPTIONS REQUIRED BY THIS SECTION 4(B) ARE DEEMED OR DETERMINED BY A COURT OF COMPETENT JURISDICTION TO BE PREPAYMENTS OF THE NOTE BY THE COMPANY, SUCH REDEMPTIONS SHALL BE DEEMED TO BE VOLUNTARY PREPAYMENTS.  THE PARTIES HERETO AGREE THAT IN THE EVENT OF THE COMPANY’S REDEMPTION OF ANY PORTION OF THE NOTE UNDER THIS SECTION 4(B), THE HOLDER’S DAMAGES WOULD BE UNCERTAIN AND DIFFICULT TO ESTIMATE BECAUSE OF THE PARTIES’ INABILITY TO PREDICT FUTURE INTEREST RATES AND THE UNCERTAINTY OF THE AVAILABILITY OF A SUITABLE SUBSTITUTE INVESTMENT OPPORTUNITY FOR THE HOLDER.  ACCORDINGLY, ANY REDEMPTION PREMIUM DUE UNDER THIS SECTION 4(B) IS INTENDED BY THE PARTIES TO BE, AND SHALL BE DEEMED, A REASONABLE ESTIMATE OF THE HOLDER’S ACTUAL LOSS OF ITS INVESTMENT OPPORTUNITY AND NOT AS A PENALTY. (5)   RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL. (A)   ASSUMPTION.  THE COMPANY SHALL NOT ENTER INTO OR BE PARTY TO A FUNDAMENTAL TRANSACTION UNLESS (I)  THE SUCCESSOR ENTITY ASSUMES IN WRITING ALL OF THE OBLIGATIONS OF THE COMPANY UNDER THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 5(A) PURSUANT TO WRITTEN AGREEMENTS IN FORM AND SUBSTANCE SATISFACTORY TO THE REQUIRED HOLDERS AND APPROVED BY THE REQUIRED HOLDERS PRIOR TO SUCH FUNDAMENTAL TRANSACTION, INCLUDING AGREEMENTS TO DELIVER TO EACH HOLDER OF NOTES IN EXCHANGE FOR SUCH NOTES A SECURITY OF THE SUCCESSOR ENTITY EVIDENCED BY A WRITTEN INSTRUMENT SUBSTANTIALLY SIMILAR IN FORM AND SUBSTANCE TO THE NOTES, INCLUDING, WITHOUT LIMITATION, HAVING A PRINCIPAL AMOUNT AND INTEREST RATE EQUAL TO THE PRINCIPAL AMOUNTS THEN OUTSTANDING AND THE INTEREST RATES OF THE NOTES HELD BY SUCH HOLDER, HAVING SIMILAR CONVERSION RIGHTS AS THE NOTES AND HAVING SIMILAR RANKING TO THE NOTES, AND SATISFACTORY TO THE REQUIRED HOLDERS AND (II) THE SUCCESSOR ENTITY (INCLUDING ITS PARENT ENTITY) IS A PUBLICLY TRADED CORPORATION WHOSE COMMON STOCK IS QUOTED ON OR LISTED FOR TRADING ON AN ELIGIBLE MARKET.  UPON THE OCCURRENCE OF ANY FUNDAMENTAL TRANSACTION, THE SUCCESSOR ENTITY SHALL SUCCEED TO, AND BE SUBSTITUTED FOR (SO THAT FROM AND AFTER THE DATE OF SUCH FUNDAMENTAL TRANSACTION, THE PROVISIONS OF THIS NOTE REFERRING TO THE “COMPANY” SHALL REFER INSTEAD TO THE SUCCESSOR ENTITY), AND MAY EXERCISE EVERY RIGHT AND POWER OF THE COMPANY AND SHALL ASSUME ALL OF THE OBLIGATIONS OF THE COMPANY UNDER THIS NOTE WITH THE SAME EFFECT AS IF SUCH SUCCESSOR ENTITY HAD BEEN NAMED AS THE COMPANY HEREIN.  UPON CONSUMMATION OF THE FUNDAMENTAL TRANSACTION, THE SUCCESSOR ENTITY SHALL DELIVER TO THE HOLDER CONFIRMATION THAT THERE SHALL BE ISSUED UPON CONVERSION OR REDEMPTION OF THIS NOTE AT ANY TIME AFTER THE CONSUMMATION OF THE FUNDAMENTAL TRANSACTION, IN LIEU OF THE SHARES OF THE COMPANY’S COMMON STOCK (OR OTHER SECURITIES, CASH, ASSETS OR OTHER PROPERTY) ISSUABLE UPON THE CONVERSION OR REDEMPTION OF THE NOTES PRIOR TO SUCH FUNDAMENTAL TRANSACTION, SUCH SHARES OF THE PUBLICLY TRADED COMMON STOCK (OR THEIR EQUIVALENT) OF THE SUCCESSOR ENTITY (INCLUDING ITS PARENT ENTITY), AS ADJUSTED IN ACCORDANCE WITH THE PROVISIONS OF THIS NOTE.  THE PROVISIONS OF THIS SECTION SHALL 11 -------------------------------------------------------------------------------- APPLY SIMILARLY AND EQUALLY TO SUCCESSIVE FUNDAMENTAL TRANSACTIONS AND SHALL BE APPLIED WITHOUT REGARD TO ANY LIMITATIONS ON THE CONVERSION OR REDEMPTION OF THIS NOTE. (B)   REDEMPTION RIGHT.  NO SOONER THAN FIFTEEN (15) DAYS NOR LATER THAN TEN (10) DAYS PRIOR TO THE CONSUMMATION OF A CHANGE OF CONTROL, BUT NOT PRIOR TO THE PUBLIC ANNOUNCEMENT OF SUCH CHANGE OF CONTROL, THE COMPANY SHALL DELIVER WRITTEN NOTICE THEREOF VIA FACSIMILE AND OVERNIGHT COURIER TO THE HOLDER (A “CHANGE OF CONTROL NOTICE”).  AT ANY TIME DURING THE PERIOD BEGINNING AFTER THE HOLDER’S RECEIPT OF A CHANGE OF CONTROL NOTICE AND ENDING TWENTY (20) TRADING DAYS AFTER THE CONSUMMATION OF SUCH CHANGE OF CONTROL, THE HOLDER MAY REQUIRE THE COMPANY TO REDEEM ALL OR ANY PORTION OF THIS NOTE BY DELIVERING WRITTEN NOTICE THEREOF (“CHANGE OF CONTROL REDEMPTION NOTICE”) TO THE COMPANY, WHICH CHANGE OF CONTROL REDEMPTION NOTICE SHALL INDICATE THE CONVERSION AMOUNT THE HOLDER IS ELECTING TO REDEEM.  THE PORTION OF THIS NOTE SUBJECT TO REDEMPTION PURSUANT TO THIS SECTION 5 SHALL BE REDEEMED BY THE COMPANY IN CASH AT A PRICE EQUAL TO THE GREATER OF (I) THE PRODUCT OF (X) THE CONVERSION AMOUNT BEING REDEEMED AND (Y) THE QUOTIENT DETERMINED BY DIVIDING (A) THE GREATER OF THE CLOSING SALE PRICE OF THE COMMON STOCK IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE CHANGE OF CONTROL, THE CLOSING SALE PRICE IMMEDIATELY FOLLOWING THE PUBLIC ANNOUNCEMENT OF SUCH PROPOSED CHANGE OF CONTROL AND THE CLOSING SALE PRICE OF THE COMMON STOCK IMMEDIATELY PRIOR TO THE PUBLIC ANNOUNCEMENT OF SUCH PROPOSED CHANGE OF CONTROL BY (B) THE CONVERSION PRICE AND (II) 120% OF THE CONVERSION AMOUNT BEING REDEEMED (THE “CHANGE OF CONTROL REDEMPTION PRICE”).  REDEMPTIONS REQUIRED BY THIS SECTION 5 SHALL BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12 AND SHALL HAVE PRIORITY TO PAYMENTS TO STOCKHOLDERS IN CONNECTION WITH A CHANGE OF CONTROL.  TO THE EXTENT REDEMPTIONS REQUIRED BY THIS SECTION 5(B) ARE DEEMED OR DETERMINED BY A COURT OF COMPETENT JURISDICTION TO BE PREPAYMENTS OF THE NOTE BY THE COMPANY, SUCH REDEMPTIONS SHALL BE DEEMED TO BE VOLUNTARY PREPAYMENTS.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS SECTION 5, BUT SUBJECT TO SECTION 3(D), UNTIL THE CHANGE OF CONTROL REDEMPTION PRICE IS PAID IN FULL, THE CONVERSION AMOUNT SUBMITTED FOR REDEMPTION UNDER THIS SECTION 5(C) MAY BE CONVERTED, IN WHOLE OR IN PART, BY THE HOLDER INTO COMMON STOCK PURSUANT TO SECTION 3.  THE PARTIES HERETO AGREE THAT IN THE EVENT OF THE COMPANY’S REDEMPTION OF ANY PORTION OF THE NOTE UNDER THIS SECTION 5(B), THE HOLDER’S DAMAGES WOULD BE UNCERTAIN AND DIFFICULT TO ESTIMATE BECAUSE OF THE PARTIES’ INABILITY TO PREDICT FUTURE INTEREST RATES AND THE UNCERTAINTY OF THE AVAILABILITY OF A SUITABLE SUBSTITUTE INVESTMENT OPPORTUNITY FOR THE HOLDER.  ACCORDINGLY, ANY REDEMPTION PREMIUM DUE UNDER THIS SECTION 5(B) IS INTENDED BY THE PARTIES TO BE, AND SHALL BE DEEMED, A REASONABLE ESTIMATE OF THE HOLDER’S ACTUAL LOSS OF ITS INVESTMENT OPPORTUNITY AND NOT AS A PENALTY. (6)   RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (A)   PURCHASE RIGHTS.  IF AT ANY TIME THE COMPANY GRANTS, ISSUES OR SELLS ANY OPTIONS, CONVERTIBLE SECURITIES OR RIGHTS TO PURCHASE STOCK, WARRANTS, SECURITIES OR OTHER PROPERTY PRO RATA TO THE RECORD HOLDERS OF ANY CLASS OF COMMON STOCK (THE “PURCHASE RIGHTS”), THEN THE HOLDER WILL BE ENTITLED TO ACQUIRE, UPON THE TERMS APPLICABLE TO SUCH PURCHASE RIGHTS, THE AGGREGATE PURCHASE RIGHTS WHICH THE HOLDER COULD HAVE ACQUIRED IF THE HOLDER HAD HELD THE NUMBER OF SHARES OF COMMON STOCK ACQUIRABLE UPON COMPLETE CONVERSION OF THIS NOTE (WITHOUT TAKING INTO ACCOUNT ANY LIMITATIONS OR RESTRICTIONS ON THE CONVERTIBILITY OF THIS NOTE) IMMEDIATELY BEFORE THE DATE ON WHICH A RECORD IS TAKEN FOR THE GRANT, ISSUANCE OR SALE OF SUCH PURCHASE RIGHTS, 12 -------------------------------------------------------------------------------- OR, IF NO SUCH RECORD IS TAKEN, THE DATE AS OF WHICH THE RECORD HOLDERS OF COMMON STOCK ARE TO BE DETERMINED FOR THE GRANT, ISSUE OR SALE OF SUCH PURCHASE RIGHTS. (B)   OTHER CORPORATE EVENTS.  IN ADDITION TO AND NOT IN SUBSTITUTION FOR ANY OTHER RIGHTS HEREUNDER, PRIOR TO THE CONSUMMATION OF ANY FUNDAMENTAL TRANSACTION PURSUANT TO WHICH HOLDERS OF SHARES OF COMMON STOCK ARE ENTITLED TO RECEIVE SECURITIES OR OTHER ASSETS WITH RESPECT TO OR IN EXCHANGE FOR SHARES OF COMMON STOCK (A “CORPORATE EVENT”), THE COMPANY SHALL MAKE APPROPRIATE PROVISION TO INSURE THAT THE HOLDER WILL THEREAFTER HAVE THE RIGHT TO RECEIVE UPON A CONVERSION OF THIS NOTE, (I) IN ADDITION TO THE SHARES OF COMMON STOCK RECEIVABLE UPON SUCH CONVERSION, SUCH SECURITIES OR OTHER ASSETS TO WHICH THE HOLDER WOULD HAVE BEEN ENTITLED WITH RESPECT TO SUCH SHARES OF COMMON STOCK HAD SUCH SHARES OF COMMON STOCK BEEN HELD BY THE HOLDER UPON THE CONSUMMATION OF SUCH CORPORATE EVENT (WITHOUT TAKING INTO ACCOUNT ANY LIMITATIONS OR RESTRICTIONS ON THE CONVERTIBILITY OF THIS NOTE) OR (II) IN LIEU OF THE SHARES OF COMMON STOCK OTHERWISE RECEIVABLE UPON SUCH CONVERSION, SUCH SECURITIES OR OTHER ASSETS RECEIVED BY THE HOLDERS OF SHARES OF COMMON STOCK IN CONNECTION WITH THE CONSUMMATION OF SUCH CORPORATE EVENT IN SUCH AMOUNTS AS THE HOLDER WOULD HAVE BEEN ENTITLED TO RECEIVE HAD THIS NOTE INITIALLY BEEN ISSUED WITH CONVERSION RIGHTS FOR THE FORM OF SUCH CONSIDERATION (AS OPPOSED TO SHARES OF COMMON STOCK) AT A CONVERSION RATE FOR SUCH CONSIDERATION COMMENSURATE WITH THE CONVERSION RATE.  PROVISION MADE PURSUANT TO THE PRECEDING SENTENCE SHALL BE IN A FORM AND SUBSTANCE SATISFACTORY TO THE REQUIRED HOLDERS.  THE PROVISIONS OF THIS SECTION SHALL APPLY SIMILARLY AND EQUALLY TO SUCCESSIVE CORPORATE EVENTS AND SHALL BE APPLIED WITHOUT REGARD TO ANY LIMITATIONS ON THE CONVERSION OR REDEMPTION OF THIS NOTE. (7)   RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (A)   ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK.  IF AND WHENEVER ON OR AFTER THE SUBSCRIPTION DATE THROUGH THE FIRST (1ST) ANNIVERSARY OF THE ISSUANCE DATE, THE COMPANY ISSUES OR SELLS, OR IN ACCORDANCE WITH THIS SECTION 7(A) IS DEEMED TO HAVE ISSUED OR SOLD, ANY SHARES OF COMMON STOCK (INCLUDING THE ISSUANCE OR SALE OF SHARES OF COMMON STOCK OWNED OR HELD BY OR FOR THE ACCOUNT OF THE COMPANY, BUT EXCLUDING SHARES OF COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR SOLD BY THE COMPANY IN CONNECTION WITH ANY EXCLUDED SECURITY) FOR A CONSIDERATION PER SHARE (THE “NEW ISSUANCE PRICE”) LESS THAN A PRICE (THE “APPLICABLE PRICE”) EQUAL TO THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ISSUE OR SALE (THE FOREGOING A “DILUTIVE ISSUANCE”), THEN IMMEDIATELY AFTER SUCH DILUTIVE ISSUANCE, THE CONVERSION PRICE THEN IN EFFECT SHALL BE REDUCED TO AN AMOUNT EQUAL TO THE NEW ISSUANCE PRICE.  IF AND WHENEVER ON OR AFTER THE FIRST (1ST) ANNIVERSARY OF THE ISSUANCE DATE, THE COMPANY ISSUES OR SELLS, OR IN ACCORDANCE WITH THIS SECTION 7(A) IS DEEMED TO HAVE ISSUED OR SOLD, ANY SHARES OF COMMON STOCK (INCLUDING THE ISSUANCE OR SALE OF SHARES OF COMMON STOCK OWNED OR HELD BY OR FOR THE ACCOUNT OF THE COMPANY, BUT EXCLUDING SHARES OF COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR SOLD BY THE COMPANY IN CONNECTION WITH ANY EXCLUDED SECURITY) IN A DILUTIVE ISSUANCE, THEN IMMEDIATELY AFTER SUCH DILUTIVE ISSUANCE, THE CONVERSION PRICE THEN IN EFFECT SHALL BE REDUCED TO AN AMOUNT EQUAL THE PRODUCT OF (A) THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH DILUTIVE ISSUANCE AND (B) THE QUOTIENT DETERMINED BY DIVIDING (1) THE SUM OF (I) THE PRODUCT DERIVED BY MULTIPLYING THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH DILUTIVE ISSUANCE AND THE NUMBER OF SHARES OF COMMON STOCK DEEMED OUTSTANDING IMMEDIATELY PRIOR TO SUCH DILUTIVE ISSUANCE PLUS (II) THE CONSIDERATION, IF ANY, RECEIVED BY THE COMPANY UPON SUCH DILUTIVE ISSUANCE, BY (2) THE PRODUCT DERIVED BY MULTIPLYING (I) THE APPLICABLE PRICE IN EFFECT 13 -------------------------------------------------------------------------------- IMMEDIATELY PRIOR TO SUCH DILUTIVE ISSUANCE BY (II) THE NUMBER OF SHARES OF COMMON STOCK DEEMED OUTSTANDING IMMEDIATELY AFTER SUCH DILUTIVE ISSUANCE.  FOR PURPOSES OF DETERMINING THE ADJUSTED CONVERSION PRICE UNDER THIS SECTION 7(A), THE FOLLOWING SHALL BE APPLICABLE: (I)            ISSUANCE OF OPTIONS.  IF THE COMPANY IN ANY MANNER GRANTS OR SELLS ANY OPTIONS AND THE LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON THE EXERCISE OF ANY SUCH OPTION OR UPON CONVERSION OR EXCHANGE OR EXERCISE OF ANY CONVERTIBLE SECURITIES ISSUABLE UPON EXERCISE OF SUCH OPTION IS LESS THAN THE APPLICABLE PRICE, THEN SUCH SHARE OF COMMON STOCK SHALL BE DEEMED TO BE OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY AT THE TIME OF THE GRANTING OR SALE OF SUCH OPTION FOR SUCH PRICE PER SHARE.  FOR PURPOSES OF THIS SECTION 7(A)(I), THE “LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON THE EXERCISE OF ANY SUCH OPTION OR UPON CONVERSION OR EXCHANGE OR EXERCISE OF ANY CONVERTIBLE SECURITIES ISSUABLE UPON EXERCISE OF SUCH OPTION” SHALL BE EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF CONSIDERATION (IF ANY) RECEIVED OR RECEIVABLE BY THE COMPANY WITH RESPECT TO ANY ONE SHARE OF COMMON STOCK UPON GRANTING OR SALE OF THE OPTION, UPON EXERCISE OF THE OPTION AND UPON CONVERSION OR EXCHANGE OR EXERCISE OF ANY CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE OF SUCH OPTION.  NO FURTHER ADJUSTMENT OF THE CONVERSION PRICE SHALL BE MADE UPON THE ACTUAL ISSUANCE OF SUCH SHARE OF COMMON STOCK OR OF SUCH CONVERTIBLE SECURITIES UPON THE EXERCISE OF SUCH OPTIONS OR UPON THE ACTUAL ISSUANCE OF SUCH COMMON STOCK UPON CONVERSION OR EXCHANGE OR EXERCISE OF SUCH CONVERTIBLE SECURITIES. (II)           ISSUANCE OF CONVERTIBLE SECURITIES.  IF THE COMPANY IN ANY MANNER ISSUES OR SELLS ANY CONVERTIBLE SECURITIES AND THE LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON SUCH CONVERSION OR EXCHANGE OR EXERCISE THEREOF IS LESS THAN THE APPLICABLE PRICE, THEN SUCH SHARE OF COMMON STOCK SHALL BE DEEMED TO BE OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY AT THE TIME OF THE ISSUANCE OR SALE OF SUCH CONVERTIBLE SECURITIES FOR SUCH PRICE PER SHARE.  FOR THE PURPOSES OF THIS SECTION 7(A)(II), THE “LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON SUCH CONVERSION OR EXCHANGE OR EXERCISE” SHALL BE EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF CONSIDERATION (IF ANY) RECEIVED OR RECEIVABLE BY THE COMPANY WITH RESPECT TO ANY ONE SHARE OF COMMON STOCK UPON THE ISSUANCE OR SALE OF THE CONVERTIBLE SECURITY AND UPON THE CONVERSION OR EXCHANGE OR EXERCISE OF SUCH CONVERTIBLE SECURITY.  NO FURTHER ADJUSTMENT OF THE CONVERSION PRICE SHALL BE MADE UPON THE ACTUAL ISSUANCE OF SUCH SHARE OF COMMON STOCK UPON CONVERSION OR EXCHANGE OR EXERCISE OF SUCH CONVERTIBLE SECURITIES, AND IF ANY SUCH ISSUE OR SALE OF SUCH CONVERTIBLE SECURITIES IS MADE UPON EXERCISE OF ANY OPTIONS FOR WHICH ADJUSTMENT OF THE CONVERSION PRICE HAD BEEN OR ARE TO BE MADE PURSUANT TO OTHER PROVISIONS OF THIS SECTION 7(A), NO FURTHER ADJUSTMENT OF THE CONVERSION PRICE SHALL BE MADE BY REASON OF SUCH ISSUE OR SALE. (III)          CHANGE IN OPTION PRICE OR RATE OF CONVERSION.  IF THE PURCHASE PRICE PROVIDED FOR IN ANY OPTIONS, THE ADDITIONAL CONSIDERATION, IF ANY, PAYABLE UPON THE ISSUE, CONVERSION, EXCHANGE OR EXERCISE OF ANY CONVERTIBLE SECURITIES, OR THE RATE AT WHICH ANY CONVERTIBLE SECURITIES ARE CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE FOR COMMON STOCK CHANGES AT ANY TIME, THE CONVERSION PRICE IN EFFECT AT THE TIME OF SUCH CHANGE SHALL BE ADJUSTED TO THE CONVERSION PRICE WHICH WOULD HAVE BEEN IN EFFECT AT SUCH TIME HAD SUCH OPTIONS OR CONVERTIBLE SECURITIES PROVIDED FOR SUCH CHANGED PURCHASE PRICE, ADDITIONAL CONSIDERATION OR CHANGED CONVERSION RATE, AS THE CASE MAY BE, AT THE TIME INITIALLY GRANTED, ISSUED OR SOLD.  FOR PURPOSES OF THIS SECTION 7(A)(III), IF THE TERMS OF ANY OPTION OR CONVERTIBLE SECURITY THAT WAS 14 -------------------------------------------------------------------------------- OUTSTANDING AS OF THE SUBSCRIPTION DATE ARE CHANGED IN THE MANNER DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE, THEN SUCH OPTION OR CONVERTIBLE SECURITY AND THE COMMON STOCK DEEMED ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE THEREOF SHALL BE DEEMED TO HAVE BEEN ISSUED AS OF THE DATE OF SUCH CHANGE.  NO ADJUSTMENT SHALL BE MADE IF SUCH ADJUSTMENT WOULD RESULT IN AN INCREASE OF THE CONVERSION PRICE THEN IN EFFECT. (IV)          CALCULATION OF CONSIDERATION RECEIVED.  IN CASE ANY OPTION IS ISSUED IN CONNECTION WITH THE ISSUE OR SALE OF OTHER SECURITIES OF THE COMPANY, TOGETHER COMPRISING ONE INTEGRATED TRANSACTION IN WHICH NO SPECIFIC CONSIDERATION IS ALLOCATED TO SUCH OPTIONS BY THE PARTIES THERETO, THE OPTIONS WILL BE DEEMED TO HAVE BEEN ISSUED FOR A CONSIDERATION OF $.01.  IF ANY COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD OR DEEMED TO HAVE BEEN ISSUED OR SOLD FOR CASH, THE CONSIDERATION RECEIVED THEREFOR WILL BE DEEMED TO BE THE NET AMOUNT RECEIVED BY THE COMPANY THEREFOR.  IF ANY COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD FOR A CONSIDERATION OTHER THAN CASH, THE AMOUNT OF THE CONSIDERATION OTHER THAN CASH RECEIVED BY THE COMPANY WILL BE THE FAIR VALUE OF SUCH CONSIDERATION, EXCEPT WHERE SUCH CONSIDERATION CONSISTS OF SECURITIES, IN WHICH CASE THE AMOUNT OF CONSIDERATION RECEIVED BY THE COMPANY WILL BE THE CLOSING SALE PRICE OF SUCH SECURITIES ON THE DATE OF RECEIPT.  IF ANY COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED TO THE STOCKHOLDERS OF THE NON-SURVIVING ENTITY IN CONNECTION WITH ANY MERGER IN WHICH THE COMPANY IS THE SURVIVING ENTITY, THE AMOUNT OF CONSIDERATION THEREFOR WILL BE DEEMED TO BE THE FAIR VALUE OF SUCH PORTION OF THE NET ASSETS AND BUSINESS OF THE NON-SURVIVING ENTITY AS IS ATTRIBUTABLE TO SUCH COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES, AS THE CASE MAY BE.  THE FAIR VALUE OF ANY CONSIDERATION OTHER THAN CASH OR SECURITIES WILL BE DETERMINED JOINTLY BY THE COMPANY AND THE REQUIRED HOLDERS.  IF SUCH PARTIES ARE UNABLE TO REACH AGREEMENT WITHIN TEN (10) DAYS AFTER THE OCCURRENCE OF AN EVENT REQUIRING VALUATION (THE “VALUATION EVENT”), THE FAIR VALUE OF SUCH CONSIDERATION WILL BE DETERMINED, AT THE COMPANY’S EXPENSE, WITHIN FIVE (5) BUSINESS DAYS AFTER THE TENTH (10TH) DAY FOLLOWING THE VALUATION EVENT BY AN INDEPENDENT, REPUTABLE APPRAISER JOINTLY SELECTED BY THE COMPANY AND THE REQUIRED HOLDERS.  THE DETERMINATION OF SUCH APPRAISER SHALL BE DEEMED BINDING UPON ALL PARTIES ABSENT MANIFEST ERROR. (V)           RECORD DATE.  IF THE COMPANY TAKES A RECORD OF THE HOLDERS OF COMMON STOCK FOR THE PURPOSE OF ENTITLING THEM (A) TO RECEIVE A DIVIDEND OR OTHER DISTRIBUTION PAYABLE IN COMMON STOCK, OPTIONS OR IN CONVERTIBLE SECURITIES OR (B) TO SUBSCRIBE FOR OR PURCHASE COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES, THEN SUCH RECORD DATE WILL BE DEEMED TO BE THE DATE OF THE ISSUE OR SALE OF THE COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR SOLD UPON THE DECLARATION OF SUCH DIVIDEND OR THE MAKING OF SUCH OTHER DISTRIBUTION OR THE DATE OF THE GRANTING OF SUCH RIGHT OF SUBSCRIPTION OR PURCHASE, AS THE CASE MAY BE. (B)   ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK.  IF THE COMPANY AT ANY TIME ON OR AFTER THE SUBSCRIPTION DATE SUBDIVIDES (BY ANY STOCK SPLIT, STOCK DIVIDEND, RECAPITALIZATION OR OTHERWISE) ONE OR MORE CLASSES OF ITS OUTSTANDING SHARES OF COMMON STOCK INTO A GREATER NUMBER OF SHARES, THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH SUBDIVISION WILL BE PROPORTIONATELY REDUCED.  IF THE COMPANY AT ANY TIME ON OR AFTER THE SUBSCRIPTION DATE COMBINES (BY COMBINATION, REVERSE STOCK SPLIT OR OTHERWISE) ONE OR MORE CLASSES OF ITS OUTSTANDING SHARES OF COMMON STOCK INTO A SMALLER NUMBER OF SHARES, THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH COMBINATION WILL BE PROPORTIONATELY INCREASED. 15 -------------------------------------------------------------------------------- (C)   OTHER EVENTS.  IF ANY EVENT OCCURS OF THE TYPE CONTEMPLATED BY THE PROVISIONS OF THIS SECTION 7 BUT NOT EXPRESSLY PROVIDED FOR BY SUCH PROVISIONS (INCLUDING, WITHOUT LIMITATION, THE GRANTING OF STOCK APPRECIATION RIGHTS, PHANTOM STOCK RIGHTS OR OTHER RIGHTS WITH EQUITY FEATURES), THEN THE COMPANY’S BOARD OF DIRECTORS WILL MAKE AN APPROPRIATE ADJUSTMENT IN THE CONVERSION PRICE SO AS TO PROTECT THE RIGHTS OF THE HOLDER UNDER THIS NOTE; PROVIDED THAT NO SUCH ADJUSTMENT WILL INCREASE THE CONVERSION PRICE AS OTHERWISE DETERMINED PURSUANT TO THIS SECTION 7. (8)   INSTALLMENT AMOUNTS. AS OF THE THIRTY (30) MONTH ANNIVERSARY OF THE ISSUANCE DATE (THE “INITIAL INSTALLMENT DATE”) AND ON EACH INSTALLMENT DATE THEREAFTER, THE HOLDER SHALL HAVE THE RIGHT, IN ITS SOLE DISCRETION, TO REQUIRE THAT THE COMPANY AMORTIZE ON SUCH INSTALLMENT DATE A PORTION OF THIS NOTE  (AN “INSTALLMENT PAYMENT”) UP TO THE AVAILABLE INSTALLMENT AMOUNT BY DELIVERING WRITTEN NOTICE THEREOF (AN “INSTALLMENT NOTICE”) TO THE COMPANY AT LEAST FIVE (5) TRADING DAYS PRIOR TO SUCH INSTALLMENT DATE; PROVIDED, HOWEVER, THAT THE HOLDER SHALL NOT HAVE THE OPTION TO REQUIRE THE COMPANY TO MAKE ANY INSTALLMENT PAYMENT ON THE INITIAL INSTALLMENT DATE IF THE CLOSING SALE PRICE OF THE COMMON STOCK EQUALS OR EXCEEDS $4.00 FOR EACH OF THE TWENTY (20) CONSECUTIVE TRADING DAYS IMMEDIATELY PRIOR TO SUCH INITIAL INSTALLMENT DATE.  THE INSTALLMENT NOTICE SHALL INDICATE THE PRINCIPAL AMOUNT (PLUS THE SUM OF ANY ACCRUED AND UNPAID INTEREST ON SUCH PRINCIPAL AMOUNT AND ANY ACCRUED AND UNPAID LATE CHARGES WITH RESPECT TO SUCH PRINCIPAL AMOUNT AND INTEREST AS OF SUCH INSTALLMENT DATE) OF THE AVAILABLE INSTALLMENT AMOUNT THE HOLDER IS ELECTING TO HAVE REDEEMED (THE “INSTALLMENT AMOUNT”). THE PORTION OF THIS NOTE SUBJECT TO AMORTIZATION PURSUANT TO THIS SECTION 8 SHALL BE PAID BY THE COMPANY IN CASH AT A PRICE EQUAL TO 100% OF THE INSTALLMENT AMOUNT (THE “INSTALLMENT PRICE”).  PAYMENTS REQUIRED BY THIS SECTION 8 SHALL BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS SECTION 8, BUT SUBJECT TO SECTION 3(D), UNTIL THE HOLDER RECEIVES THE INSTALLMENT PRICE, THE INSTALLMENT AMOUNT MAY BE CONVERTED, IN WHOLE OR IN PART, BY THE HOLDER INTO COMMON STOCK PURSUANT TO SECTION 3, AND ANY SUCH CONVERSION SHALL REDUCE THE INSTALLMENT AMOUNT IN THE MANNER SET FORTH BY THE HOLDER IN THE APPLICABLE CONVERSION NOTICE. (9)           SECURITY.  This Note and the Other Notes shall be secured at such time, to the extent and in the manner, set forth in Section 4(p) of the Securities Purchase Agreement. (10)         NONCIRCUMVENTION.  THE COMPANY HEREBY COVENANTS AND AGREES THAT THE COMPANY WILL NOT, BY AMENDMENT OF ITS CERTIFICATE OF INCORPORATION, BYLAWS OR THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION, MERGER, SCHEME OF ARRANGEMENT, DISSOLUTION, ISSUE OR SALE OF SECURITIES, OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS OF THIS NOTE, AND WILL AT ALL TIMES IN GOOD FAITH CARRY OUT ALL OF THE PROVISIONS OF THIS NOTE AND TAKE ALL ACTION AS MAY BE REQUIRED TO PROTECT THE RIGHTS OF THE HOLDER OF THIS NOTE. (11)         RESERVATION OF AUTHORIZED SHARES. (A)   RESERVATION.  THE COMPANY SHALL INITIALLY RESERVE OUT OF ITS AUTHORIZED AND UNISSUED COMMON STOCK A NUMBER OF SHARES OF COMMON STOCK FOR EACH OF THE NOTES EQUAL TO 150% OF THE CONVERSION RATE WITH RESPECT TO THE CONVERSION AMOUNT OF EACH SUCH NOTE AS OF THE ISSUANCE DATE.  SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL TAKE ALL 16 -------------------------------------------------------------------------------- ACTION NECESSARY TO RESERVE AND KEEP AVAILABLE OUT OF ITS AUTHORIZED AND UNISSUED COMMON STOCK, SOLELY FOR THE PURPOSE OF EFFECTING THE CONVERSION OF THE NOTES, 150% OF THE NUMBER OF SHARES OF COMMON STOCK AS SHALL FROM TIME TO TIME BE NECESSARY TO EFFECT THE CONVERSION OF ALL OF THE NOTES THEN OUTSTANDING; PROVIDED THAT AT NO TIME SHALL THE NUMBER OF SHARES OF COMMON STOCK SO RESERVED BE LESS THAN THE NUMBER OF SHARES REQUIRED TO BE RESERVED BY THE PREVIOUS SENTENCE (WITHOUT REGARD TO ANY LIMITATIONS ON CONVERSIONS) (THE “REQUIRED RESERVE AMOUNT”).  THE INITIAL NUMBER OF SHARES OF COMMON STOCK RESERVED FOR CONVERSIONS OF THE NOTES AND EACH INCREASE IN THE NUMBER OF SHARES SO RESERVED SHALL BE ALLOCATED PRO RATA AMONG THE HOLDERS OF THE NOTES BASED ON THE PRINCIPAL AMOUNT OF THE NOTES HELD BY EACH HOLDER AT THE CLOSING (AS DEFINED IN THE SECURITIES PURCHASE AGREEMENT) OR INCREASE IN THE NUMBER OF RESERVED SHARES, AS THE CASE MAY BE (THE “AUTHORIZED SHARE ALLOCATION”).  IN THE EVENT THAT A HOLDER SHALL SELL OR OTHERWISE TRANSFER ANY OF SUCH HOLDER’S NOTES, EACH TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF SUCH HOLDER’S AUTHORIZED SHARE ALLOCATION.  ANY SHARES OF COMMON STOCK RESERVED AND ALLOCATED TO ANY PERSON WHICH CEASES TO HOLD ANY NOTES SHALL BE ALLOCATED TO THE REMAINING HOLDERS OF NOTES, PRO RATA BASED ON THE PRINCIPAL AMOUNT OF THE NOTES THEN HELD BY SUCH HOLDERS. (B)   INSUFFICIENT AUTHORIZED SHARES.  IF AT ANY TIME WHILE ANY OF THE NOTES REMAIN OUTSTANDING THE COMPANY DOES NOT HAVE A SUFFICIENT NUMBER OF AUTHORIZED AND UNRESERVED SHARES OF COMMON STOCK TO SATISFY ITS OBLIGATION TO RESERVE FOR ISSUANCE UPON CONVERSION OF THE NOTES AT LEAST A NUMBER OF SHARES OF COMMON STOCK EQUAL TO THE REQUIRED RESERVE AMOUNT (AN “AUTHORIZED SHARE FAILURE”), THEN THE COMPANY SHALL IMMEDIATELY TAKE ALL ACTION NECESSARY TO INCREASE THE COMPANY’S AUTHORIZED SHARES OF COMMON STOCK TO AN AMOUNT SUFFICIENT TO ALLOW THE COMPANY TO RESERVE THE REQUIRED RESERVE AMOUNT FOR THE NOTES THEN OUTSTANDING.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING SENTENCE, AS SOON AS PRACTICABLE AFTER THE DATE OF THE OCCURRENCE OF AN AUTHORIZED SHARE FAILURE, BUT IN NO EVENT LATER THAN SIXTY (60) DAYS AFTER THE OCCURRENCE OF SUCH AUTHORIZED SHARE FAILURE, THE COMPANY SHALL HOLD A MEETING OF ITS STOCKHOLDERS FOR THE APPROVAL OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.  IN CONNECTION WITH SUCH MEETING, THE COMPANY SHALL PROVIDE EACH STOCKHOLDER WITH A PROXY STATEMENT AND SHALL USE ITS BEST EFFORTS TO SOLICIT ITS STOCKHOLDERS’ APPROVAL OF SUCH INCREASE IN AUTHORIZED SHARES OF COMMON STOCK AND TO CAUSE ITS BOARD OF DIRECTORS TO RECOMMEND TO THE STOCKHOLDERS THAT THEY APPROVE SUCH PROPOSAL. (12)         HOLDER’S REDEMPTIONS AND AMORTIZATIONS. (A)   MECHANICS.  THE COMPANY SHALL DELIVER THE APPLICABLE EVENT OF DEFAULT REDEMPTION PRICE TO THE HOLDER WITHIN FIVE (5) BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF THE HOLDER’S EVENT OF DEFAULT REDEMPTION NOTICE.  IF THE HOLDER HAS SUBMITTED A CHANGE OF CONTROL REDEMPTION NOTICE IN ACCORDANCE WITH SECTION 5(B), THE COMPANY SHALL DELIVER THE APPLICABLE CHANGE OF CONTROL REDEMPTION PRICE TO THE HOLDER CONCURRENTLY WITH THE CONSUMMATION OF SUCH CHANGE OF CONTROL IF SUCH NOTICE IS RECEIVED PRIOR TO THE CONSUMMATION OF SUCH CHANGE OF CONTROL AND WITHIN FIVE (5) BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF SUCH NOTICE OTHERWISE.  THE COMPANY SHALL DELIVER THE INSTALLMENT PRICE ON THE APPLICABLE INSTALLMENT DATE.  IN THE EVENT OF A REDEMPTION OR AMORTIZATION OF LESS THAN ALL OF THE CONVERSION AMOUNT OF THIS NOTE, THE COMPANY SHALL PROMPTLY CAUSE TO BE ISSUED AND DELIVERED TO THE HOLDER A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)) REPRESENTING THE OUTSTANDING PRINCIPAL WHICH HAS NOT BEEN REDEEMED OR AMORTIZED.  IN THE EVENT THAT THE COMPANY DOES NOT PAY THE APPLICABLE REDEMPTION PRICE TO THE HOLDER WITHIN THE TIME PERIOD REQUIRED, AT ANY TIME THEREAFTER AND UNTIL THE COMPANY 17 -------------------------------------------------------------------------------- PAYS SUCH UNPAID REDEMPTION PRICE IN FULL, THE HOLDER SHALL HAVE THE OPTION, IN LIEU OF REDEMPTION OR AMORTIZATION, TO REQUIRE THE COMPANY TO PROMPTLY RETURN TO THE HOLDER ALL OR ANY PORTION OF THIS NOTE REPRESENTING THE CONVERSION AMOUNT THAT WAS SUBMITTED FOR REDEMPTION OR REQUIRED TO BE AMORTIZED AND FOR WHICH THE APPLICABLE REDEMPTION PRICE (TOGETHER WITH ANY LATE CHARGES THEREON) HAS NOT BEEN PAID.  UPON THE COMPANY’S RECEIPT OF SUCH NOTICE, (X) THE REDEMPTION NOTICE SHALL BE NULL AND VOID WITH RESPECT TO SUCH CONVERSION AMOUNT, (Y) THE COMPANY SHALL IMMEDIATELY RETURN THIS NOTE, OR ISSUE A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)) TO THE HOLDER REPRESENTING SUCH CONVERSION AMOUNT AND (Z) THE CONVERSION PRICE OF THIS NOTE OR SUCH NEW NOTES SHALL BE ADJUSTED TO THE LESSER OF (A) THE CONVERSION PRICE AS IN EFFECT ON THE DATE ON WHICH THE REDEMPTION NOTICE IS VOIDED AND (B) THE LOWEST CLOSING BID PRICE OF THE COMMON STOCK DURING THE PERIOD BEGINNING ON AND INCLUDING THE DATE ON WHICH THE REDEMPTION NOTICE IS DELIVERED TO THE COMPANY AND ENDING ON AND INCLUDING THE DATE ON WHICH THE REDEMPTION NOTICE IS VOIDED.  THE HOLDER’S DELIVERY OF A NOTICE VOIDING A REDEMPTION NOTICE AND EXERCISE OF ITS RIGHTS FOLLOWING SUCH NOTICE SHALL NOT AFFECT THE COMPANY’S OBLIGATIONS TO MAKE ANY PAYMENTS OF LATE CHARGES WHICH HAVE ACCRUED PRIOR TO THE DATE OF SUCH NOTICE WITH RESPECT TO THE CONVERSION AMOUNT SUBJECT TO SUCH NOTICE. (B)   REDEMPTION BY OTHER HOLDERS.  UPON THE COMPANY’S RECEIPT OF NOTICE FROM ANY OF THE HOLDERS OF THE OTHER NOTES FOR REDEMPTION OR REPAYMENT AS A RESULT OF AN EVENT OR OCCURRENCE SUBSTANTIALLY SIMILAR TO THE EVENTS OR OCCURRENCES DESCRIBED IN SECTION 4(B) OR SECTION 5(B) OR AMORTIZATION PURSUANT TO SECTION 8 (EACH, AN “OTHER REDEMPTION NOTICE”), THE COMPANY SHALL IMMEDIATELY, BUT NO LATER THAN ONE (1) BUSINESS DAY OF ITS RECEIPT THEREOF, FORWARD TO THE HOLDER BY FACSIMILE A COPY OF SUCH NOTICE.  IF THE COMPANY RECEIVES A REDEMPTION NOTICE AND ONE OR MORE OTHER REDEMPTION NOTICES, DURING THE SEVEN (7) BUSINESS DAY PERIOD BEGINNING ON AND INCLUDING THE DATE WHICH IS THREE (3) BUSINESS DAYS PRIOR TO THE COMPANY’S RECEIPT OF THE HOLDER’S REDEMPTION NOTICE AND ENDING ON AND INCLUDING THE DATE WHICH IS THREE (3) BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF THE HOLDER’S REDEMPTION NOTICE AND THE COMPANY IS UNABLE TO REDEEM ALL PRINCIPAL, INTEREST AND OTHER AMOUNTS DESIGNATED IN SUCH REDEMPTION NOTICE AND SUCH OTHER REDEMPTION NOTICES RECEIVED DURING SUCH SEVEN (7) BUSINESS DAY PERIOD, THEN THE COMPANY SHALL REDEEM A PRO RATA AMOUNT FROM EACH HOLDER OF THE NOTES (INCLUDING THE HOLDER) BASED ON THE PRINCIPAL AMOUNT OF THE NOTES SUBMITTED FOR REDEMPTION PURSUANT TO SUCH REDEMPTION NOTICE AND SUCH OTHER REDEMPTION NOTICES RECEIVED BY THE COMPANY DURING SUCH SEVEN BUSINESS DAY PERIOD. (13)         VOTING RIGHTS.  THE HOLDER SHALL HAVE NO VOTING RIGHTS AS THE HOLDER OF THIS NOTE, EXCEPT AS REQUIRED BY LAW, INCLUDING, BUT NOT LIMITED TO, THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND AS EXPRESSLY PROVIDED IN THIS NOTE. (14)         COVENANTS. (A)   RANK.              ALL PAYMENTS DUE UNDER THIS NOTE (A) SHALL RANK PARI PASSU WITH ALL OTHER NOTES AND (B) SHALL BE SENIOR TO ALL OTHER INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES OTHER THAN THE PERMITTED SENIOR INDEBTEDNESS AND THE SONOPRESS INDEBTEDNESS. (B)   INCURRENCE OF INDEBTEDNESS.  SO LONG AS THIS NOTE IS OUTSTANDING, THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR 18 -------------------------------------------------------------------------------- INDIRECTLY, INCUR OR GUARANTEE, ASSUME OR SUFFER TO EXIST ANY INDEBTEDNESS, OTHER THAN (I) THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND THE OTHER NOTES AND (II) OTHER PERMITTED INDEBTEDNESS. (C)   EXISTENCE OF LIENS.  SO LONG AS THIS NOTE IS OUTSTANDING, THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, ALLOW OR SUFFER TO EXIST ANY MORTGAGE, LIEN, PLEDGE, CHARGE, SECURITY INTEREST OR OTHER ENCUMBRANCE UPON OR IN ANY PROPERTY OR ASSETS (INCLUDING ACCOUNTS AND CONTRACT RIGHTS) OWNED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES (COLLECTIVELY, “LIENS”) OTHER THAN PERMITTED LIENS. (D)   RESTRICTED PAYMENTS.  THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, REDEEM, DEFEASE, REPURCHASE, REPAY OR MAKE ANY PAYMENTS IN RESPECT OF, BY THE PAYMENT OF CASH OR CASH EQUIVALENTS (IN WHOLE OR IN PART, WHETHER BY WAY OF OPEN MARKET PURCHASES, TENDER OFFERS, PRIVATE TRANSACTIONS OR OTHERWISE), ALL OR ANY PORTION OF ANY PERMITTED INDEBTEDNESS (OTHER THAN THIS NOTE, THE OTHER NOTES AND THE PERMITTED SENIOR INDEBTEDNESS), WHETHER BY WAY OF PAYMENT IN RESPECT OF PRINCIPAL OF (OR PREMIUM, IF ANY) OR INTEREST ON SUCH INDEBTEDNESS, IF AT THE TIME SUCH PAYMENT IS DUE OR IS OTHERWISE MADE OR, AFTER GIVING EFFECT TO SUCH PAYMENT, AN EVENT CONSTITUTING, OR THAT WITH THE PASSAGE OF TIME AND WITHOUT BEING CURED WOULD CONSTITUTE, AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING; PROVIDED THAT NOTWITHSTANDING THE FOREGOING, NO PRINCIPAL (OR ANY PORTION THEREOF) OF ANY SUBORDINATED INDEBTEDNESS MAY BE PAID (WHETHER UPON MATURITY, REDEMPTION, ACCELERATION OR OTHERWISE) SO LONG AS THIS NOTE IS OUTSTANDING. (E)   RESTRICTION ON REDEMPTION AND CASH DIVIDENDS.  UNTIL ALL OF THE NOTES HAVE BEEN CONVERTED, REDEEMED OR OTHERWISE SATISFIED IN ACCORDANCE WITH THEIR TERMS, THE COMPANY SHALL NOT, DIRECTLY OR INDIRECTLY, REDEEM, REPURCHASE OR DECLARE OR PAY ANY CASH DIVIDEND OR DISTRIBUTION ON ITS CAPITAL STOCK WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE REQUIRED HOLDERS. (15)         PARTICIPATION.  THE HOLDER, AS THE HOLDER OF THIS NOTE, SHALL BE ENTITLED TO RECEIVE SUCH DIVIDENDS PAID AND DISTRIBUTIONS MADE TO THE HOLDERS OF COMMON STOCK TO THE SAME EXTENT AS IF THE HOLDER HAD CONVERTED THIS NOTE INTO COMMON STOCK (WITHOUT REGARD TO ANY LIMITATIONS ON CONVERSION HEREIN OR ELSEWHERE) AND HAD HELD SUCH SHARES OF COMMON STOCK ON THE RECORD DATE FOR SUCH DIVIDENDS AND DISTRIBUTIONS.  PAYMENTS UNDER THE PRECEDING SENTENCE SHALL BE MADE CONCURRENTLY WITH THE DIVIDEND OR DISTRIBUTION TO THE HOLDERS OF COMMON STOCK. (16)         VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  THE AFFIRMATIVE VOTE AT A MEETING DULY CALLED FOR SUCH PURPOSE OR THE WRITTEN CONSENT WITHOUT A MEETING OF THE REQUIRED HOLDERS SHALL BE REQUIRED FOR ANY CHANGE OR AMENDMENT TO THIS NOTE OR THE OTHER NOTES. (17)         TRANSFER.  THIS NOTE MAY BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED BY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY, SUBJECT ONLY TO THE PROVISIONS OF SECTION 2(F) OF THE SECURITIES PURCHASE AGREEMENT. 19 -------------------------------------------------------------------------------- (18)         REISSUANCE OF THIS NOTE. (A)   TRANSFER.  IF THIS NOTE IS TO BE TRANSFERRED, THE HOLDER SHALL SURRENDER THIS NOTE TO THE COMPANY, WHEREUPON THE COMPANY WILL FORTHWITH ISSUE AND DELIVER UPON THE ORDER OF THE HOLDER A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)), REGISTERED AS THE HOLDER MAY REQUEST, REPRESENTING THE OUTSTANDING PRINCIPAL BEING TRANSFERRED BY THE HOLDER AND, IF LESS THEN THE ENTIRE OUTSTANDING PRINCIPAL IS BEING TRANSFERRED, A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)) TO THE HOLDER REPRESENTING THE OUTSTANDING PRINCIPAL NOT BEING TRANSFERRED.  THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF SECTION 3(C)(III) FOLLOWING CONVERSION OR REDEMPTION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL STATED ON THE FACE OF THIS NOTE. (B)   LOST, STOLEN OR MUTILATED NOTE.  UPON RECEIPT BY THE COMPANY OF EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY OF THE LOSS, THEFT, DESTRUCTION OR MUTILATION OF THIS NOTE, AND, IN THE CASE OF LOSS, THEFT OR DESTRUCTION, OF ANY INDEMNIFICATION UNDERTAKING BY THE HOLDER TO THE COMPANY IN CUSTOMARY FORM AND, IN THE CASE OF MUTILATION, UPON SURRENDER AND CANCELLATION OF THIS NOTE, THE COMPANY SHALL EXECUTE AND DELIVER TO THE HOLDER A NEW NOTE (IN ACCORDANCE WITH SECTION 18(D)) REPRESENTING THE OUTSTANDING PRINCIPAL. (C)   NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.  THIS NOTE IS EXCHANGEABLE, UPON THE SURRENDER HEREOF BY THE HOLDER AT THE PRINCIPAL OFFICE OF THE COMPANY, FOR A NEW NOTE OR NOTES (IN ACCORDANCE WITH SECTION 18(D) AND IN PRINCIPAL AMOUNTS OF AT LEAST $100,000) REPRESENTING IN THE AGGREGATE THE OUTSTANDING PRINCIPAL OF THIS NOTE, AND EACH SUCH NEW NOTE WILL REPRESENT SUCH PORTION OF SUCH OUTSTANDING PRINCIPAL AS IS DESIGNATED BY THE HOLDER AT THE TIME OF SUCH SURRENDER. (D)   ISSUANCE OF NEW NOTES.  WHENEVER THE COMPANY IS REQUIRED TO ISSUE A NEW NOTE PURSUANT TO THE TERMS OF THIS NOTE, SUCH NEW NOTE (I) SHALL BE OF LIKE TENOR WITH THIS NOTE, (II) SHALL REPRESENT, AS INDICATED ON THE FACE OF SUCH NEW NOTE, THE PRINCIPAL REMAINING OUTSTANDING (OR IN THE CASE OF A NEW NOTE BEING ISSUED PURSUANT TO SECTION 18(A) OR SECTION 18(C), THE PRINCIPAL DESIGNATED BY THE HOLDER WHICH, WHEN ADDED TO THE PRINCIPAL REPRESENTED BY THE OTHER NEW NOTES ISSUED IN CONNECTION WITH SUCH ISSUANCE, DOES NOT EXCEED THE PRINCIPAL REMAINING OUTSTANDING UNDER THIS NOTE IMMEDIATELY PRIOR TO SUCH ISSUANCE OF NEW NOTES), (III) SHALL HAVE AN ISSUANCE DATE, AS INDICATED ON THE FACE OF SUCH NEW NOTE, WHICH IS THE SAME AS THE ISSUANCE DATE OF THIS NOTE, (IV) SHALL HAVE THE SAME RIGHTS AND CONDITIONS AS THIS NOTE, AND (V) SHALL REPRESENT ACCRUED AND UNPAID INTEREST AND LATE CHARGES ON THE PRINCIPAL AND INTEREST OF THIS NOTE, IF ANY, FROM THE ISSUANCE DATE. (19)         REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  THE REMEDIES PROVIDED IN THIS NOTE SHALL BE CUMULATIVE AND IN ADDITION TO ALL OTHER REMEDIES AVAILABLE UNDER THIS NOTE AND ANY OF THE OTHER TRANSACTION DOCUMENTS AT LAW OR IN EQUITY (INCLUDING A DECREE OF SPECIFIC PERFORMANCE AND/OR OTHER INJUNCTIVE RELIEF), AND NOTHING HEREIN SHALL LIMIT THE HOLDER’S RIGHT TO PURSUE ACTUAL AND CONSEQUENTIAL DAMAGES FOR ANY FAILURE BY THE COMPANY TO COMPLY WITH THE TERMS OF THIS NOTE.  AMOUNTS SET FORTH OR PROVIDED FOR HEREIN WITH RESPECT TO PAYMENTS, CONVERSION AND THE LIKE (AND THE COMPUTATION THEREOF) SHALL BE THE AMOUNTS TO BE RECEIVED BY THE HOLDER AND SHALL NOT, EXCEPT AS EXPRESSLY PROVIDED HEREIN, BE SUBJECT TO ANY OTHER OBLIGATION OF THE COMPANY (OR THE PERFORMANCE THEREOF).  THE COMPANY ACKNOWLEDGES THAT A BREACH BY IT OF ITS OBLIGATIONS 20 -------------------------------------------------------------------------------- HEREUNDER WILL CAUSE IRREPARABLE HARM TO THE HOLDER AND THAT THE REMEDY AT LAW FOR ANY SUCH BREACH MAY BE INADEQUATE.  THE COMPANY THEREFORE AGREES THAT, IN THE EVENT OF ANY SUCH BREACH OR THREATENED BREACH, THE HOLDER SHALL BE ENTITLED, IN ADDITION TO ALL OTHER AVAILABLE REMEDIES, TO AN INJUNCTION RESTRAINING ANY BREACH, WITHOUT THE NECESSITY OF SHOWING ECONOMIC LOSS AND WITHOUT ANY BOND OR OTHER SECURITY BEING REQUIRED. (20)         PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  IF (A) THIS NOTE IS PLACED IN THE HANDS OF AN ATTORNEY FOR COLLECTION OR ENFORCEMENT OR IS COLLECTED OR ENFORCED THROUGH ANY LEGAL PROCEEDING OR THE HOLDER OTHERWISE TAKES ACTION TO COLLECT AMOUNTS DUE UNDER THIS NOTE OR TO ENFORCE THE PROVISIONS OF THIS NOTE OR (B) THERE OCCURS ANY BANKRUPTCY, REORGANIZATION, RECEIVERSHIP OF THE COMPANY OR OTHER PROCEEDINGS AFFECTING COMPANY CREDITORS’ RIGHTS AND INVOLVING A CLAIM UNDER THIS NOTE, THEN THE COMPANY SHALL PAY THE COSTS INCURRED BY THE HOLDER FOR SUCH COLLECTION, ENFORCEMENT OR ACTION OR IN CONNECTION WITH SUCH BANKRUPTCY, REORGANIZATION, RECEIVERSHIP OR OTHER PROCEEDING, INCLUDING, BUT NOT LIMITED TO, FINANCIAL ADVISORY FEES AND ATTORNEYS’ FEES AND DISBURSEMENTS. (21)         CONSTRUCTION; HEADINGS.  THIS NOTE SHALL BE DEEMED TO BE JOINTLY DRAFTED BY THE COMPANY AND ALL THE PURCHASERS AND SHALL NOT BE CONSTRUED AGAINST ANY PERSON AS THE DRAFTER HEREOF.  THE HEADINGS OF THIS NOTE ARE FOR CONVENIENCE OF REFERENCE AND SHALL NOT FORM PART OF, OR AFFECT THE INTERPRETATION OF, THIS NOTE. (22)         FAILURE OR INDULGENCE NOT WAIVER.  NO FAILURE OR DELAY ON THE PART OF THE HOLDER IN THE EXERCISE OF ANY POWER, RIGHT OR PRIVILEGE HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE OF ANY SUCH POWER, RIGHT OR PRIVILEGE PRECLUDE OTHER OR FURTHER EXERCISE THEREOF OR OF ANY OTHER RIGHT, POWER OR PRIVILEGE. (23)         DISPUTE RESOLUTION.  IN THE CASE OF A DISPUTE AS TO THE DETERMINATION OF THE CLOSING BID PRICE, THE CLOSING SALE PRICE OR THE WEIGHTED AVERAGE PRICE OR THE ARITHMETIC CALCULATION OF THE CONVERSION RATE OR ANY REDEMPTION PRICE, THE COMPANY SHALL SUBMIT THE DISPUTED DETERMINATIONS OR ARITHMETIC CALCULATIONS VIA FACSIMILE WITHIN ONE (1) BUSINESS DAY OF RECEIPT, OR DEEMED RECEIPT, OF THE CONVERSION NOTICE OR REDEMPTION NOTICE OR OTHER EVENT GIVING RISE TO SUCH DISPUTE, AS THE CASE MAY BE, TO THE HOLDER.  IF THE HOLDER AND THE COMPANY ARE UNABLE TO AGREE UPON SUCH DETERMINATION OR CALCULATION WITHIN ONE (1) BUSINESS DAY OF SUCH DISPUTED DETERMINATION OR ARITHMETIC CALCULATION BEING SUBMITTED TO THE HOLDER, THEN THE COMPANY SHALL, WITHIN ONE BUSINESS DAY SUBMIT VIA FACSIMILE (A) THE DISPUTED DETERMINATION OF THE CLOSING BID PRICE, THE CLOSING SALE PRICE OR THE WEIGHTED AVERAGE PRICE TO AN INDEPENDENT, REPUTABLE INVESTMENT BANK SELECTED BY THE COMPANY AND APPROVED BY THE HOLDER OR (B) THE DISPUTED ARITHMETIC CALCULATION OF THE CONVERSION RATE OR ANY REDEMPTION PRICE TO THE COMPANY’S INDEPENDENT, OUTSIDE ACCOUNTANT.  THE COMPANY, AT THE COMPANY’S EXPENSE, SHALL CAUSE THE INVESTMENT BANK OR THE ACCOUNTANT, AS THE CASE MAY BE, TO PERFORM THE DETERMINATIONS OR CALCULATIONS AND NOTIFY THE COMPANY AND THE HOLDER OF THE RESULTS NO LATER THAN FIVE (5) BUSINESS DAYS FROM THE TIME IT RECEIVES THE DISPUTED DETERMINATIONS OR CALCULATIONS.  SUCH INVESTMENT BANK’S OR ACCOUNTANT’S DETERMINATION OR CALCULATION, AS THE CASE MAY BE, SHALL BE BINDING UPON ALL PARTIES ABSENT DEMONSTRABLE ERROR. 21 -------------------------------------------------------------------------------- (24)         NOTICES; PAYMENTS. (A)   NOTICES.  WHENEVER NOTICE IS REQUIRED TO BE GIVEN UNDER THIS NOTE, UNLESS OTHERWISE PROVIDED HEREIN, SUCH NOTICE SHALL BE GIVEN IN ACCORDANCE WITH SECTION 9(F) OF THE SECURITIES PURCHASE AGREEMENT.  THE COMPANY SHALL PROVIDE THE HOLDER WITH PROMPT WRITTEN NOTICE OF ALL ACTIONS TAKEN PURSUANT TO THIS NOTE, INCLUDING IN REASONABLE DETAIL A DESCRIPTION OF SUCH ACTION AND THE REASON THEREFORE.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE COMPANY WILL GIVE WRITTEN NOTICE TO THE HOLDER (I) IMMEDIATELY UPON ANY ADJUSTMENT OF THE CONVERSION PRICE, SETTING FORTH IN REASONABLE DETAIL, AND CERTIFYING, THE CALCULATION OF SUCH ADJUSTMENT AND (II) AT LEAST TWENTY (20) DAYS PRIOR TO THE DATE ON WHICH THE COMPANY CLOSES ITS BOOKS OR TAKES A RECORD (A) WITH RESPECT TO ANY DIVIDEND OR DISTRIBUTION UPON THE COMMON STOCK, (B) WITH RESPECT TO ANY PRO RATA SUBSCRIPTION OFFER TO HOLDERS OF COMMON STOCK OR (C) FOR DETERMINING RIGHTS TO VOTE WITH RESPECT TO ANY FUNDAMENTAL TRANSACTION, DISSOLUTION OR LIQUIDATION, PROVIDED IN EACH CASE THAT SUCH INFORMATION SHALL BE MADE KNOWN TO THE PUBLIC PRIOR TO OR IN CONJUNCTION WITH SUCH NOTICE BEING PROVIDED TO THE HOLDER. (B)   PAYMENTS.  WHENEVER ANY PAYMENT OF CASH IS TO BE MADE BY THE COMPANY TO ANY PERSON PURSUANT TO THIS NOTE, SUCH PAYMENT SHALL BE MADE IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA BY A CHECK DRAWN ON THE ACCOUNT OF THE COMPANY AND SENT VIA OVERNIGHT COURIER SERVICE TO SUCH PERSON AT SUCH ADDRESS AS PREVIOUSLY PROVIDED TO THE COMPANY IN WRITING (WHICH ADDRESS, IN THE CASE OF EACH OF THE PURCHASERS, SHALL INITIALLY BE AS SET FORTH ON THE SCHEDULE OF BUYERS ATTACHED TO THE SECURITIES PURCHASE AGREEMENT); PROVIDED THAT THE HOLDER MAY ELECT TO RECEIVE A PAYMENT OF CASH VIA WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS BY PROVIDING THE COMPANY WITH PRIOR WRITTEN NOTICE SETTING OUT SUCH REQUEST AND THE HOLDER’S WIRE TRANSFER INSTRUCTIONS.  WHENEVER ANY AMOUNT EXPRESSED TO BE DUE BY THE TERMS OF THIS NOTE IS DUE ON ANY DAY WHICH IS NOT A BUSINESS DAY, THE SAME SHALL INSTEAD BE DUE ON THE NEXT SUCCEEDING DAY WHICH IS A BUSINESS DAY AND, IN THE CASE OF ANY INTEREST DATE WHICH IS NOT THE DATE ON WHICH THIS NOTE IS PAID IN FULL, THE EXTENSION OF THE DUE DATE THEREOF SHALL NOT BE TAKEN INTO ACCOUNT FOR PURPOSES OF DETERMINING THE AMOUNT OF INTEREST DUE ON SUCH DATE.  ANY AMOUNT OF PRINCIPAL OR OTHER AMOUNTS DUE UNDER THE TRANSACTION DOCUMENTS WHICH IS NOT PAID WHEN DUE SHALL RESULT IN A LATE CHARGE BEING INCURRED AND PAYABLE BY THE COMPANY IN AN AMOUNT EQUAL TO INTEREST ON SUCH AMOUNT AT THE RATE OF FIFTEEN PERCENT (15%) PER ANNUM FROM THE DATE SUCH AMOUNT WAS DUE UNTIL THE SAME IS PAID IN FULL (“LATE CHARGE”). (25)         CANCELLATION.  AFTER ALL PRINCIPAL, ACCRUED INTEREST AND OTHER AMOUNTS AT ANY TIME OWED ON THIS NOTE HAVE BEEN PAID IN FULL, THIS NOTE SHALL AUTOMATICALLY BE DEEMED CANCELED, SHALL BE SURRENDERED TO THE COMPANY FOR CANCELLATION AND SHALL NOT BE REISSUED. (26)         WAIVER OF NOTICE.  TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY WAIVES DEMAND, NOTICE, PROTEST AND ALL OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE DELIVERY, ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF THIS NOTE AND THE SECURITIES PURCHASE AGREEMENT. (27)         GOVERNING LAW; JURISDICTION; SEVERABILITY; JURY TRIAL.  THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCOR­DANCE WITH, AND ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS NOTE SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTIONS OTHER THAN THE STATE OF NEW YORK.  THE 22 -------------------------------------------------------------------------------- COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  IN THE EVENT THAT ANY PROVISION OF THIS NOTE IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS NOTE.  NOTHING CONTAINED HEREIN SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION AGAINST THE COMPANY IN ANY OTHER JURISDICTION TO COLLECT ON THE COMPANY’S OBLIGATIONS TO THE HOLDER, TO REALIZE ON ANY COLLATERAL OR ANY OTHER SECURITY FOR SUCH OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT RULING IN FAVOR OF THE HOLDER.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. (28)         CERTAIN DEFINITIONS.  FOR PURPOSES OF THIS NOTE, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS: (A)           “APPROVED STOCK PLAN” MEANS ANY EMPLOYEE BENEFIT PLAN WHICH HAS BEEN APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY, PURSUANT TO WHICH THE COMPANY’S SECURITIES MAY BE ISSUED TO ANY EMPLOYEE, OFFICER OR DIRECTOR FOR SERVICES PROVIDED TO THE COMPANY. (B)           “AVAILABLE INSTALLMENT AMOUNT” MEANS FOR ANY INSTALLMENT DATE, AN AMOUNT EQUAL TO THE LESSER OF (A) THE PRODUCT OF (I) $4,000,000, MULTIPLIED BY (II) HOLDER PRO RATA AMOUNT (PLUS THE SUM OF ANY ACCRUED AND UNPAID INTEREST ON SUCH PRINCIPAL AMOUNT AND ANY ACCRUED AND UNPAID LATE CHARGES WITH RESPECT TO SUCH PRINCIPAL AMOUNT AND INTEREST AS OF SUCH INSTALLMENT DATE) AND (B) THE OUTSTANDING CONVERSION AMOUNT UNDER THIS NOTE AS OF SUCH INSTALLMENT DATE.  FOR THE AVOIDANCE OF DOUBT, ANY ACCRUED AND UNPAID INTEREST WHICH MAY BE PAID PURSUANT TO THIS DEFINITION SHALL BE DEDUCTED FROM THE TOTAL INTEREST TO BE PAID ON ANY SUBSEQUENT INTEREST PAYMENT DATE. (C)           “BLOOMBERG” MEANS BLOOMBERG FINANCIAL MARKETS. (D)           “BUSINESS DAY” MEANS ANY DAY OTHER THAN SATURDAY, SUNDAY OR OTHER DAY ON WHICH COMMERCIAL BANKS IN THE CITY OF NEW YORK ARE AUTHORIZED OR REQUIRED BY LAW TO REMAIN CLOSED. (E)           “CALENDAR QUARTER” MEANS EACH OF: THE PERIOD BEGINNING ON AND INCLUDING JANUARY 1 AND ENDING ON AND INCLUDING MARCH 31; THE PERIOD BEGINNING ON AND INCLUDING APRIL 1 AND ENDING ON AND INCLUDING JUNE 30; THE PERIOD BEGINNING ON AND INCLUDING 23 -------------------------------------------------------------------------------- JULY 1 AND ENDING ON AND INCLUDING SEPTEMBER 30; AND THE PERIOD BEGINNING ON AND INCLUDING OCTOBER 1 AND ENDING ON AND INCLUDING DECEMBER 31. (F)            “CHANGE OF CONTROL” MEANS ANY FUNDAMENTAL TRANSACTION OTHER THAN (A) ANY REORGANIZATION, RECAPITALIZATION OR RECLASSIFICATION OF COMMON STOCK, IN WHICH HOLDERS OF THE COMPANY’S VOTING POWER IMMEDIATELY PRIOR TO SUCH REORGANIZATION, RECAPITALIZATION OR RECLASSIFICATION CONTINUE AFTER SUCH REORGANIZATION, RECAPITALIZATION OR RECLASSIFICATION TO HOLD PUBLICLY TRADED SECURITIES AND, DIRECTLY OR INDIRECTLY, THE VOTING POWER OF THE SURVIVING ENTITY OR ENTITIES NECESSARY TO ELECT A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS (OR THEIR EQUIVALENT IF OTHER THAN A CORPORATION) OF SUCH ENTITY OR ENTITIES, OR (B) PURSUANT TO A MIGRATORY MERGER EFFECTED SOLELY FOR THE PURPOSE OF CHANGING THE JURISDICTION OF INCORPORATION OF THE COMPANY. (G)           “CLOSING BID PRICE” AND “CLOSING SALE PRICE” MEANS, FOR ANY SECURITY AS OF ANY DATE, THE LAST CLOSING BID PRICE AND LAST CLOSING TRADE PRICE, RESPECTIVELY, FOR SUCH SECURITY ON THE PRINCIPAL MARKET, AS REPORTED BY BLOOMBERG, OR, IF THE PRINCIPAL MARKET BEGINS TO OPERATE ON AN EXTENDED HOURS BASIS AND DOES NOT DESIGNATE THE CLOSING BID PRICE OR THE CLOSING TRADE PRICE, AS THE CASE MAY BE, THEN THE LAST BID PRICE OR LAST TRADE PRICE, RESPECTIVELY, OF SUCH SECURITY PRIOR TO 4:00:00 P.M., NEW YORK TIME, AS REPORTED BY BLOOMBERG, OR, IF THE PRINCIPAL MARKET IS NOT THE PRINCIPAL SECURITIES EXCHANGE OR TRADING MARKET FOR SUCH SECURITY, THE LAST CLOSING BID PRICE OR LAST TRADE PRICE, RESPECTIVELY, OF SUCH SECURITY ON THE PRINCIPAL SECURITIES EXCHANGE OR TRADING MARKET WHERE SUCH SECURITY IS LISTED OR TRADED AS REPORTED BY BLOOMBERG, OR IF THE FOREGOING DO NOT APPLY, THE LAST CLOSING BID PRICE OR LAST TRADE PRICE, RESPECTIVELY, OF SUCH SECURITY IN THE OVER-THE-COUNTER MARKET ON THE ELECTRONIC BULLETIN BOARD FOR SUCH SECURITY AS REPORTED BY BLOOMBERG, OR, IF NO CLOSING BID PRICE OR LAST TRADE PRICE, RESPECTIVELY, IS REPORTED FOR SUCH SECURITY BY BLOOMBERG, THE AVERAGE OF THE BID PRICES, OR THE ASK PRICES, RESPECTIVELY, OF ANY MARKET MAKERS FOR SUCH SECURITY AS REPORTED IN THE “PINK SHEETS” BY PINK SHEETS LLC (FORMERLY THE NATIONAL QUOTATION BUREAU, INC.).  IF THE CLOSING BID PRICE OR THE CLOSING SALE PRICE CANNOT BE CALCULATED FOR A SECURITY ON A PARTICULAR DATE ON ANY OF THE FOREGOING BASES, THE CLOSING BID PRICE OR THE CLOSING SALE PRICE, AS THE CASE MAY BE, OF SUCH SECURITY ON SUCH DATE SHALL BE THE FAIR MARKET VALUE AS MUTUALLY DETERMINED BY THE COMPANY AND THE HOLDER.  IF THE COMPANY AND THE HOLDER ARE UNABLE TO AGREE UPON THE FAIR MARKET VALUE OF SUCH SECURITY, THEN SUCH DISPUTE SHALL BE RESOLVED PURSUANT TO SECTION 23.  ALL SUCH DETERMINATIONS TO BE APPROPRIATELY ADJUSTED FOR ANY STOCK DIVIDEND, STOCK SPLIT, STOCK COMBINATION OR OTHER SIMILAR TRANSACTION DURING THE APPLICABLE CALCULATION PERIOD. (H)           “CLOSING DATE” SHALL HAVE THE MEANING SET FORTH IN THE SECURITIES PURCHASE AGREEMENT, WHICH DATE IS THE DATE THE COMPANY INITIALLY ISSUED NOTES PURSUANT TO THE TERMS OF THE SECURITIES PURCHASE AGREEMENT. (I)            “COMMON STOCK DEEMED OUTSTANDING” MEANS, AT ANY GIVEN TIME, THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT SUCH TIME, PLUS THE NUMBER OF SHARES OF COMMON STOCK DEEMED TO BE OUTSTANDING PURSUANT TO SECTIONS 7(A)(I) AND 7(A)(II) HEREOF REGARDLESS OF WHETHER THE OPTIONS OR CONVERTIBLE SECURITIES ARE ACTUALLY EXERCISABLE AT SUCH TIME, BUT EXCLUDING ANY COMMON STOCK OWNED OR HELD BY OR FOR THE ACCOUNT OF THE COMPANY OR ISSUABLE UPON CONVERSION OR EXERCISE, AS APPLICABLE, OF THE NOTES AND THE WARRANTS. 24 -------------------------------------------------------------------------------- (J)            “CONTINGENT OBLIGATION” MEANS, AS TO ANY PERSON, ANY DIRECT OR INDIRECT LIABILITY, CONTINGENT OR OTHERWISE, OF THAT PERSON WITH RESPECT TO ANY INDEBTEDNESS, LEASE, DIVIDEND OR OTHER OBLIGATION OF ANOTHER PERSON IF THE PRIMARY PURPOSE OR INTENT OF THE PERSON INCURRING SUCH LIABILITY, OR THE PRIMARY EFFECT THEREOF, IS TO PROVIDE ASSURANCE TO THE OBLIGEE OF SUCH LIABILITY THAT SUCH LIABILITY WILL BE PAID OR DISCHARGED, OR THAT ANY AGREEMENTS RELATING THERETO WILL BE COMPLIED WITH, OR THAT THE HOLDERS OF SUCH LIABILITY WILL BE PROTECTED (IN WHOLE OR IN PART) AGAINST LOSS WITH RESPECT THERETO. (K)           “CONVERTIBLE SECURITIES” MEANS ANY STOCK OR SECURITIES (OTHER THAN OPTIONS) DIRECTLY OR INDIRECTLY CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR COMMON STOCK. (L)            “ELIGIBLE MARKET” MEANS THE PRINCIPAL MARKET, THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE, THE NASDAQ GLOBAL SELECT MARKET OR THE NASDAQ CAPITAL MARKET. (M)          “EQUITY CONDITIONS” MEANS EACH OF THE FOLLOWING CONDITIONS:  (I) ON EACH DAY DURING THE PERIOD BEGINNING THREE (3) MONTHS PRIOR TO THE APPLICABLE DATE OF DETERMINATION AND ENDING ON AND INCLUDING THE APPLICABLE DATE OF DETERMINATION (THE “EQUITY CONDITIONS MEASURING PERIOD”), EITHER (X) THE REGISTRATION STATEMENT FILED PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT SHALL BE EFFECTIVE AND AVAILABLE FOR THE RESALE OF ALL REMAINING REGISTRABLE SECURITIES IN ACCORDANCE WITH THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT AND THERE SHALL NOT HAVE BEEN ANY GRACE PERIODS (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) OR (Y) ALL SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES AND EXERCISE OF THE WARRANTS SHALL BE ELIGIBLE FOR SALE WITHOUT RESTRICTION AND WITHOUT THE NEED FOR REGISTRATION UNDER ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS; (II) DURING THE EQUITY CONDITIONS MEASURING PERIOD THE COMMON STOCK IS DESIGNATED FOR QUOTATION ON THE PRINCIPAL MARKET OR ANY OTHER ELIGIBLE MARKET AND SHALL NOT HAVE BEEN SUSPENDED FROM TRADING ON SUCH EXCHANGE OR MARKET (OTHER THAN SUSPENSIONS OF NOT MORE THAN TWO (2) DAYS AND OCCURRING PRIOR TO THE APPLICABLE DATE OF DETERMINATION DUE TO BUSINESS ANNOUNCEMENTS BY THE COMPANY) NOR SHALL DELISTING OR SUSPENSION BY SUCH EXCHANGE OR MARKET BEEN THREATENED OR PENDING EITHER (A) IN WRITING BY SUCH EXCHANGE OR MARKET OR (B) BY FALLING BELOW THE THEN EFFECTIVE MINIMUM LISTING MAINTENANCE REQUIREMENTS OF SUCH EXCHANGE OR MARKET; (III) DURING THE EQUITY CONDITIONS MEASURING PERIOD, THE COMPANY SHALL HAVE DELIVERED CONVERSION SHARES UPON CONVERSION OF THE NOTES AND WARRANT SHARES UPON EXERCISE OF THE WARRANTS TO THE HOLDERS ON A TIMELY BASIS AS SET FORTH IN SECTION 2(C)(II) HEREOF (AND ANALOGOUS PROVISIONS UNDER THE OTHER NOTES) AND SECTIONS 2(A) OF THE WARRANTS; (IV) ANY APPLICABLE SHARES OF COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE EVENT REQUIRING DETERMINATION MAY BE ISSUED IN FULL WITHOUT VIOLATING SECTION 3(D) HEREOF AND THE RULES OR REGULATIONS OF THE PRINCIPAL MARKET OR ANY OTHER APPLICABLE ELIGIBLE MARKET; (V) DURING THE SIX (6) MONTH PERIOD ENDING ON AND INCLUDING THE DATE IMMEDIATELY PRECEDING THE APPLICABLE DATE OF DETERMINATION, THE COMPANY SHALL NOT HAVE FAILED TO TIMELY MAKE ANY PAYMENTS WITHIN FIVE (5) BUSINESS DAYS OF WHEN SUCH PAYMENT IS DUE PURSUANT TO ANY TRANSACTION DOCUMENT; (VI) DURING THE EQUITY CONDITIONS MEASURING PERIOD, THERE SHALL NOT HAVE OCCURRED EITHER (A) THE PUBLIC ANNOUNCEMENT OF A PENDING, PROPOSED OR INTENDED FUNDAMENTAL TRANSACTION WHICH HAS NOT BEEN ABANDONED, TERMINATED OR CONSUMMATED, OR (B) AN EVENT OF DEFAULT OR (VII) DURING THE PERIOD COMMENCING ON THE INTEREST NOTICE DUE DATE, AND ENDING ON THE INTEREST DATE, AN EVENT THAT WITH THE PASSAGE OF TIME OR GIVING OF NOTICE WOULD CONSTITUTE AN EVENT OF DEFAULT; (VIII) THE COMPANY 25 -------------------------------------------------------------------------------- SHALL HAVE NO KNOWLEDGE OF ANY FACT THAT WOULD CAUSE (X) THE REGISTRATION STATEMENTS REQUIRED PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT NOT TO BE EFFECTIVE AND AVAILABLE FOR THE RESALE OF ALL REMAINING REGISTRABLE SECURITIES IN ACCORDANCE WITH THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT OR (Y) ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES AND SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS NOT TO BE ELIGIBLE FOR SALE WITHOUT RESTRICTION PURSUANT TO RULE 144(K) AND ANY APPLICABLE STATE SECURITIES LAWS; AND (IX) THE COMPANY OTHERWISE SHALL HAVE BEEN IN MATERIAL COMPLIANCE WITH AND SHALL NOT HAVE MATERIALLY BREACHED ANY PROVISION, COVENANT, REPRESENTATION OR WARRANTY OF ANY TRANSACTION DOCUMENT. (N)           “EQUITY CONDITIONS FAILURE” MEANS THAT (I) ON ANY DAY DURING THE PERIOD COMMENCING TEN (10) TRADING DAYS PRIOR TO THE APPLICABLE INTEREST NOTICE DATE THROUGH THE APPLICABLE INTEREST DATE AND (II) ON ANY DAY DURING THE PERIOD COMMENCING TEN (10) TRADING DAYS PRIOR TO THE APPLICABLE MANDATORY CONVERSION NOTICE DATE THROUGH THE APPLICABLE MANDATORY CONVERSION DATE, THE EQUITY CONDITIONS HAVE NOT BEEN SATISFIED (OR WAIVED IN WRITING BY THE HOLDER). (O)           “EXCLUDED SECURITIES” MEANS ANY COMMON STOCK ISSUED OR ISSUABLE: (I) IN CONNECTION WITH ANY APPROVED STOCK PLAN; (II) UPON CONVERSION OF THE NOTES OR THE EXERCISE OF THE WARRANTS; (III) IN CONNECTION WITH THE PAYMENT OF ANY INTEREST SHARES ON THE NOTES; (IV) PURSUANT TO A BONA FIDE FIRM COMMITMENT UNDERWRITTEN PUBLIC OFFERING WITH A NATIONALLY RECOGNIZED UNDERWRITER WHICH GENERATES GROSS PROCEEDS TO THE COMPANY IN EXCESS OF $20,000,000 (OTHER THAN AN “AT-THE-MARKET OFFERING” AS DEFINED IN RULE 415(A)(4) UNDER THE 1933 ACT AND “EQUITY LINES”); (V) TO RELATIVITY MEDIA, LLC PURSUANT TO A DISTRIBUTION AGREEMENT DATED AS OF AUGUST 11, 2006 BETWEEN THE COMPANY AND RELATIVITY MEDIA, LLC IN AN AGGREGATE AMOUNT NOT TO EXCEED 3,400,000 SHARES OF COMMON STOCK ON SUCH TERMS AND CONDITIONS SET FORTH IN THE COMPANY’S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006 AND (VI) UPON CONVERSION OF ANY OPTIONS OR CONVERTIBLE SECURITIES WHICH ARE OUTSTANDING ON THE DAY IMMEDIATELY PRECEDING THE SUBSCRIPTION DATE, PROVIDED THAT THE TERMS OF SUCH OPTIONS OR CONVERTIBLE SECURITIES ARE NOT AMENDED, MODIFIED OR CHANGED ON OR AFTER THE SUBSCRIPTION DATE. (P)           “FOOTHILL LOAN AGREEMENT” MEANS THE INDEBTEDNESS INCURRED PURSUANT TO THE AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, DATED AUGUST 10, 2005, BETWEEN THE COMPANY AND WELLS FARGO FOOTHILL, INC.; PROVIDED, HOWEVER, THAT THE AGGREGATE OUTSTANDING AMOUNT OF ANY SUCH INDEBTEDNESS DOES NOT AS OF ANY DATE EXCEED (I) $26,000,000 OR (II) IN THE EVENT THAT THE COMPANY HAS COMPLIED WITH THE TERMS AND CONDITIONS SET FORTH IN SECTION 4(P) OF THE SECURITIES PURCHASE AGREEMENT, IF GREATER, AN AMOUNT EQUAL TO 60% OF THE VALUE OF THE COMPANY’S “ELIGIBLE ACCOUNTS” (AS DEFINED IN THE FOOTHILL LOAN AGREEMENT). (Q)           “FUNDAMENTAL TRANSACTION” MEANS THAT THE COMPANY SHALL, DIRECTLY OR INDIRECTLY, IN ONE OR MORE RELATED TRANSACTIONS, (I) CONSOLIDATE OR MERGE WITH OR INTO (WHETHER OR NOT THE COMPANY IS THE SURVIVING CORPORATION) ANOTHER PERSON OR PERSONS, OR (II) SELL, ASSIGN, TRANSFER, CONVEY OR OTHERWISE DISPOSE OF ALL OR SUBSTANTIALLY ALL OF THE PROPERTIES OR ASSETS OF THE COMPANY TO ANOTHER PERSON, OR (III) ALLOW ANOTHER PERSON TO MAKE A PURCHASE, TENDER OR EXCHANGE OFFER THAT IS ACCEPTED BY THE HOLDERS OF MORE THAN THE 50% OF THE OUTSTANDING SHARES OF VOTING STOCK (NOT INCLUDING ANY SHARES OF VOTING STOCK HELD BY THE PERSON OR PERSONS MAKING OR PARTY TO, OR ASSOCIATED OR AFFILIATED WITH THE PERSONS MAKING OR PARTY TO, SUCH PURCHASE, TENDER OR EXCHANGE OFFER), OR (IV) CONSUMMATE A STOCK PURCHASE AGREEMENT OR OTHER BUSINESS COMBINATION 26 -------------------------------------------------------------------------------- (INCLUDING, WITHOUT LIMITATION, A REORGANIZATION, RECAPITALIZATION, SPIN-OFF OR SCHEME OF ARRANGEMENT) WITH ANOTHER PERSON WHEREBY SUCH OTHER PERSON ACQUIRES MORE THAN THE 50% OF THE OUTSTANDING SHARES OF VOTING STOCK (NOT INCLUDING ANY SHARES OF VOTING STOCK HELD BY THE OTHER PERSON OR OTHER PERSONS MAKING OR PARTY TO, OR ASSOCIATED OR AFFILIATED WITH THE OTHER PERSONS MAKING OR PARTY TO, SUCH STOCK PURCHASE AGREEMENT OR OTHER BUSINESS COMBINATION), (V) REORGANIZE, RECAPITALIZE OR RECLASSIFY ITS COMMON STOCK OR (VI) ANY “PERSON” OR “GROUP” (AS THESE TERMS ARE USED FOR PURPOSES OF SECTIONS 13(D) AND 14(D) OF THE EXCHANGE ACT) IS OR SHALL BECOME THE “BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF 50% OF THE AGGREGATE ORDINARY VOTING POWER REPRESENTED BY ISSUED AND OUTSTANDING COMMON STOCK. (R)            “GAAP” MEANS UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED. (S)           “HOLDER PRO RATA AMOUNT” MEANS A FRACTION (I) THE NUMERATOR OF WHICH IS THE PRINCIPAL AMOUNT OF THIS NOTE ON THE CLOSING DATE AND (II) THE DENOMINATOR OF WHICH IS THE AGGREGATE PRINCIPAL AMOUNT OF ALL NOTES ISSUED TO THE INITIAL PURCHASERS PURSUANT TO THE SECURITIES PURCHASE AGREEMENT ON THE CLOSING DATE. (T)          “INDEBTEDNESS” OF ANY PERSON MEANS, WITHOUT DUPLICATION (I) ALL INDEBTEDNESS FOR BORROWED MONEY, (II) ALL OBLIGATIONS ISSUED, UNDERTAKEN OR ASSUMED AS THE DEFERRED PURCHASE PRICE OF PROPERTY OR SERVICES, INCLUDING (WITHOUT LIMITATION) “CAPITAL LEASES” IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (OTHER THAN TRADE PAYABLES ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS), (III) ALL REIMBURSEMENT OR PAYMENT OBLIGATIONS WITH RESPECT TO LETTERS OF CREDIT, SURETY BONDS AND OTHER SIMILAR INSTRUMENTS, (IV) ALL OBLIGATIONS EVIDENCED BY NOTES, BONDS, DEBENTURES OR SIMILAR INSTRUMENTS, INCLUDING OBLIGATIONS SO EVIDENCED INCURRED IN CONNECTION WITH THE ACQUISITION OF PROPERTY, ASSETS OR BUSINESSES, (V) ALL INDEBTEDNESS CREATED OR ARISING UNDER ANY CONDITIONAL SALE OR OTHER TITLE RETENTION AGREEMENT, OR INCURRED AS FINANCING, IN EITHER CASE WITH RESPECT TO ANY PROPERTY OR ASSETS ACQUIRED WITH THE PROCEEDS OF SUCH INDEBTEDNESS (EVEN THOUGH THE RIGHTS AND REMEDIES OF THE SELLER OR BANK UNDER SUCH AGREEMENT IN THE EVENT OF DEFAULT ARE LIMITED TO REPOSSESSION OR SALE OF SUCH PROPERTY), (VI) ALL MONETARY OBLIGATIONS UNDER ANY LEASING OR SIMILAR ARRANGEMENT WHICH, IN CONNECTION WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED FOR THE PERIODS COVERED THEREBY, IS CLASSIFIED AS A CAPITAL LEASE, (VII) ALL INDEBTEDNESS REFERRED TO IN CLAUSES (I) THROUGH (VI) ABOVE SECURED BY (OR FOR WHICH THE HOLDER OF SUCH INDEBTEDNESS HAS AN EXISTING RIGHT, CONTINGENT OR OTHERWISE, TO BE SECURED BY) ANY MORTGAGE, LIEN, PLEDGE, CHARGE, SECURITY INTEREST OR OTHER ENCUMBRANCE UPON OR IN ANY PROPERTY OR ASSETS (INCLUDING ACCOUNTS AND CONTRACT RIGHTS) OWNED BY ANY PERSON, EVEN THOUGH THE PERSON WHICH OWNS SUCH ASSETS OR PROPERTY HAS NOT ASSUMED OR BECOME LIABLE FOR THE PAYMENT OF SUCH INDEBTEDNESS, AND (VIII) ALL CONTINGENT OBLIGATIONS IN RESPECT OF INDEBTEDNESS OR OBLIGATIONS OF OTHERS OF THE KINDS REFERRED TO IN CLAUSES (I) THROUGH (VII) ABOVE. (U)           “INSTALLMENT DATE” MEANS EACH OF THE FOLLOWING DATES: (I) JANUARY 30, 2009; (II) JULY 30, 2009, (III) JANUARY 30, 2010, (IV) JULY 30, 2010, (V) JANUARY 30, 2011, AND (VI) JULY 30, 2011. (V)           “INTEREST CONVERSION PRICE” MEANS, WITH RESPECT TO ANY INTEREST DATE THAT PRICE WHICH SHALL BE THE LOWER OF (I) THE APPLICABLE CONVERSION PRICE AND (II) THE PRICE 27 -------------------------------------------------------------------------------- COMPUTED AS 90% OF THE ARITHMETIC AVERAGE OF THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON EACH OF THE TEN (10) CONSECUTIVE TRADING DAYS ENDING ON THE TRADING DAY IMMEDIATELY PRECEDING THE APPLICABLE INTEREST DATE (EACH, AN “INTEREST MEASURING PERIOD”).  ALL SUCH DETERMINATIONS TO BE APPROPRIATELY ADJUSTED FOR ANY STOCK SPLIT, STOCK DIVIDEND, STOCK COMBINATION OR OTHER SIMILAR TRANSACTION DURING SUCH PERIOD. (W)          “INTEREST NOTICE DUE DATE” MEANS THE FIFTEENTH (15TH) TRADING DAY PRIOR TO THE APPLICABLE INTEREST DATE. (X)            “OPTIONS” MEANS ANY RIGHTS, WARRANTS OR OPTIONS TO SUBSCRIBE FOR OR PURCHASE SHARES OF COMMON STOCK OR CONVERTIBLE SECURITIES. (Y)           “PARENT ENTITY” OF A PERSON MEANS AN ENTITY THAT, DIRECTLY OR INDIRECTLY, CONTROLS THE APPLICABLE PERSON AND WHOSE COMMON STOCK OR EQUIVALENT EQUITY SECURITY IS QUOTED OR LISTED ON AN ELIGIBLE MARKET, OR, IF THERE IS MORE THAN ONE SUCH PERSON OR PARENT ENTITY, THE PERSON OR PARENT ENTITY WITH THE LARGEST PUBLIC MARKET CAPITALIZATION AS OF THE DATE OF CONSUMMATION OF THE FUNDAMENTAL TRANSACTION. (Z)            “PERMITTED INDEBTEDNESS” MEANS (I) PERMITTED SENIOR INDEBTEDNESS; (II) INDEBTEDNESS INCURRED BY THE COMPANY THAT IS MADE EXPRESSLY SUBORDINATE IN RIGHT OF PAYMENT TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE, AS REFLECTED IN A WRITTEN AGREEMENT ACCEPTABLE TO THE HOLDER AND APPROVED BY THE HOLDER IN WRITING, AND WHICH INDEBTEDNESS DOES NOT PROVIDE AT ANY TIME FOR (1) THE PAYMENT, PREPAYMENT, REPAYMENT, REPURCHASE OR DEFEASANCE, DIRECTLY OR INDIRECTLY, OF ANY PRINCIPAL OR PREMIUM, IF ANY, THEREON UNTIL NINETY-ONE (91) DAYS AFTER THE MATURITY DATE OR LATER AND (2) TOTAL INTEREST AND FEES AT A RATE IN EXCESS OF SEVEN AND SEVEN-EIGHTHS  PERCENT (7.875%) PER ANNUM (SUCH INDEBTEDNESS, THE “SUBORDINATED INDEBTEDNESS”), (III) INDEBTEDNESS SECURED BY PERMITTED LIENS, (IV) INDEBTEDNESS TO TRADE CREDITORS INCURRED IN THE ORDINARY COURSE OF BUSINESS, (V) INDEBTEDNESS UNDER THIS NOTE AND THE OTHER NOTES, (VI) EXTENSIONS, REFINANCINGS AND RENEWALS OF ANY ITEMS IN CLAUSES (I) THROUGH (III) ABOVE, PROVIDED THAT (A) THE PRINCIPAL AMOUNT IS NOT INCREASED OR THE TERMS MODIFIED TO IMPOSE MORE BURDENSOME TERMS UPON THE COMPANY OR ITS SUBSIDIARY, AS THE CASE MAY BE, AND (B) WITH RESPECT TO THE PERMITTED SENIOR INDEBTEDNESS, THE COMPANY HAS COMPLIED WITH THE TERMS AND CONDITIONS SET FORTH IN SECTION 4(P), AND  (VII) THE SONOPRESS INDEBTEDNESS. (AA)         “PERMITTED LIENS” MEANS (I) ANY LIEN FOR TAXES NOT YET DUE OR DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS FOR WHICH ADEQUATE RESERVES HAVE BEEN ESTABLISHED IN ACCORDANCE WITH GAAP, (II) ANY STATUTORY LIEN ARISING IN THE ORDINARY COURSE OF BUSINESS BY OPERATION OF LAW WITH RESPECT TO A LIABILITY THAT IS NOT YET DUE OR DELINQUENT, (III) ANY LIEN CREATED BY OPERATION OF LAW, SUCH AS MATERIALMEN’S LIENS, MECHANICS’ LIENS AND OTHER SIMILAR LIENS, ARISING IN THE ORDINARY COURSE OF BUSINESS WITH RESPECT TO A LIABILITY THAT IS NOT YET DUE OR DELINQUENT OR THAT ARE BEING CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS, (IV) LIENS SECURING THE COMPANY’S OBLIGATIONS UNDER THE NOTES; (V) LIENS (A) UPON OR IN ANY EQUIPMENT (AS DEFINED IN THE SECURITY AGREEMENT) ACQUIRED OR HELD BY THE COMPANY OR ANY OF ITS SUBSIDIARIES TO SECURE THE PURCHASE PRICE OF SUCH EQUIPMENT OR INDEBTEDNESS INCURRED SOLELY FOR THE PURPOSE OF FINANCING THE ACQUISITION OR LEASE OF SUCH EQUIPMENT, OR (B) EXISTING ON SUCH EQUIPMENT AT THE TIME OF ITS ACQUISITION, PROVIDED THAT THE LIEN IS CONFINED SOLELY TO THE PROPERTY SO ACQUIRED AND IMPROVEMENTS THEREON, AND THE PROCEEDS OF SUCH EQUIPMENT; (VI) LIENS 28 -------------------------------------------------------------------------------- SECURING THE PERMITTED SENIOR INDEBTEDNESS; (VII) LIENS INCURRED IN CONNECTION WITH THE EXTENSION, RENEWAL OR REFINANCING OF THE INDEBTEDNESS SECURED BY LIENS OF THE TYPE DESCRIBED IN CLAUSES (I) AND (VI) ABOVE, PROVIDED THAT ANY EXTENSION, RENEWAL OR REPLACEMENT LIEN SHALL BE LIMITED TO THE PROPERTY ENCUMBERED BY THE EXISTING LIEN AND THE PRINCIPAL AMOUNT OF THE INDEBTEDNESS BEING EXTENDED, RENEWED OR REFINANCED DOES NOT INCREASE, (VII) LIENS SECURING THE SONOPRESS INDEBTEDNESS IN EXISTENCE AS OF THE DATE HEREOF; (VIII) LEASES OR SUBLEASES AND LICENSES AND SUBLICENSES GRANTED TO OTHERS IN THE ORDINARY COURSE OF THE COMPANY’S BUSINESS, NOT INTERFERING IN ANY MATERIAL RESPECT WITH THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES TAKEN AS A WHOLE, (IX) LIENS IN FAVOR OF CUSTOMS AND REVENUE AUTHORITIES ARISING AS A MATTER OF LAW TO SECURE PAYMENTS OF CUSTOM DUTIES IN CONNECTION WITH THE IMPORTATION OF GOODS, AND (X) LIENS ARISING FROM JUDGMENTS, DECREES OR ATTACHMENTS IN CIRCUMSTANCES NOT CONSTITUTING AN EVENT OF DEFAULT UNDER SECTION 4(A)(IX). (BB)         “PERMITTED SENIOR INDEBTEDNESS” THE PRINCIPAL OF (AND PREMIUM, IF ANY), INTEREST ON, AND ALL FEES AND OTHER AMOUNTS (INCLUDING, WITHOUT LIMITATION, ANY REASONABLE OUT-OF-POCKET COSTS, ENFORCEMENT EXPENSES (INCLUDING REASONABLE OUT-OF-POCKET LEGAL FEES AND DISBURSEMENTS), COLLATERAL PROTECTION EXPENSES AND OTHER REIMBURSEMENT OR INDEMNITY OBLIGATIONS RELATING THERETO) PAYABLE BY COMPANY AND/OR ITS SUBSIDIARIES UNDER OR IN CONNECTION WITH THE FOOTHILL LOAN AGREEMENT. (CC)         “PERSON” MEANS AN INDIVIDUAL, A LIMITED LIABILITY COMPANY, A PARTNERSHIP, A JOINT VENTURE, A CORPORATION, A TRUST, AN UNINCORPORATED ORGANIZATION, ANY OTHER ENTITY AND A GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF. (DD)         “PRINCIPAL MARKET” MEANS THE NASDAQ GLOBAL MARKET. (EE)         “REDEMPTION NOTICES” MEANS, COLLECTIVELY, THE EVENT OF DEFAULT REDEMPTION NOTICES, THE CHANGE OF CONTROL REDEMPTION NOTICES AND THE INSTALLMENT NOTICE, EACH OF THE FOREGOING, INDIVIDUALLY, A REDEMPTION NOTICE. (FF)           “REDEMPTION PREMIUM” MEANS (I) IN THE CASE OF THE EVENTS OF DEFAULT DESCRIBED IN SECTION 4(A)(I) - (VI) AND (IX) - (XII), 120% OR (II) IN THE CASE OF THE EVENTS OF DEFAULT DESCRIBED IN SECTION 4(A)(VII) - (VIII), 100%. (GG)         “REDEMPTION PRICES” MEANS, COLLECTIVELY, THE EVENT OF DEFAULT REDEMPTION PRICE, CHANGE OF CONTROL REDEMPTION PRICE AND THE INSTALLMENT PRICE AND, EACH OF THE FOREGOING, INDIVIDUALLY, A REDEMPTION PRICE. (HH)         “REGISTRATION RIGHTS AGREEMENT” MEANS THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF THE SUBSCRIPTION DATE BY AND AMONG THE COMPANY AND THE INITIAL HOLDERS OF THE NOTES RELATING TO, AMONG OTHER THINGS, THE REGISTRATION OF THE RESALE OF THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES AND EXERCISE OF THE WARRANTS AND AS INTEREST SHARES UNDER THE NOTES. (II)           “REQUIRED HOLDERS” MEANS THE HOLDERS OF NOTES REPRESENTING AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING. 29 -------------------------------------------------------------------------------- (JJ)           “SEC” MEANS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. (KK)         “SECURITIES PURCHASE AGREEMENT” MEANS THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AS OF THE SUBSCRIPTION DATE BY AND AMONG THE COMPANY AND THE INITIAL HOLDERS OF THE NOTES PURSUANT TO WHICH THE COMPANY ISSUED THE NOTES. (LL)           “SONOPRESS INDEBTEDNESS” MEANS THE “ADVANCE” INCURRED UNDER (AND AS DEFINED IN) THE REPLICATION AGREEMENT DATED AS OF JUNE 30, 2006 BY AND BETWEEN THE COMPANY AND SONOPRESS LLC; PROVIDED, HOWEVER, THAT (I) THE COMPANY SHALL NOT BE PERMITTED TO EXTEND, REFINANCE OR RENEW SUCH ADVANCE, (II) THE COMPANY SHALL NOT BE PERMITTED TO INCREASE THE OUTSTANDING AMOUNT OF SUCH ADVANCE AS OF THE SUBSCRIPTION DATE OR TO REBORROW ANY PORTION OF SUCH ADVANCE ONCE IT HAS BEEN REPAID THEREUNDER AND (III) SUCH ADVANCE MAY NOT BE REPAID BY THE PAYMENT OF GREATER THAN $0.20 PER EACH “DVD PRODUCT” PURCHASED UNDER (AND AS DEFINED IN) THE REPLICATION AGREEMENT. (MM)       “SUBSCRIPTION DATE” MEANS AUGUST 30, 2006. (NN)         “SUCCESSOR ENTITY” MEANS THE PERSON, WHICH MAY BE THE COMPANY, FORMED BY, RESULTING FROM OR SURVIVING ANY FUNDAMENTAL TRANSACTION OR THE PERSON WITH WHICH SUCH FUNDAMENTAL TRANSACTION SHALL HAVE BEEN MADE, PROVIDED THAT IF SUCH PERSON IS NOT A PUBLICLY TRADED ENTITY WHOSE COMMON STOCK OR EQUIVALENT EQUITY SECURITY IS QUOTED OR LISTED FOR TRADING ON AN ELIGIBLE MARKET, SUCCESSOR ENTITY SHALL MEAN SUCH PERSON’S PARENT ENTITY. (OO)         “TRADING DAY” MEANS ANY DAY ON WHICH THE COMMON STOCK IS TRADED ON THE PRINCIPAL MARKET, OR, IF THE PRINCIPAL MARKET IS NOT THE PRINCIPAL TRADING MARKET FOR THE COMMON STOCK, THEN ON THE PRINCIPAL SECURITIES EXCHANGE OR SECURITIES MARKET ON WHICH THE COMMON STOCK IS THEN TRADED; PROVIDED THAT “TRADING DAY” SHALL NOT INCLUDE ANY DAY ON WHICH THE COMMON STOCK IS SCHEDULED TO TRADE ON SUCH EXCHANGE OR MARKET FOR LESS THAN 4.5 HOURS OR ANY DAY THAT THE COMMON STOCK IS SUSPENDED FROM TRADING DURING THE FINAL HOUR OF TRADING ON SUCH EXCHANGE OR MARKET (OR IF SUCH EXCHANGE OR MARKET DOES NOT DESIGNATE IN ADVANCE THE CLOSING TIME OF TRADING ON SUCH EXCHANGE OR MARKET, THEN DURING THE HOUR ENDING AT 4:00:00 P.M., NEW YORK TIME). (PP)         “VOTING STOCK” OF A PERSON MEANS CAPITAL STOCK OF SUCH PERSON OF THE CLASS OR CLASSES PURSUANT TO WHICH THE HOLDERS THEREOF HAVE THE GENERAL VOTING POWER TO ELECT, OR THE GENERAL POWER TO APPOINT, AT LEAST A MAJORITY OF THE BOARD OF DIRECTORS, MANAGERS OR TRUSTEES OF SUCH PERSON (IRRESPECTIVE OF WHETHER OR NOT AT THE TIME CAPITAL STOCK OF ANY OTHER CLASS OR CLASSES SHALL HAVE OR MIGHT HAVE VOTING POWER BY REASON OF THE HAPPENING OF ANY CONTINGENCY). (QQ)         “WARRANTS” HAS THE MEANING ASCRIBED TO SUCH TERM IN THE SECURITIES PURCHASE AGREEMENT, AND SHALL INCLUDE ALL WARRANTS ISSUED IN EXCHANGE THEREFOR OR REPLACEMENT THEREOF. (RR)           “WEIGHTED AVERAGE PRICE” MEANS, FOR ANY SECURITY AS OF ANY DATE, THE DOLLAR VOLUME-WEIGHTED AVERAGE PRICE FOR SUCH SECURITY ON THE PRINCIPAL MARKET DURING THE PERIOD BEGINNING AT 9:30:01 A.M., NEW YORK TIME (OR SUCH OTHER TIME AS THE PRINCIPAL MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL OPEN OF TRADING), AND ENDING AT 4:00:00 P.M., NEW YORK TIME 30 -------------------------------------------------------------------------------- (OR SUCH OTHER TIME AS THE PRINCIPAL MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL CLOSE OF TRADING) AS REPORTED BY BLOOMBERG THROUGH ITS “VOLUME AT PRICE” FUNCTIONS, OR, IF THE FOREGOING DOES NOT APPLY, THE DOLLAR VOLUME-WEIGHTED AVERAGE PRICE OF SUCH SECURITY IN THE OVER-THE-COUNTER MARKET ON THE ELECTRONIC BULLETIN BOARD FOR SUCH SECURITY DURING THE PERIOD BEGINNING AT 9:30:01 A.M., NEW YORK TIME (OR SUCH OTHER TIME AS SUCH MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL OPEN OF TRADING), AND ENDING AT 4:00:00 P.M., NEW YORK TIME (OR SUCH OTHER TIME AS SUCH MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL CLOSE OF TRADING) AS REPORTED BY BLOOMBERG, OR, IF NO DOLLAR VOLUME-WEIGHTED AVERAGE PRICE IS REPORTED FOR SUCH SECURITY BY BLOOMBERG FOR SUCH HOURS, THE AVERAGE OF THE HIGHEST CLOSING BID PRICE AND THE LOWEST CLOSING ASK PRICE OF ANY OF THE MARKET MAKERS FOR SUCH SECURITY AS REPORTED IN THE “PINK SHEETS” BY PINK SHEETS LLC (FORMERLY THE NATIONAL QUOTATION BUREAU, INC.).  IF THE WEIGHTED AVERAGE PRICE CANNOT BE CALCULATED FOR A SECURITY ON A PARTICULAR DATE ON ANY OF THE FOREGOING BASES, THE WEIGHTED AVERAGE PRICE OF SUCH SECURITY ON SUCH DATE SHALL BE THE FAIR MARKET VALUE AS MUTUALLY DETERMINED BY THE COMPANY AND THE HOLDER.  IF THE COMPANY AND THE HOLDER ARE UNABLE TO AGREE UPON THE FAIR MARKET VALUE OF SUCH SECURITY, THEN SUCH DISPUTE SHALL BE RESOLVED PURSUANT TO SECTION 23.  ALL SUCH DETERMINATIONS TO BE APPROPRIATELY ADJUSTED FOR ANY STOCK DIVIDEND, STOCK SPLIT, STOCK COMBINATION OR OTHER SIMILAR TRANSACTION DURING THE APPLICABLE CALCULATION PERIOD. (29)         DISCLOSURE. UPON RECEIPT OR DELIVERY BY THE COMPANY OF ANY NOTICE IN ACCORDANCE WITH THE TERMS OF THIS NOTE, UNLESS THE COMPANY HAS IN GOOD FAITH DETERMINED THAT THE MATTERS RELATING TO SUCH NOTICE DO NOT CONSTITUTE MATERIAL, NONPUBLIC INFORMATION RELATING TO THE COMPANY OR ITS SUBSIDIARIES, THE COMPANY SHALL WITHIN ONE (1) BUSINESS DAY AFTER ANY SUCH RECEIPT OR DELIVERY PUBLICLY DISCLOSE SUCH MATERIAL, NONPUBLIC INFORMATION ON A CURRENT REPORT ON FORM 8-K OR OTHERWISE. IN THE EVENT THAT THE COMPANY BELIEVES THAT A NOTICE CONTAINS MATERIAL, NONPUBLIC INFORMATION, RELATING TO THE COMPANY OR ITS SUBSIDIARIES, THE COMPANY SHALL INDICATE TO THE HOLDER CONTEMPORANEOUSLY WITH DELIVERY OF SUCH NOTICE, AND IN THE ABSENCE OF ANY SUCH INDICATION, THE HOLDER SHALL BE ALLOWED TO PRESUME THAT ALL MATTERS RELATING TO SUCH NOTICE DO NOT CONSTITUTE MATERIAL, NONPUBLIC INFORMATION RELATING TO THE COMPANY OR ITS SUBSIDIARIES. [Signature Page Follows] 31 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.   IMAGE ENTERTAINMENT, INC.                 By:           Name:       Title:   -------------------------------------------------------------------------------- EXHIBIT I IMAGE ENTERTAINMENT, INC. CONVERSION NOTICE Reference is made to the Senior Convertible Note (the “Note”) issued to the undersigned by Image Entertainment, Inc. (the “Company”).  In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.0001 per share (the “Common Stock”) of the Company, as of the date specified below.     Date of Conversion:           Aggregate Conversion Amount to be converted:         Please confirm the following information:     Conversion Price:           Number of shares of Common Stock to be issued:         Please issue the Common Stock into which the Note is being converted in the following name and to the following address:   Issue to:                       Facsimile Number:           Authorization:           By:           Title:         Dated:           Account Number:       (if electronic book entry transfer)           Transaction Code Number:       (if electronic book entry transfer)     -------------------------------------------------------------------------------- ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs the Computershare Investor Services to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated August    , 2006 from the Company and acknowledged and agreed to by Computershare Investor Services.   IMAGE ENTERTAINMENT, INC.                 By:           Name:       Title:   --------------------------------------------------------------------------------

  Exhibit 10.1   FLUSHING FINANCIAL CORPORATION EMPLOYMENT AGREEMENT [Explanatory Note: This agreement supersedes and is identical to the agreement of the parties filed under Form 8-K on April 26, 2006, except that (i) the date of this agreement and the commencement date herein has been corrected from May 15, 2006 to May 1, 2006, and (ii) certain other immaterial corrections have been made.]                                 This EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 1st day of May 2006, by and between Flushing Financial Corporation, a Delaware corporation having its executive offices at 1979 Marcus Avenue Suite E140, Lake Success, New York 11042 (the “Holding Company”), and Maria A. Grasso residing at <address on file> (“Officer”). W I T N E S S E T H:                                 WHEREAS, the Holding Company considers the availability of the Officer’s services to be important to the successful management and conduct of the Holding Company’s business and desires to secure for itself the availability of her services; and                                 WHEREAS, for purposes of securing for the Holding Company the Officer’s continued services, the Board of Directors of the Holding Company (“Board”) has authorized the proper officers of the Holding Company to enter into an employment agreement with the Officer on the terms and conditions set forth herein; and                                 WHEREAS, the Officer is willing to make her services available to the Holding Company 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 Holding Company and the Officer hereby agree as follows:                                   Section 1.               Employment.                                   The Holding Company hereby agrees to employ the Officer, and the Officer hereby agrees to accept such employment, during the period and upon the terms and conditions set forth in this Agreement.                                   Section 2.               Employment Period.                                   (a)           Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (“Employment Period”) established under this section 2. The Employment Period under this Agreement shall be for a term commencing on May 1, 2006 and ending on November 21, 2008, plus such extensions as are provided pursuant to section 2(b) of this Agreement.                                 (b)           On or as of July 1, 2007, and on or as of each July 1 thereafter, the Employment Period shall be extended for one additional year if and only if the Board shall have authorized the extension of the Employment Period prior to July 1 of such year and the Officer -------------------------------------------------------------------------------- 2   shall not have notified the Holding Company prior to July 1 of such year that the Employment Period shall not be so extended. If the Board shall not have authorized the extension of the Employment Period prior to July 1 of any such year, or if the Officer shall have given notice of nonextension to the Holding Company prior to July 1 of such year, then the Employment Period shall not be extended pursuant to this section 2(b) at any time thereafter and shall end on the last day of its term as then in effect.                                 (c)           Upon the termination of the Officer’s employment with the Holding Company, the extensions provided pursuant to section 2(b) shall cease (if such extensions have not previously ceased).                                   Section 3.               Title and Duties.                                   On the date on which the Employment Period commences, the Officer shall hold the position of Executive Vice President/Chief Operating Officer of the Holding Company with all of the powers and duties incident to such position under law and under the by-laws of the Holding Company. During the Employment Period, the Officer shall: (a) devote her full business time and attention (other than during weekends, holidays, vacation periods and periods of illness or approved leaves of absence) to the business and affairs of the Holding Company and its subsidiaries and use her best efforts to advance the interests of the Holding Company and its subsidiaries, including reasonable periods of service as an officer and/or board member of trade associations, their related entities and charitable organizations; and (b) perform such reasonable additional duties as may be assigned to him by or under the authority of the Board. The Officer shall also serve as an officer of Flushing Savings Bank, FSB (the “Bank”) pursuant to the Amended and Restated Employment Agreement between the Officer and the Bank dated as of the date hereof (“Bank Employment Agreement”). The Holding Company hereby acknowledges that the Officer’s service under this Agreement shall not be deemed to materially interfere with the Officer’s performance under the Bank Employment Agreement or otherwise result in a breach of the Bank Employment Agreement. The Officer shall have such authority as is necessary or appropriate to carry out her duties under this Agreement.                                   Section 4.               Compensation.                                   In consideration for services rendered by the Officer under this Agreement:                                 (a)           The Holding Company shall pay to the Officer a salary at an annual rate equal to the greater of (i) $250,000 or (ii) such higher annual rate as may be prescribed by or under the authority of the Board (the “Current Salary”). The Officer will undergo an annual salary and performance review on or about June 30 of each year commencing in 2006 The Current Salary payable under this section 4 shall be paid in approximately equal installments in accordance with the Holding Company’s customary payroll practices.                                 (b)           The Officer shall be eligible to participate in any bonus plan maintained by the Holding Company for its officers and employees. If the Officer shall earn any bonus under any bonus plan of the Bank but such bonus shall not be paid by the Bank, the Holding Company shall pay such bonus to the Officer. -------------------------------------------------------------------------------- 3                                   Section 5.               Employee Benefits and Other Compensation.                                   (a)           Except as otherwise provided in this Agreement, the Officer shall, during the Employment Period, be treated as an employee of the Holding Company and be entitled to participate in and receive benefits under the Holding Company’s employee benefit plans and programs, as well as such other compensation plans or programs (whether or not employee benefit plans or programs), as the Holding Company may maintain from time to time, in accordance with the terms and conditions of such employee benefit plans and programs and compensation plans and programs and with the Holding Company’s customary practices.                                 (b)           The Holding Company shall provide the Officer with a suitable automobile for use in the performance of the Officer’s duties hereunder and shall reimburse the Officer for all expenses incurred in connection therewith.                                 (c)           The Officer shall be entitled, without loss of pay, to vacation time in accordance with the policies periodically established by the Board for senior management officials of the Holding Company, which shall in no event be less than four weeks in each calendar year. Except as provided in section 7(b), the Officer shall not be entitled to receive any additional compensation from the Holding Company on account of her failure to take a vacation, nor shall she be entitled to accumulate unused vacation from one calendar year to the next except to the extent authorized by the Board for senior management officials of the Holding Company.                                   Section 6.               Working Facilities and Expenses.                                   The Officer’s principal place of employment shall be at the offices of the Holding Company in Nassau County or Queens County, New York or at such other location upon which the Holding Company and the Officer may mutually agree. The Holding Company shall provide the Officer, at her principal place of employment, with a private office, stenographic services and other support services and facilities consistent with her position with the Holding Company and necessary or appropriate in connection with the performance of her duties under this Agreement. The Holding Company shall reimburse the Officer for her ordinary and necessary business expenses, including, without limitation, travel and entertainment expenses, incurred in connection with the performance of her duties under this Agreement, upon presentation to the Holding Company of an itemized account of such expenses in such form as the Holding Company may reasonably require.                                   Section 7.               Termination with Holding Company Liability.                                   (a)           In the event that the Officer’s employment with the Bank and/or the Holding Company shall terminate during the Employment Period on account of:                                     (i)            the Officer’s voluntary resignation from employment with the Bank and the Holding Company within one year following an event that constitutes “Good Reason,” which is defined as:                                     (A)          the failure of the Bank to elect or to reelect the Officer to serve as its Executive Vice President/Chief Operating Officer or such other -------------------------------------------------------------------------------- 4     position as the Officer consents to hold, or the failure of the Holding Company to elect or reelect the Officer to serve as its Executive Vice President/Chief Operating Officer or such other position as the Officer consents to hold;                                       (B)           the failure of the Bank or the Holding Company to cure a material adverse change made by it in the Officer’s functions, duties, or responsibilities in her position with the Bank or the Holding Company, respectively, within sixty days following written notice thereof from the Officer;                                       (C)           the failure of the Bank or the Holding Company to maintain the Officer’s principal place of employment at its offices in Nassau County or Queens County, New York or at such other location upon which the Bank or the Holding Company and the Officer may mutually agree;                                       (D)          the failure of the Board to extend the Employment Period within the times provided in section 2(b) or the failure of the Bank’s board of directors to extend the Employment Period under the Bank Employment Agreement within the times provided in section 2(b) of such Agreement; provided, however, that such failure shall not constitute Good Reason until the earlier of 30 days after any determination by the Board or the Bank’s board of directors that the Employment Period shall not be so extended or August 1 of such year;                                       (E)           the failure of the Bank or the Holding Company to cure a material breach of the Bank Employment Agreement or this Agreement by the Bank or the Holding Company, respectively, within sixty days following written notice thereof from the Officer; or                                       (F)           after a Change of Control (as defined in section 10), the failure of any successor company to the Bank to assume the Bank Employment Agreement or of any successor company to the Holding Company to assume this Agreement.                                       (ii)          the discharge of the Officer by the Bank or the Holding Company for any reason other than (A) for “Cause” as defined in section 8(b) of this Agreement or (B) the Officer’s death or “Disability” as defined in section 9(a) of this Agreement; or                                       (iii)         the Officer’s voluntary resignation from employment with the Bank and the Holding Company for any reason within the sixty-day period commencing six months following a Change of Control, as defined in section 10;   then the Holding Company shall provide the benefits and pay to the Officer as liquidated damages the amounts provided for under section 7(b).                                 (b)           Upon the termination of the Officer’s employment with the Bank and/or the Holding Company under circumstances described in section 7(a), the Holding Company shall pay and provide to the Officer: -------------------------------------------------------------------------------- 5                                     (i)            her earned but unpaid Current Salary as of the date of termination, plus an amount representing any accrued but unpaid vacation time and floating holidays;                                     (ii)           if the Officer’s termination of employment occurs after a Change of Control, a pro rata portion of her bonus for the year of termination, determined by multiplying the amount of the bonus earned by the Officer for the preceding calendar year by the number of full months of employment during the year of termination, and dividing by 12. If the Officer’s termination of employment occurs prior to a Change of Control, the Compensation Committee of the Bank or of the Holding Company may, in its sole discretion, award the Officer a bonus for the year of termination, in an amount determined by such Committee either at the time of termination of employment or at the time bonuses to active employees are awarded, which the Holding Company shall pay to the Officer promptly after it has been awarded;                                     (iii)          the benefits, if any, to which she is entitled as a former employee under the Bank’s and the Holding Company’s employee benefit plans and programs and compensation plans and programs;                                     (iv)          continued health and welfare benefits (including group life, disability, medical and dental benefits), in addition to that provided pursuant to section 7(b)(iii), to the extent necessary to provide coverage for the Officer for the Severance Period (as defined in section 7(c)). Such benefits shall be provided through the purchase of insurance, and shall be equivalent to the health and welfare benefits (including cost-sharing percentages) provided to active employees of the Bank and the Holding Company (or any successor thereof) as from time to time in effect during the Severance Period. Where the amount of such benefits is based on salary, they shall be provided to the Officer based on the highest annual rate of Current Salary achieved by the Officer during the Employment Period. If the Officer had dependent coverage in effect at the time of her termination of employment, she shall have the right to elect to continue such dependent coverage for the Severance Period. The benefits to be provided under this paragraph (iv) shall cease to the extent that substantially equivalent benefits are provided to the Officer (and/or her dependents) by a subsequent employer of the Officer;                                     (v)           if the Officer is age 55 or older at the end of the Severance Period, she shall be entitled to elect coverage for himself and her dependents under the Bank’s and the Holding Company’s retiree medical and retiree life insurance programs. Such coverage, if elected, shall commence upon the expiration of the Severance Period, without regard to whether the Officer commences her pension benefit at such time, and shall continue for the life of each of the Officer and her spouse and for so long as any other of her covered dependents remain eligible. The coverage and cost-sharing percentage of the Officer and her dependents under such programs shall be those in effect under such programs on the date of the Officer’s termination of employment with the Bank or the Holding Company, and shall not be adversely modified without the Officer’s written consent; and -------------------------------------------------------------------------------- 6                                     (vi)          within thirty days following her termination of employment with the Bank or the Holding Company, a cash lump sum payment in an amount equal to the Current Salary and bonus that the Officer would have earned pursuant to sections 4(a) and 4(b), respectively, if she had continued working for the Holding Company and the Bank for the Severance Period (basing such bonus on the highest bonus, if any, paid to the Officer by the Bank or the Holding Company under section 4(b) of the Bank Employment Agreement or this Agreement within the three-year period prior to the date of termination).   The lump sum payable pursuant to clause (vi) of this section 7(b) is to be paid in lieu of all other payments of Current Salary and bonus provided for under this Agreement relating to the period following any such termination and shall be payable without proof of damages and without regard to the Officer’s efforts, if any, to mitigate damages. The Holding Company 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 provided under this section 7(b) are reasonable under the circumstances as a combination of liquidated damages and severance benefits. The Officer shall not be entitled to any payment under this Agreement to make up for benefits that would have been earned under the Bank’s Retirement Plan, 401(k) Savings Plan, and Supplemental Savings Incentive Plan (SSIP), and the Flushing Financial Corporation (“Holding Company”) Stock-Based Profit Sharing Plan had she continued working for the Bank for the Severance Period.                                   (c)            For purposes of section 7, the Severance Period means:     (i) in the case of termination of employment prior to November 1, 2006, a period of 6 months;   (ii) in the case of termination of employment on or after November 1, 2006, but prior to the second anniversary of this Agreement, a period of 12 months;   (iii) in the case of termination of employment on or after the second anniversary of this Agreement, a period of 24 months; and   (iv) notwithstanding clauses (i), (ii), and (iii) of this section 7(c), in the case of termination of employment after a Change of Control, a period of 24 months, without regard to the date of such termination of employment.                                   (d)           Notwithstanding any contrary provision in this section 7 or in section 8 or 9, to the extent necessary in order to avoid penalties under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), payments scheduled to be paid upon termination of employment shall instead be paid six (6) months after termination of employment. -------------------------------------------------------------------------------- 7                                   Section 8.               Termination for Cause or Voluntary Resignation Without Good Reason.                                   (a)           In the event that the Officer’s employment with the Holding Company shall terminate during the Employment Period on account of:   (i) the discharge of the Officer by the Holding Company for Cause; or     (ii) the Officer’s voluntary resignation from employment with the Holding Company for reasons other than those constituting a Good Reason;   then the Holding Company shall have no further obligations under this Agreement, other than (A) the payment to the Officer of her earned but unpaid Current Salary as of the date of the termination of her employment; and (B) the provision of such other benefits, if any, to which she is entitled as a former employee under the Bank’s and the Holding Company’s employee benefit plans and programs and compensation plans and programs.                                 (b)           For purposes of this Agreement, the term “Cause” means the Officer’s (i) willful failure to perform her duties under this Agreement or under the Bank Employment Agreement and failure to cure such failure within sixty days following written notice thereof from the Holding Company or the Bank, or (ii) intentional engagement in dishonest conduct in connection with her performance of services for the Holding Company or the Bank or conviction of a felony.                                   Section 9.               Disability or Death.                                   (a)           The Officer’s employment with the Holding Company may be terminated for “Disability” if the Officer shall become disabled or incapacitated during the Employment Period to the extent that she has been unable to perform the essential functions of her employment for 270 consecutive days, subject to the Officer’s right to receive from the Holding Company following her termination due to Disability the following percentages of her Current Salary under section 4 of this Agreement: 100% for the first six months, 75% for the next six months and 60% thereafter for the remaining term of the Employment Period (less in each case any benefits which may be payable to the Officer under the provisions of disability insurance coverage in effect for Bank and/or Holding Company employees).                                 (b)           In the event that the Officer’s employment with the Holding Company shall terminate during the Employment Period on account of death, the Holding Company shall promptly pay the Officer’s designated beneficiaries or, failing any designation, her estate a cash lump sum payment equal to her earned but unpaid Current Salary.                                 (c)           In the event of the Officer’s termination of employment on account of death or Disability prior to a Change of Control, the Compensation Committee of the Bank or of the Holding Company may, in its sole discretion, award the Officer a bonus for the year of termination, in an amount determined by such Committee either at the time of termination of employment or at the time bonuses to active employees are awarded, in which case the Holding -------------------------------------------------------------------------------- 8   Company shall pay such bonus to the Officer or, in the event of death, her designated beneficiaries or estate, as the case may be, promptly after it is awarded. In the event of the Officer’s termination of employment on account of death or Disability after a Change of Control, the Holding Company shall promptly pay the Officer, or in the event of death, her designated beneficiaries or estate, as the case may be, a pro rata portion of her bonus for the year of termination, determined by multiplying the amount of the bonus earned by the Officer for the preceding calendar year by the number of full months of employment during the year of termination, and dividing by 12.                                   Section 10.             Change of Control.                                   For purposes of this Agreement, the term “Change of Control” means:                                 (a)           the acquisition of all or substantially all of the assets of the Bank or the Holding Company by any person or entity, or by any persons or entities acting in concert;                                 (b)           the occurrence of any event if, immediately following such event, a majority of the members of the Board of Directors of the Bank or the Holding Company or of any successor corporation shall consist of persons other than Current Members (for these purposes, a “Current Member” shall mean any member of the Board of Directors of the Bank or the Holding Company as of July 18, 2000 and any successor of a Current Member whose nomination or election has been approved by a majority of the Current Members then on the Board of Directors);                                 (c)           the acquisition of beneficial ownership, directly or indirectly (as provided in Rule 13d-3 of the Securities Exchange Act of 1934 (the “Act”), or any successor rule), of 25% or more of the total combined voting power of all classes of stock of the Bank or the Holding Company by any person or group deemed a person under Section 13(d)(3) of the Act; or                                 (d)           approval by the stockholders of the Bank or the Holding Company of an agreement providing for the merger or consolidation of the Bank or the Holding Company with another corporation where the stockholders of the Bank or the Holding Company, immediately prior to the merger or consolidation, would not beneficially own, directly or indirectly, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of the total combined voting power of all classes of stock of the surviving corporation.                                   Section 11.             Excise Tax Gross-up.                                   In the event that the Officer becomes entitled to one or more payments (with a “payment” including, without limitation, the vesting of an option or other non-cash benefit or property, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Bank or the Holding Company or any affiliated company or from or pursuant to the terms of the Flushing Financial Corporation Employee Benefit Trust) (the “Total Payments”), which are or become subject to the tax imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed) (the “Excise Tax”), the Holding Company shall pay to the Officer at the time specified below an additional amount (the “Gross-up Payment”) (which -------------------------------------------------------------------------------- 9   shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by the Officer, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this section 11, but before reduction for any federal, state or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state or local income tax purposes because of the inclusion of the Gross-up Payment in the Officer’s adjusted gross income multiplied by the highest applicable marginal rate of federal, state or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made.                                 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax,                                     (i)            the Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants or auditors of nationally recognized standing selected by the Holding Company and reasonably acceptable to the Officer (“Independent Auditors”), the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax,                                     (ii)           the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i) above), and                                     (iii)          the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Holding Company’s Independent Auditors appointed pursuant to clause (i) above in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.                                   For purposes of determining the amount of the Gross-up Payment, the Officer shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Officer’s adjusted gross income); and (C) to have otherwise allowable deductions for federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in the Officer’s adjusted gross income. In the event that the Excise Tax is subsequently determined -------------------------------------------------------------------------------- 10   to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Officer shall repay to the Holding Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to the Officer or otherwise realized as a benefit by the Officer) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Holding Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined.                                 The Gross-up Payment provided for above shall be paid on the thirtieth day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Holding Company shall pay to the Officer on such day an estimate, as determined by the Holding Company’s Independent Auditors appointed pursuant to clause (i) above, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess (amount together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), shall be repaid by the Officer to the Holding Company within five (5) days after notice from the Holding Company of such determination. If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Holding Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Holding Company may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Holding Company’s control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder and the Officer shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. The Officer shall cooperate with the Holding Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder.                                 Notwithstanding any contrary provision in this section 11 to the extent necessary in order to avoid penalties under Section 409A of the Code, payments scheduled to be paid upon termination of employment shall instead be paid six (6) months after termination of employment. -------------------------------------------------------------------------------- 11                                   Section 12.             No Effect on Employee Benefit Plans or Compensation Programs                                   Except as expressly provided in this Agreement, the termination of the Officer’s employment during the term of this Agreement or thereafter, whether by the Holding Company or by the Officer, shall have no effect on the rights and obligations of the parties hereto under the Holding Company’s employee benefit plans or programs or compensation plans or programs (whether or not employee benefit plans or programs) that the Holding Company may maintain from time to time.                                   Section 13.             Successors and Assigns.                                   This Agreement will inure to the benefit of and be binding upon the Officer, her legal representatives and estate or intestate distributees, and the Holding Company and its 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 assets and business of the Holding Company may be sold or otherwise transferred.                                   Section 14.             Notices.                                   Any communication to a party required or permitted 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 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:     Maria A. Grasso   <address on file>                                       If to the Holding Company:     Flushing Financial Corporation   1979 Marcus Avenue  Suite E140   Lake Success, New York 11042   Attention:  Corporate Secretary                                   Section 15.             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. -------------------------------------------------------------------------------- 12                                   Section 16.             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.                                   Section 17.             Counterparts.                                   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement.                                   Section 18.             Governing Law.                                   This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of law principles.                                   Section 19.             Headings.                                   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 20.             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 representations relating to the subject matter hereof, other than the Bank Employment Agreement. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.                                   Section 21.             Funding.                                   The Holding Company may elect in its sole discretion to fund all or part of its obligations to the Officer under this Agreement; provided, however, that should it elect to do so, all assets acquired by the Holding Company to fund its obligations shall be part of the general assets of the Holding Company and shall be subject to all claims of the Holding Company’s creditors.                                   Section 22.             Guarantee.                                   The Holding Company guarantees the payment by the Bank of any and all benefits and compensation to which the Officer is entitled under the Bank Employment Agreement. -------------------------------------------------------------------------------- 13                                   Section 23.             Non-duplication.                                   In the event that the Officer shall perform services for the Bank or any other direct or indirect subsidiary of the Holding Company, any compensation or benefits provided to the Officer by such other employer shall be applied to offset the obligations of the Holding Company hereunder, it being intended that this Agreement set forth the aggregate compensation and benefits payable to the Officer for all services to the Holding Company and all of its direct or indirect subsidiaries. The Officer hereby acknowledges that if any payment made or benefit provided by the Holding Company under this Agreement is also required to be made or provided by the Bank under the Bank Employment Agreement, such payment or benefit by the Holding Company under this Agreement shall offset the payment required to be made or benefit required to be provided by the Bank under the Bank Employment Agreement.                                   Section 24.             Required Regulatory Provisions.                                   Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Officer pursuant to this Agreement or otherwise are subject to and conditioned upon their compliance with 12 U.S.C. section 1828(k) and any regulations promulgated thereunder.                                 IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year first above written.       FLUSHING FINANCIAL CORPORATION           By:/s/John R. Buran   Name:  John R. Buran   Title:    President and CEO           /s/Maria A.Grasso   Maria A. Grasso --------------------------------------------------------------------------------

  Exhibit 10.4 FORM RESTRICTED STOCK AGREEMENT (Non-Performance Award)      This Restricted Stock Agreement (“Agreement”) dated to be effective «Date» (the “Effective Date”), is by and between ACE Cash Express, Inc., a Texas corporation (the “Company”), and  «FirstName»«MI» «LastName» (“Grantee”).      WHEREAS, the Company desires to provide an incentive to Grantee, in the form of shares of the Company’s capital stock, to encourage Grantee’s long-term performance for the Company and its shareholders and more closely align Grantee’s interest in the Company with that of the Company’s shareholders;      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth in this Agreement, and intending to be legally bound hereby, Grantee and the Company (collectively, the “Parties”) hereby agree as follows:      1. Issuance of Restricted Stock. The Company hereby agrees to issue to Grantee, and Grantee hereby agrees to purchase, «NmbrShares» shares (the “Restricted Shares”) of Common Stock, at a purchase price of $0.01 per share (the “Purchase Price Per Share”), in accordance with this Agreement and as a Restricted Stock Award subject to the terms and conditions of the ACE Cash Express, Inc. 1997 Stock Incentive Plan (the “Plan”), which are incorporated herein, as an incentive for Grantee’s continued efforts on behalf of the Company as one of its key employees. This Agreement is a Restricted Stock Agreement under the Plan, and unless otherwise defined in this Agreement, the capitalized terms used in this Agreement have the respective meanings assigned to them in the Plan. The total purchase price for the Restricted Shares shall be paid by Grantee’s delivery to the Company, at the time of execution of this Agreement, of cash or a check or any combination thereof.      2. Forfeiture.      (a) On the date of any Cessation (as defined below) of Grantee’s employment (the “Termination Date”) before the Forfeiture Restrictions lapse with respect to any of the Restricted Shares in accordance with Section 3, all of the Restricted Shares that are then subject to the Forfeiture Restrictions (the “Unvested Restricted Shares”) shall then automatically be forfeited by Grantee and returned and delivered to the Company without any obligation of the Company to pay any amount to Grantee or to any other person or entity and without any further action by Grantee. The “Cessation” of Grantee’s employment with the Company is any cessation of Grantee’s full-time employment with the Company and its Subsidiaries for any reason or under any circumstances, including because of Grantee’s death or Grantee’s disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code) as determined by the Committee, except for any (i) transfer of employment between or among the Company or any of its 1 --------------------------------------------------------------------------------   Subsidiaries, or (ii) any sick leave, military leave, or any other temporary personal leave of absence authorized by the Company.      (b) In addition, if Grantee breaches any of the terms and conditions of this Agreement or the Plan, or any rules, regulations, policies, and procedures of the Committee for this Agreement or the Plan, all of the Unvested Restricted Shares as of the date of such breach shall then automatically be forfeited by Grantee and returned and delivered to the Company without any obligation of the Company to pay any amount to Grantee or to any other person or entity and without any further action by Grantee.      (c) Grantee, by his acceptance of the Restricted Stock Award granted under this Agreement, irrevocably grants to the Company a power of attorney to transfer any and all Unvested Restricted Shares that are forfeited and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer. Grantee shall have no further right to or interest in any Unvested Restricted Shares that are so forfeited and transferred. The Parties expressly agree that these provisions governing the forfeiture and transfer of the Unvested Restricted Shares shall be specifically enforceable by the Company in a court of equity or law.      3. Lapse of Forfeiture Restrictions. Upon the termination or lapse of Forfeiture Restrictions regarding any or all of the Restricted Shares (those Restricted Shares no longer subject to Forfeiture Restrictions being “Vested Restricted Shares”) and upon the satisfaction of the Withholding Liability (as defined below) corresponding to the Vested Restricted Shares in accordance with Section 13(a), one or more stock certificates representing the Vested Restricted Shares, free of Forfeiture Restrictions, shall be delivered to Grantee at Grantee’s request in accordance with this Agreement. The Forfeiture Restrictions shall terminate or lapse, and certain or all (as described below) of the Unvested Restricted Shares shall become Vested Restricted Shares, if there has been no Cessation of Grantee’s employment with the Company and no breach by Grantee as described in Section 2 before vesting in accordance with the following: [Describe applicable vesting date or dates or event or events and state related terms and provisions] [Add if vesting in installments: If the installment of vesting of the Restricted Shares set forth in ________________ of this Section 3 would result in the vesting of a fractional Restricted Share, such installment will result in the vesting of the next higher Restricted Share, and the final installment (set forth in _______________ of this Section 3) will result in the vesting of the balance of the Restricted Shares.] In addition, any or all of the Unvested Restricted Shares shall vest upon a decision by the Committee, in its sole discretion and as of a date determined by the Committee, to vest those Unvested Restricted Shares.      4. Representations of Grantee. Grantee represents and warrants to the Company as follows:      (a) Grantee has received a copy of the Plan and has read and become familiar with the terms and conditions of the Plan and agrees to be bound, and to abide, by the Plan. 2 --------------------------------------------------------------------------------        (b) Grantee has reviewed this Agreement, has had an opportunity to obtain the advice of counsel before executing this Agreement, and fully understands all of the terms and conditions of this Agreement and the Plan.      (c) Grantee hereby accepts the Restricted Stock Award granted by this Agreement subject to all of the terms and conditions of this Agreement and the Plan.      (d) Grantee is fully aware of the lack of liquidity of the Restricted Shares — e.g., because of the restrictions on transferability of the Restricted Shares held by the Escrow Holder (as defined below), Grantee may not be able to sell or dispose of the Restricted Shares or use them as collateral for loans.      5. Certain Restrictions on Transfer. Except as provided in Section 2, Grantee may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of (whether voluntarily, by operation of law, or otherwise) any or all of the Unvested Restricted Shares, or any rights thereto or interests therein, or any or all of the Vested Restricted Shares held by the Escrow Holder, or any rights thereto or interests therein. Any transfer in violation of this Section 5 shall be void and without any force or effect and shall constitute a breach of the terms and conditions of this Agreement and the Plan. Grantee also understands that the Company is under no obligation to register, under any applicable securities laws, any resale of any of the Restricted Shares that become Vested Restricted Shares delivered to Grantee and that an exemption from such registration requirements may not be available or may not permit Grantee to resell or transfer any of such Vested Restricted Shares in the amounts or at the times proposed by Grantee.      6. Dividend and Voting Rights. Subject to this Agreement, Grantee shall have all of the rights of a shareholder with respect to the Restricted Shares, including the Unvested Restricted Shares while they are held in escrow, including the right to vote the Restricted Shares and to receive any and all dividends and other distributions made with respect to the Restricted Shares. Without limiting the preceding sentence, Grantee shall be entitled to receive any cash dividends or other cash distributions paid or made by the Company with respect to the Unvested Restricted Shares, without deposit into escrow, and any other distributions of property with respect to the Unvested Restricted Shares shall be deposited into escrow in accordance with Section 8(b). Upon any forfeiture of Unvested Restricted Shares, Grantee shall have no further rights with respect to those Unvested Restricted Shares, but the forfeiture of Unvested Restricted Shares shall not invalidate any votes or consents made or executed by Grantee with respect to those Unvested Restricted Shares before their forfeiture or create any obligation to repay any cash dividend or other cash distribution received with respect to those Unvested Restricted Shares before their forfeiture. 3 --------------------------------------------------------------------------------        7. Escrow of Restricted Shares.      (a) To ensure the availability for delivery of Unvested Restricted Shares upon forfeiture in accordance with Section 2 and to ensure satisfaction of the Withholding Liability regarding Vested Restricted Shares in accordance with Section 13(a), Grantee shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the “Escrow Holder”) the share certificate(s) representing the Unvested Restricted Shares, together with corresponding stock assignment(s), in the form attached hereto as Exhibit A, duly endorsed in blank. The Unvested Restricted Shares and stock assignment(s) shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Grantee attached hereto as Exhibit B, until either (i) those Unvested Restricted Shares are forfeited in accordance with Section 2 or (ii) the Forfeiture Restrictions terminate or lapse regarding those Unvested Restricted Shares, which thereby become Vested Restricted Shares, and the Withholding Liability regarding those Vested Restricted Shares is satisfied.      (b) The Escrow Holder shall not be liable for any act that he or she may do or omit to do with respect to holding the Restricted Shares and/or any other property in escrow while acting in good faith and in the exercise of his or her judgment.      (c) Upon the forfeiture of all or any of the Unvested Restricted Shares to the Company in accordance with Section 2, the Escrow Holder, upon receipt of written notice from the Company, shall take all steps necessary to accomplish the transfer of those Unvested Restricted Shares to the Company.      (d) Upon the termination or lapse of the Forfeiture Restrictions regarding all or any of the Unvested Restricted Shares and upon the Company’s acknowledgment that the corresponding Withholding Liability is satisfied, the Escrow Holder shall promptly deliver to Grantee the certificate(s) representing those Vested Restricted Shares.      8. Capital Adjustments and Distributions.      (a) The number of the Restricted Shares shall be adjusted in accordance with the provisions of the first paragraph of Section 14 of the Plan.      (b) Any new, substituted, or additional securities or other property (including any money paid other than as a regular cash dividend) that is, by reason of any stock dividend, stock split, recapitalization, or other change in the outstanding Common Stock, distributed on or with respect to, or exchanged for, (i) the Unvested Restricted Shares shall immediately be subject to the Forfeiture Restrictions, the forfeiture provisions of Section 2, and the escrow requirement of Section 7, all to the same extent as the Unvested Restricted Shares on or with respect to which such distribution or exchange was made, and (ii) the Vested Restricted Shares that are held by the Escrow Holder shall immediately be subject to the escrow requirement of Section 7, to the same extent as the Vested Restricted Shares on or with respect to which such distribution or exchange was made. Appropriate adjustments, as determined by the Committee, to reflect the distribution or exchange of such securities or other property shall be made to the number of the Restricted Shares in order to reflect any such event. 4 --------------------------------------------------------------------------------        9. Administration. The Committee shall interpret this Agreement and shall prescribe such rules, regulations, policies, and procedures in connection with the operation of this Agreement as the Committee determines (in good faith) to be advisable. The Committee may rescind and amend its rules and regulations from time to time. The good-faith interpretation by the Committee of any of the provisions of this Agreement shall be final and binding upon the Parties.      10. Effect of Agreement. Neither the execution or effectiveness of this Agreement nor any action of the Board or the Committee in connection with or relating to this Agreement shall be deemed to give Grantee any rights except as may be expressed in this Agreement. The existence of the Plan and this Agreement shall not affect in any way the right of the Board, the Committee, or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization, or other change in the Company’s capital structure or its business, any merger or consolidation or other transaction involving the Company, any issuance of other shares of Common Stock or any other securities of the Company (including bonds, debentures, or shares of preferred stock ahead of or affecting the Common Stock or the rights thereof), the dissolution or liquidation of the Company or any sale or transfer of all or any part of the Company’s assets or business, or any other corporate act or proceeding by or for the Company. Nothing in the Plan or in this Agreement shall confer upon Grantee any right with respect to the Grantee’s employment with the Company or affect or interfere in any way with the right of either the Company or Grantee to terminate Grantee’s employment (with or without cause).      11. Refusal to Transfer. The Company shall not be required to (i) transfer on its books, or authorize the Company’s transfer agent to transfer on its books, any Unvested Restricted Shares, or any Vested Restricted Shares held by the Escrow Holder pending satisfaction of the corresponding Withholding Liability, purported to have been sold or otherwise transferred in violation of any of the provisions of the Plan or this Agreement, or (ii) treat as owner of such Unvested Restricted Shares, or accord the right to vote or to any dividends or other distributions to, any purchaser or other transferee to whom or which such Unvested Restricted Shares have been purported to be so transferred.      12. Legend. If the Company so determines, the share certificate(s) representing the Unvested Restricted Shares, and any Vested Restricted Shares held by the Escrow Holder pending satisfaction of the corresponding Withholding Liability, may be endorsed with the following legend, in addition to any legend required under applicable securities laws: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE AND TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER. NONE OF THE SHARES MAY BE TRANSFERRED EXCEPT AS SET FORTH IN THAT CERTAIN RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. 5 --------------------------------------------------------------------------------        13. Tax Matters.      (a) If the Company becomes obligated to withhold an amount on account of any federal, state, or local tax imposed because of the grant or sale of the Restricted Shares to Grantee under this Agreement or the termination or lapse of the Forfeiture Restrictions regarding any of the Unvested Restricted Shares under this Agreement, including any federal, state, or other income tax, any FICA, or any disability insurance or employment tax, then Grantee shall pay that amount (the “Withholding Liability”) to the Company on or promptly after the date of the event that imposes the obligation to withhold on the Company. Payment of the Withholding Liability to the Company shall be made in cash, by certified or cashier’s check payable to the Company, or in any other form acceptable to the Committee. Grantee hereby acknowledges and agrees that the Company may withhold or offset the Withholding Liability from any compensation or other amounts payable to Grantee from the Company if Grantee does not pay the Withholding Liability to the Company, and Grantee agrees that the Company’s withholding and offset of any such amount, and the payment of it to the relevant taxing authority or authorities, shall constitute full satisfaction of the Company’s obligation to pay any such compensation or other amounts to Grantee. Further, unless the Committee otherwise determines, the Company’s obligation to deliver any Vested Restricted Shares, or any stock certificate or certificates representing Vested Restricted Shares, to Grantee shall be subject to, and conditioned upon, payment of the Withholding Liability. Accordingly, the Company shall be entitled to cause the Escrow Holder to continue to hold the stock certificate or certificates representing any Vested Restricted Shares until the Withholding Liability corresponding to those Vested Restricted Shares has been or is satisfied. The Company shall also be entitled to cause a sale or sales of Vested Restricted Shares on behalf of Grantee pursuant to which all or a portion of the proceeds are paid to the Company to satisfy the Withholding Liability and all remaining proceeds (if any) are delivered to Grantee, and Grantee agrees to take all such action as may be necessary or appropriate to effect such sales.      (b) Grantee has reviewed with his own tax advisor(s) the federal, state, and local tax consequences of this acquisition of the Restricted Shares and the other transactions contemplated by this Agreement. Grantee is relying solely on such advisor(s) and not on any statements or representations of the Company or any of its agents. Grantee understands and agrees that he, and not the Company, shall be responsible for his own tax liability that may arise as a result of the transactions contemplated by this Agreement. Grantee understands that Section 83 of the Internal Revenue Code (including any amendments and successor provisions to section and any regulations promulgated under such section), taxes as ordinary income the difference between the purchase price for the Restricted Shares and the fair market value of the Restricted Shares as of the date any restrictions on the Restricted Shares terminate or lapse. In this context, “restriction” includes the Forfeiture Restrictions under Section 2. Grantee understands that he may elect to be taxed at the time the Restricted Shares are granted, rather than when and as the restrictions terminate or lapse (if ever), by filing an election under Section 83(b) of the Internal Revenue Code with the Internal Revenue Service within thirty (30) days from the Effective Date. GRANTEE ACKNOWLEDGES THAT IT IS HIS SOLE RESPONSIBILITY (AND NOT THE COMPANY’S) TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THAT FILING ON HIS BEHALF. 6 --------------------------------------------------------------------------------        14. Entire Agreement; Governing Law. This Agreement and the Plan constitute the entire agreement of the Parties with respect to the subject matter hereof and supersede all prior undertakings and agreements of the Parties with respect to the subject matter hereof. Nothing in the Plan or in this Agreement (except as expressly provided herein) is intended to confer any rights or remedies on any person other than the Parties. This Agreement is to be construed in accordance with, enforced under, and governed by the laws of the State of Texas.      15. Amendment; Waiver. The Committee may at any time or from time to time amend this Agreement in any respect, except that no amendment that adversely affects Grantee may be effected without a writing signed by the Parties. Any provision of this Agreement for the benefit of the Company may be waived by the Committee or the Board. Unless otherwise expressed in the waiver, such a waiver in one instance or with respect to one provision of this Agreement shall not be deemed to be a waiver in any other instance or with respect to any other provision of this Agreement.      16. Effectiveness and Term. This Agreement is effective upon the Effective Date, and it shall continue in effect until the first to occur of (i) the termination or lapse of the Forfeiture Restrictions, and the satisfaction of all of the corresponding Withholding Liability, regarding all of the Restricted Shares, or (ii) all of the Restricted Shares are transferred to the Company, unless sooner terminated by the Parties.      17. Interpretive Matters. Whenever required by the context, pronouns and any variation thereof used in this Agreement shall be deemed to refer to the masculine, feminine, or neuter, and the singular shall include the plural, and vice versa. The term “include” or “including” does not denote or imply any limitation. The term “business day” means any Monday through Friday other than such a day on which banks are authorized to be closed in the State of Texas. Each reference in this Agreement to a “Section” shall be deemed to be to a section of this Agreement, unless otherwise stated. The captions and headings used in this Agreement are inserted for convenience and shall not be deemed a part of this Agreement for construction or interpretation.      18. Venue. Any suit, action, or proceeding arising out of or relating to this Agreement shall be brought in the United States District Court for the Northern District of Texas or in a Texas state court in Dallas County, Texas, and the Parties shall submit to the jurisdiction of such court. Each of the Parties irrevocably waives, to the fullest extent permitted by law, any objection it or he may have to the laying of venue for any such suit, action, or proceeding brought in such court. EACH OF THE PARTIES ALSO EXPRESSLY WAIVES ANY RIGHT IT OR HE HAS OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION, OR PROCEEDING.      19. Severability and Reformation. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, such provision shall be fully severable and severed, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof, and the remaining provisions of the Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or its severance. 7 --------------------------------------------------------------------------------        20. Notice. Any notice or other communication required or permitted hereunder shall be given in writing and shall be deemed given, effective, and received upon prepaid delivery in person or by courier, or upon the earlier of delivery or the third business day after deposit in the United States mail if sent by certified mail, with postage and fees prepaid, in any case addressed to the other Party at its or his address as shown beneath its or his signature to this Agreement, or to such other address as such Party may designate in writing from time to time by notice to the other Party in accordance with this Section 20.                   ACE CASH EXPRESS, INC.                   By:                                         Address:   1231 Greenway Drive             Suite 600             Irving, Texas 75038 8 --------------------------------------------------------------------------------   GRANTEE ACKNOWLEDGES AND AGREES THAT THE FORFEITURE RESTRICTIONS ON THE RESTRICTED SHARES SHALL TERMINATE OR LAPSE, IF AT ALL, ONLY AS EXPRESSLY STATED IN THIS AGREEMENT (NOT THROUGH THE GRANT OF THE RESTRICTED STOCK AWARD OR THE ISSUANCE OF THE RESTRICTED SHARES). GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT OR THE PLAN SHALL CONFER UPON GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEE’S EMPLOYMENT OR TO ANY FUTURE AWARDS. DATED:                                        , «Year»                       SIGNED:                                                                                               Address:   «Address1» «City», «State» «ZipCode» 9 --------------------------------------------------------------------------------   Exhibit A to Restricted Stock Agreement ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, I, «FirstName»«MI» «LastName», hereby sell, assign, and transfer unto ACE Cash Express, Inc. (the “Company”) or                      a total of                                           (                    ) shares of the Company’s Common Stock standing in my name in the share transfer records of the Company represented by Certificate No.                    , delivered herewith and do hereby irrevocably constitute and appoint                                                               as attorney-in-fact, with full power of substitution, to transfer such shares in the share transfer records of the Company.                                                                                  (Signature) «FirstName»«MI» «LastName» (Printed name) INSTRUCTIONS: Please do not fill in any blanks other than the signature and printed name lines. The purpose of this assignment is to enable the transfer of shares upon forfeiture under the Restricted Stock Agreement, without requiring additional signatures on the part of Grantee. A-1 --------------------------------------------------------------------------------   Exhibit B to Restricted Stock Agreement JOINT ESCROW INSTRUCTIONS «Date»                                                              ACE Cash Express, Inc. 1231 Greenway Drive, Suite 600 Irving, TX 75038 Dear                                         : As Escrow Agent for both ACE Cash Express, Inc., a Texas corporation (the “Company”), and «FirstName»«MI» «LastName» (“Grantee”) of «Nmbrshares» restricted shares of Common Stock, $0.01 par value per share, of the Company (the “Restricted Shares”) under that certain Restricted Stock Agreement between the Company and Grantee dated as of this date (the “Agreement”), you are hereby authorized and directed to hold the Restricted Shares, the stock certificate(s) evidencing the Restricted Shares, and any other property and documents delivered to you pursuant to the Agreement (all of which shall be part of the “Restricted Shares” hereunder) in accordance with the following instructions: 1.   In the event any or all of the Restricted Shares are forfeited under the Agreement, the Company shall give Grantee and you a written notice of forfeiture (the “Notice”) which sets forth the number of the Restricted Shares to be forfeited under the Agreement (the “Forfeited Shares”),. Grantee and the Company hereby irrevocably authorize and direct you to complete the transaction described in the Notice in accordance with the terms of the Notice. 2.   To complete the forfeiture of the Shares described in the Notice, you are directed to (a) complete, as appropriate, the stock assignment(s) necessary for the transfer of Forfeited Shares as described in the Notice, and (b) deliver them, together with the certificate(s) evidencing the Forfeited Shares to be transferred, to the Company. You are then directed to deliver to Grantee (i) the certificate(s) evidencing any of the Restricted Shares that are not Forfeited Shares (“Vested Restricted Shares”) as to which the Company has acknowledged that the Withholding Liability (as defined in the Agreement) has been or is satisfied, and (ii) any other property to which Grantee is entitled under the Agreement. Unless otherwise then instructed by the Company, you shall continue to hold any then Vested Restricted Shares as to which the Company has not acknowledged to you that the Withholding Liability has been or is satisfied. 3.   Grantee irrevocably authorizes the Company to deposit with you any and all certificates evidencing the Restricted Shares and corresponding stock assignments, and any additions to and substitutions for the Restricted Shares as described in the Agreement, to be held by you hereunder. Grantee hereby irrevocably constitutes and appoints you as his B-1 --------------------------------------------------------------------------------       attorney-in-fact and agent for the term of this escrow to execute, with respect to such Restricted Shares, all documents necessary or appropriate to make such Restricted Shares negotiable and to complete any transaction herein contemplated. Subject to the provisions of this paragraph 3, Grantee shall be entitled to exercise all rights and privileges of a shareholder of the Company with respect to the Restricted Shares while the Restricted Shares are held by you. 4.   Upon the termination or lapse of the Forfeiture Restrictions regarding any or all of the Restricted Shares under the Agreement, such that they become Vested Restricted Shares, and upon the Company’s acknowledgment to you that the corresponding Withholding Liability has been or is satisfied, you shall deliver to Grantee one or more certificates representing those Vested Restricted Shares and any corresponding property to which Grantee is then entitled under the Agreement. Notwithstanding the termination or lapse of the Forfeiture Restrictions regarding any or all of the Restricted Shares under the Agreement, such that they become Vested Restricted Shares, you shall continue to hold the certificate or certificates representing those Vested Restricted Shares, and any corresponding property, hereunder until receipt of the Company’s acknowledgment that the Withholding Liability corresponding to those Vested Restricted Shares has been or is satisfied (which, the Company and Grantee have agreed, may be effected at the Company’s instruction through a sale or sales of Vested Restricted Shares on behalf of Grantee pursuant to which all or a portion of the proceeds are paid to the Company to satisfy the Withholding Liability and all remaining proceeds, if any, are delivered to Grantee). 5.   If, at the time of termination of this escrow (i.e., upon either (a) the termination or lapse of the Forfeiture Restrictions regarding all of the Restricted Shares and the satisfaction of all of the corresponding Withholding Liability, or (b) transfer of all of the Forfeited Shares to the Company, in accordance with the Agreement), you should have in your possession any documents, securities, or other property belonging to Grantee, you shall deliver all of the same to the Grantee and shall be discharged of all further obligations hereunder. 6.   Your duties hereunder may be altered, amended, modified, or revoked only by a writing signed by all of the parties hereto. 7.   You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely, and shall be protected in relying when acting or refraining from acting, on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Grantee while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8.   You are hereby expressly authorized to disregard any and all warnings given by any of the other parties hereto or by any other person or entity, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments, or decrees of any court. In case you obey or comply with any such order, judgment, or decree, you shall not be liable to any of the other parties hereto or to any B-2 --------------------------------------------------------------------------------   other person or entity by reason of such compliance, notwithstanding any such order, judgment, or decree being subsequently reversed, modified, annulled, set aside, vacated, or found to have been entered without jurisdiction. 9.   You shall not be liable in any respect on account of the identity, authorities, or rights of the parties executing or delivering, or purporting to execute or deliver, the Agreement or any documents or papers deposited or called for hereunder. 10.   You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor, for which you will be reimbursed by the Company. 11.   Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer, employee, or agent of the Company or if you shall resign by written notice to each other party hereto. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 12.   If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or any obligations in respect hereto, the necessary party or parties hereto shall join in furnishing such instruments. 13.   It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the Restricted Shares or any other property held by you hereunder, you are authorized and directed to retain in your possession, without liability to anyone, all or any part of such property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 14.   Any notice required or permitted hereunder shall be given in writing and shall be given by personal or courier delivery or deposit in the United States mail, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by advance written notice to each of the other parties hereto: B-3 --------------------------------------------------------------------------------                 If to the Company:   ACE Cash Express, Inc.         1231 Greenway Drive         Suite 600         Irving, Texas 75038         Attention: Jay B. Shipowitz               If to Grantee:   «FirstName»«MI» «LastName» «Address1» «City», «State» «ZipCode»               If to the Escrow Agent:                                                                        c/o 1231 Greenway Drive         Suite 600         Irving, Texas 75038 Any notice so given by personal or courier delivery shall be deemed to have been duly given upon delivery, and any notice so given by United States mail shall be deemed to have been duly given upon the earlier of receipt by the addressee or the third business day after deposit in the mail. 15.   By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of the Joint Escrow Instructions; you do not become a party to the Agreement. 16.   This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 17.   These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Very truly yours, ACE CASH EXPRESS, INC. By:                                                             GRANTEE:                                                              «FirstName»«MI» «LastName» ESCROW AGENT:                                                              B-4

  Exhibit 10.36 January 31, 2006 Eric F. Brown McAfee, Inc. 5000 Headquarters Drive Plano, Texas 75024           Re: Benefits Dear Eric:           This letter is to confirm in writing certain benefits that you receive, and will continue to receive, in your capacity as Executive Vice President and Chief Financial Officer for McAfee, Inc. This letter does not alter in any way your benefit package as approved by McAfee’s Compensation Committee. Travel Expense Benefit: McAfee will pay for, or reimburse you for, all non-business travel expenses incurred by you for the purpose of traveling between Virginia and McAfee’s office in Plano, Texas (including coach class airfare, or such higher class as permitted by McAfee’s Travel Policy, and meal expense reimbursement). Lodging Expense Benefit: While you are regularly traveling between Virginia and Plano, Texas, McAfee will provide you with (i) company paid corporate housing in the Plano, Texas area (including the payment of all fees, deposits and utilities) and (ii) a company paid rental car (including reimbursement for fuel costs) for your business and personal use while working from the Plano, Texas office. Tax Gross Up: If the provision of the Travel Expense Benefit or Lodging Expense Benefit are determined to be taxable wages to you pursuant to the Internal Revenue Code, McAfee will make a payment to you (the gross up payment) to cover all taxes resulting from the Travel Expense Benefit or Lodging Expense Benefit such that the provision of these benefits is tax neutral to you. This letter shall be made a part of your Employment Agreement and except as supplemented above; your Employment Agreement is ratified and confirmed in accordance with its terms.           Sincerely,           /s/ George Samenuk George Samenuk     Chairman and Chief Executive Officer ACKNOWLEDGE AND AGREED -s- Eric F. Brown [d31992d3199200.gif] Eric F. Brown

  Exhibit 10.3 Execution Version   OWNER TRUST ADMINISTRATION AGREEMENT among HYUNDAI AUTO RECEIVABLES TRUST 2006-B, as Issuer, HYUNDAI MOTOR FINANCE COMPANY, as Administrator, and CITIBANK, N.A., as Indenture Trustee Dated as of November 3, 2006   (2006-B Owner Trust Administration Agreement)   --------------------------------------------------------------------------------   TABLE OF CONTENTS               Page Section 1.1 Duties of the Administrator with Respect to the Depository Agreement and the Indenture     2   Section 1.2 Additional Duties     5   Section 1.3 Non-Ministerial Matters     6   Section 2. Records     7   Section 3. Compensation     7   Section 4. Additional Information To Be Furnished to the Issuer     7   Section 5. Independence of the Administrator     7   Section 6. No Joint Venture     7   Section 7. Other Activities of Administrator     7   Section 8. Term of Agreement; Resignation and Removal of Administrator     7   Section 9. Action upon Termination, Resignation or Removal     9   Section 10. Notices     9   Section 11. Amendments     10   Section 12. Successors and Assigns     10   Section 13. GOVERNING LAW     11   Section 14. Headings     11   Section 15. Counterparts     11   Section 16. Severability     11   Section 17. Not Applicable to Citibank, N.A. in Other Capacities     11   Section 18. Limitation of Liability of Owner Trustee and Indenture Trustee     11   Section 19. Third-Party Beneficiary     12   Section 20. Nonpetition Covenants     12   Section 21. Liability of Administrator     12   Exhibit A POWER OF ATTORNEY     A-1   (2006-B Owner Trust Administration Agreement) -i-   --------------------------------------------------------------------------------             This OWNER TRUST ADMINISTRATION AGREEMENT dated as of November 3, 2006 among HYUNDAI AUTO RECEIVABLES TRUST 2006-B, a Delaware statutory trust (the “Issuer”), HYUNDAI MOTOR FINANCE COMPANY, a California corporation, as administrator (the “Administrator”), and CITIBANK, N.A., a national banking association, not in its individual capacity but solely as Indenture Trustee (the “Indenture Trustee”). W I T N E S S E T H :           WHEREAS, the Issuer was formed pursuant to a Trust Agreement dated as of June 5, 2006 and is governed by an Amended and Restated Trust Agreement dated as of November 3, 2006 (as amended and supplemented from time to time, the “Trust Agreement”), by and among Hyundai ABS Funding Corporation, as depositor (the “Depositor”), Wilmington Trust Company, not in its individual capacity but solely as owner trustee (the “Owner Trustee”), and Hyundai Motor Finance Company, as administrator (the “Administrator”), and is issuing 5.34763% Asset Backed Notes, Class A-1, 5.25% Asset Backed Notes, Class A-2, 5.11% Asset Backed Notes, Class A-3 and 5.15% Asset Backed Notes, Class A-4 (collectively, the “Class A Notes”), 5.19% Asset Backed Notes, Class B (the “Class B Notes”), 5.25% Asset Backed Notes, Class C (the “Class C Notes”), and 5.41% Asset Backed Notes, Class D Notes (the “Class D Notes” and, collectively with the Class A Notes, the Class B Notes and the Class C Notes, the “Notes”) pursuant to the Indenture dated as of November 3, 2006 (as amended and supplemented from time to time, the “Indenture”), between the Issuer and the Indenture Trustee, and is issuing asset backed certificates (the “Trust Certificates” and, collectively with the Notes, the “Securities”) pursuant to the Trust Agreement (capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Indenture or the Trust Agreement, as applicable);           WHEREAS, the Issuer has entered into certain agreements in connection with the issuance of the Securities, including (i) a Sale and Servicing Agreement dated as of November 3, 2006 (as amended and supplemented from time to time, the “Sale and Servicing Agreement”), among Hyundai Motor Finance Company, as seller (in such capacity, the “Seller”) and as servicer (in such capacity the “Servicer”), the Depositor, the Issuer and the Indenture Trustee, (ii) a Letter of Representations dated November 3, 2006 (as amended and supplemented from time to time, the “Depository Agreement”), among the Issuer, the Indenture Trustee, the Administrator and The Depository Trust Company (“DTC”) relating to the Notes and (iii) the Indenture (the Sale and Servicing Agreement, the Depository Agreement, the Indenture and the Trust Agreement being referred to hereinafter collectively as the “Related Agreements”);           WHEREAS, pursuant to the Related Agreements, the Issuer and Owner Trustee are required to perform certain duties in connection with (a) the Notes and the collateral therefor pledged pursuant to the Indenture (the “Collateral”) and (b) the beneficial ownership interests in the Issuer (the registered holders of such interests being referred to herein as the “Owners”);           WHEREAS, the Issuer and the Owner Trustee desire to have the Administrator perform certain of the duties of the Issuer and the Owner Trustee referred to in the preceding clause and to provide such additional services consistent with the terms of this Agreement and the Related Agreements as the Issuer and the Owner Trustee may from time to time request; and (2006-B Owner Trust Administration Agreement) 1 --------------------------------------------------------------------------------        WHEREAS, the Administrator has the capacity to provide the services required hereby and is willing to perform such services for the Issuer and the Owner Trustee on the terms set forth herein;      NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: Section 1.1   Duties of the Administrator with Respect to the Depository Agreement and the Indenture.      The Administrator agrees to perform all its duties as Administrator and all the duties of the Issuer and the Owner Trustee under the Depository Agreement. In addition, the Administrator shall consult with the Owner Trustee regarding the duties of the Issuer or the Owner Trustee under the Indenture and the Depository Agreement. The Administrator shall monitor the performance of the Issuer and shall advise the Owner Trustee when action is necessary to comply with the Issuer’s or the Owner Trustee’s duties under the Indenture and the Depository Agreement. The Administrator shall prepare for execution by the Issuer, or shall cause the preparation by other appropriate persons of, all such documents, reports, filings, instruments, certificates and opinions that it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Indenture and the Depository Agreement. In furtherance of the foregoing, the Administrator shall take all appropriate action that is the duty of the Issuer or the Owner Trustee to take pursuant to the Indenture including, without limitation, such of the foregoing as are required with respect to the following matters under the Indenture (parenthetical section references are to sections of the Indenture):      (a) the duty to cause the Note Register to be kept and to give the Indenture Trustee notice of any appointment of a new Note Registrar and the location, or change in location, of the Note Register (Section 2.04);      (b) the notification of Noteholders of the final principal payment on their Notes (Section 2.08(b));      (c) the preparation of or obtaining of the documents and instruments required for authentication of the Notes and delivery of the same to the Indenture Trustee (Section 2.02);      (d) the preparation, obtaining or filing of the instruments, opinions and certificates and other documents required for the release of collateral (Section 4.04);      (e) the maintenance of an office in the Borough of Manhattan, City of New York, for registration of transfer or exchange of Notes (Section 3.02);      (f) the duty to cause newly appointed Paying Agents, if any, to deliver to the Indenture Trustee the instrument specified in the Indenture regarding funds held in trust (Section 3.03);      (g) the direction to the Indenture Trustee to deposit moneys with Paying Agents, if any, other than the Indenture Trustee (Section 3.03); (2006-B Owner Trust Administration Agreement) 2 --------------------------------------------------------------------------------        (h) the obtaining and preservation of the Issuer’s qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of the Indenture, the Notes, the Collateral and each other instrument and agreement included in the Trust Estate (Section 3.04);      (i) the preparation of all supplements and amendments to the Indenture and all financing statements, continuation statements, instruments of further assurance and other instruments and the taking of such other action as is necessary or advisable to protect the Trust Estate (Section 3.05);      (j) the delivery of the Opinion of Counsel on the Closing Date and the annual delivery of Opinions of Counsel as to the Trust Estate, and the annual delivery of the Officer’s Certificate and certain other statements as to compliance with the Indenture (Sections 3.06 and 3.09);      (k) the identification to the Indenture Trustee in an Officer’s Certificate of a Person with whom the Issuer has contracted to perform its duties under the Indenture (Section 3.07(b));      (l) the delivery of written notice to the Indenture Trustee and the Rating Agencies of a Servicer Default under the Sale and Servicing Agreement and, if such Servicer Default arises from the failure of the Servicer to perform any of its duties under the Sale and Servicing Agreement with respect to the Receivables, the taking of all reasonable steps available to remedy such failure (Section 3.07(d));      (m) [Reserved];      (n) the preparation and obtaining of documents and instruments required for the release of the Issuer from its obligations under the Indenture (Section 3.10(b));      (o) the delivery of written notice to the Indenture Trustee and the Rating Agencies of each Event of Default under the Indenture and each default by the Servicer or the Seller under the Sale and Servicing Agreement and by the Seller or the Company under the Receivables Purchase Agreement (Section 3.19);      (p) the monitoring of the Issuer’s obligations as to the satisfaction and discharge of the Indenture and the preparation and execution of an Officer’s Certificate and the obtaining of the Opinion of Counsel and the Independent Certificate relating thereto (Section 4.01);      (q) the compliance with any written directive of the Indenture Trustee with respect to the sale of the Trust Estate in a commercially reasonable manner if an Event of Default shall have occurred and be continuing (Section 5.04);      (r) the preparation and delivery of notice to Noteholders of the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee (Section 6.08); (2006-B Owner Trust Administration Agreement) 3 --------------------------------------------------------------------------------        (s) the preparation of any written instruments required to confirm more fully the authority of any co-trustee or separate trustee and any written instruments necessary in connection with the resignation or removal of any co-trustee or separate trustee (Sections 6.08 and 6.10);      (t) the furnishing to the Indenture Trustee with the names and addresses of Noteholders during any period when the Indenture Trustee is not the Note Registrar (Section 7.01);      (u) the duty to provide reasonable and appropriate assistance to the Depositor or its designees, as applicable, with the preparation and filing with the Commission, any applicable state agencies and the Indenture Trustee of documents required to be filed on a periodic basis with, and summaries thereof as may be required by rules and regulations prescribed by, the Commission and any applicable state agencies and the transmission of such summaries, as necessary, to the Noteholders (Section 7.03);      (v) the opening of one or more accounts in the Issuer’s name, the preparation and delivery of Issuer Orders, Officer’s Certificates and Opinions of Counsel and all other actions necessary with respect to investment and reinvestment of funds in the Trust Accounts (Sections 8.02 and 8.03);      (w) the preparation of an Issuer Request and Officer’s Certificate and the obtaining of an Opinion of Counsel and Independent Certificates, if necessary, for the release of the Trust Estate (Sections 8.04 and 8.05);      (x) the preparation of Issuer Orders and the obtaining of Opinions of Counsel with respect to the execution of supplemental indentures and the mailing to the Noteholders of notices with respect to such supplemental indentures (Sections 9.01, 9.02 and 9.03);      (y) the execution and delivery of new Notes conforming to any supplemental indenture (Section 9.05);      (z) the duty to notify Noteholders of redemption of the Notes or to cause the Indenture Trustee to provide such notification (Section 10.02);      (aa) the preparation and delivery of all Officer’s Certificates, Opinions of Counsel and Independent Certificates with respect to any requests by the Issuer to the Indenture Trustee to take any action under the Indenture (Section 11.01(a));      (bb) the preparation and delivery of Officer’s Certificates and the obtaining of Independent Certificates, if necessary, for the release of property from the lien of the Indenture (Section 11.01(b));      (cc) the notification of the Rating Agencies, upon the failure of the Indenture Trustee to give such notification, of the information required pursuant to Section 11.04 of the Indenture (Section 11.04); (2006-B Owner Trust Administration Agreement) 4 --------------------------------------------------------------------------------        (dd) the preparation and delivery to Noteholders and the Indenture Trustee of any agreements with respect to alternate payment and notice provisions (Section 11.06);      (ee) the recording of the Indenture, if applicable (Section 11.14);      (ff) the preparation of Definitive Notes in accordance with the instructions of the Clearing Agency (Section 2.12);      (gg) the direction to Paying Agents to pay to the Indenture Trustee all sums held in trust by such Paying Agents (Section 3.03); and      (hh) the duty to provide the Indenture Trustee with the information necessary to deliver to each Noteholder such information as may be reasonably required to enable such Holder to prepare its United States federal and state and local income or franchise tax returns (Section 6.06). Section 1.2   Additional Duties.      (a) In addition to the duties of the Administrator set forth above, the Administrator shall (i) perform all duties and obligations applicable to or required of the Issuer as set forth in Appendix A to the Sale and Servicing Agreement in accordance with the terms and conditions thereof, and (ii) perform such calculations and shall prepare or shall cause the preparation by other appropriate persons of, and shall execute on behalf of the Issuer or the Owner Trustee, all such documents, reports, filings, instruments, certificates and opinions that it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Related Agreements or Section 5.04(a), (b), (c) or (d) of the Trust Agreement, and at the request of the Owner Trustee shall take all appropriate action that it is the duty of the Issuer or the Owner Trustee to take pursuant to the Related Agreements. In furtherance thereof, the Owner Trustee shall, on behalf of itself and of the Issuer, execute and deliver to the Administrator and to each successor Administrator appointed pursuant to the terms hereof, one or more powers of attorney substantially in the form of Exhibit A hereto, appointing the Administrator the attorney-in-fact of the Owner Trustee and the Issuer for the purpose of executing on behalf of the Owner Trustee and the Issuer all such documents, reports, filings, instruments, certificates and opinions. Subject to Section 5 of this Agreement, and in accordance with the directions of the Owner Trustee, the Administrator shall administer, perform or supervise the performance of such other activities in connection with the Collateral (including the Related Agreements) as are not covered by any of the foregoing provisions and as are expressly requested by the Owner Trustee and are reasonably within the capability of the Administrator. Such responsibilities shall include providing to the Depositor and the Indenture Trustee the monthly servicing report in an appropriate electronic form.      (b) Notwithstanding anything in this Agreement or the Related Agreements to the contrary, the Administrator shall be responsible for performance of the duties of the Owner Trustee set forth in Section 5.04(a), (b), (c) and (d), the penultimate sentence of Section 5.04 and Section 5.05(a) of the Trust Agreement with respect to, among other things, accounting and reports to Owners; provided, however, that the Owner Trustee shall retain responsibility for the (2006-B Owner Trust Administration Agreement) 5 --------------------------------------------------------------------------------   distribution of the Schedule K-1s (as prepared by the Administrator) necessary to enable each Owner to prepare its federal and state income tax returns.      (c) The Administrator shall satisfy its obligations with respect to clause (ii) above by retaining, at the expense of the Trust payable by the Administrator, a firm of independent public accountants (the “Accountants”) acceptable to the Owner Trustee, which shall perform the obligations of the Administrator thereunder.      (d) The Administrator shall perform the duties of the Administrator including, without limitation, those specified in Sections 8.01, 8.02 and 10.02 of the Trust Agreement required to be performed in connection with the fees, expenses and indemnification and the resignation or removal of the Owner Trustee, and any other duties expressly required to be performed by the Administrator under the Trust Agreement.      (e) In carrying out the foregoing duties or any of its other obligations under this Agreement, the Administrator may enter into transactions or otherwise deal with any of its affiliates; provided, however, that the terms of any such transactions or dealings shall be in accordance with any directions received from the Issuer and shall be, in the Administrator’s opinion, no less favorable to the Issuer than would be available from unaffiliated parties. Section 1.3   Non-Ministerial Matters.      With respect to matters that in the reasonable judgment of the Administrator are non-ministerial, the Administrator shall not take any action unless within a reasonable time before the taking of such action, the Administrator shall have notified the Owner Trustee of the proposed action and the Owner Trustee shall have withheld consent or provided an alternative direction. Unless explicitly provided under this Administration Agreement, for the purpose of the preceding sentence, “non-ministerial matters” shall include, without limitation:      (a) the amendment of or any supplement to the Indenture;      (b) the initiation of any claim or lawsuit by the Issuer and the compromise of any action, claim or lawsuit brought by or against the Issuer (other than in connection with the collection of the Receivables).      (c) the amendment, change or modification of the Related Agreements;      (d) the appointment of successor Note Registrars, successor Paying Agents and successor Indenture Trustees pursuant to the Indenture or the appointment of successor Administrators or Successor Servicers, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee of its obligations under the Indenture; and      (e) the removal of the Indenture Trustee.      Notwithstanding anything to the contrary in this Agreement, the Administrator shall not be obligated to, and shall not, (i) make any payments to the Noteholders under the Related Agreements, (ii) sell the Trust Estate pursuant to Section 5.04 of the Indenture or (iii) take any other action that the Issuer directs the Administrator not to take on its behalf. (2006-B Owner Trust Administration Agreement) 6 --------------------------------------------------------------------------------   Section 2. Records. The Administrator shall maintain appropriate books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Issuer at any time during normal business hours. Section 3. Compensation. As compensation for the performance of the Administrator’s obligations under this Agreement and as reimbursement for its expenses related thereto, the Administrator shall be paid by the Servicer in accordance with the Sale and Servicing Agreement. Section 4. Additional Information To Be Furnished to the Issuer. The Administrator shall furnish to the Issuer from time to time such additional information regarding the Collateral as the Issuer shall reasonably request. Section 5. Independence of the Administrator. For all purposes of this Agreement, the Administrator shall be an independent contractor and shall not be subject to the supervision of the Issuer or the Owner Trustee with respect to the manner in which it accomplishes the performance of its obligations hereunder. Unless expressly authorized by the Issuer, the Administrator shall have no authority to act for or represent the Issuer or the Owner Trustee in any way and shall not otherwise be deemed an agent of the Issuer or the Owner Trustee. Section 6. No Joint Venture. Nothing contained in this Agreement (i) shall constitute the Administrator and either of the Issuer or the Owner Trustee as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) shall be construed to impose any liability as such on any of them or (iii) shall be deemed to confer on any of them any express, implied or apparent authority to incur any obligation or liability on behalf of the others. Section 7. Other Activities of Administrator.      Nothing herein shall prevent the Administrator or its Affiliates from engaging in other businesses or, in its sole discretion, from acting in a similar capacity as an administrator for any other person or entity even though such person or entity may engage in business activities similar to those of the Issuer, the Owner Trustee or the Indenture Trustee.      The Administrator and its affiliates may generally engage in any kind of business with any person party to a Related Agreement, any of its affiliates and any person who may do business with or own securities of any such person or any of its affiliates, without any duty to account therefor to the Issuer, the Owner Trustee or the Indenture Trustee. Section 8. Term of Agreement; Resignation and Removal of Administrator.      (a) This Agreement shall continue in force until the dissolution of the Issuer, upon which event this Agreement shall automatically terminate.      (b) Subject to Sections 8(e) and (f), the Administrator may resign its duties hereunder by providing the Issuer with at least 60 days’ prior written notice. (2006-B Owner Trust Administration Agreement) 7 --------------------------------------------------------------------------------        (c) Subject to Sections 8(e) and (f), the Issuer may remove the Administrator without cause by providing the Administrator with at least 60 days’ prior written notice.      (d) Subject to Sections 8(e) and (f), at the sole option of the Issuer, the Administrator may be removed immediately upon written notice of termination from the Issuer to the Administrator if any of the following events shall occur:           (i) the Administrator shall default in the performance of any of its duties under this Agreement and, after notice of such default, shall not cure such default within ten Business Days (or, if such default cannot be cured in such time, shall not give within ten days such assurance of cure as shall be reasonably satisfactory to the Issuer);           (ii) a court having jurisdiction in the premises shall enter a decree or order for relief, and such decree or order shall not have been vacated within 60 days, in respect of the Administrator in any involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or any substantial part of its property or order the winding-up or liquidation of its affairs; or           (iii) the Administrator shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, shall consent to the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for the Administrator or any substantial part of its property, shall consent to the taking of possession by any such official of any substantial part of its property, shall make any general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due.           The Administrator agrees that if any of the events specified in clauses (ii) or (iii) of this Section shall occur, it shall give written notice thereof to the Issuer and the Indenture Trustee within seven days after the happening of such event.      (e) No resignation or removal of the Administrator pursuant to this Section shall be effective until (i) a successor Administrator shall have been appointed by the Issuer, (ii) such successor Administrator shall have agreed in writing to be bound by the terms of this Agreement in the same manner as the Administrator is bound hereunder and (iii) the Owner Trustee and the Indenture Trustee consent to the successor Administrator.      (f) The appointment of any successor Administrator shall be effective only after receipt of written confirmation from each Rating Agency that the proposed appointment will not result in the qualification, downgrading or withdrawal of any rating assigned to the Notes by such Rating Agency.      (g) A successor Administrator shall execute, acknowledge and deliver a written acceptance of its appointment hereunder to the resigning Administrator and to the Issuer. Thereupon the resignation or removal of the resigning Administrator shall become effective, and the successor Administrator shall have all the rights, powers and duties of the Administrator under this Agreement. The successor Administrator shall mail a notice of its succession to the Noteholders and the Certificateholders. The resigning Administrator shall promptly transfer or (2006-B Owner Trust Administration Agreement) 8 --------------------------------------------------------------------------------   cause to be transferred all property and any related agreements, documents and statements held by it as Administrator to the successor Administrator and the resigning Administrator shall execute and deliver such instruments and do other things as may reasonably be required for fully and certainly vesting in the successor Administrator all rights, power, duties and obligations hereunder.      (h) In no event shall a resigning Administrator be liable for the acts or omissions of any successor Administrator hereunder.      (i) In the exercise or administration of its duties hereunder and under the Related Documents, the Administrator may act directly or through its agents or attorneys pursuant to agreements entered into with any of them, and the Administrator shall not be liable for the conduct or misconduct of such agents or attorneys if such agents or attorneys shall have been selected by the Administrator with due care. Section 9. Action upon Termination, Resignation or Removal. Promptly upon the effective date of termination of this Agreement pursuant to Section 8(a) or the resignation or removal of the Administrator pursuant to Section 8(b) or (c), respectively, the Administrator shall be entitled to be paid all fees and reimbursable expenses accruing to it to the date of such termination, resignation or removal. The Administrator shall forthwith upon such termination pursuant to Section 8(a) deliver to the Issuer all property and documents of or relating to the Collateral then in the custody of the Administrator. In the event of the resignation or removal of the Administrator pursuant to Section 8(b) or (c), respectively, the Administrator shall cooperate with the Issuer and take all reasonable steps requested to assist the Issuer in making an orderly transfer of the duties of the Administrator. Section 10. Notices. Any notice, report or other communication given hereunder shall be in writing and addressed as follows:   (a)   if to the Issuer or the Owner Trustee, to:         Hyundai Auto Receivables Trust 2006-B In care of Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration     (b)   if to the Administrator, to:         Hyundai Motor Finance Company 10550 Talbert Avenue Fountain Valley, CA 92708 Attention: Vice President, Finance with a copy to the General Counsel     (c)   if to the Indenture Trustee, to: (2006-B Owner Trust Administration Agreement) 9 --------------------------------------------------------------------------------         Citibank, N.A. 388 Greenwich Street, 14th Floor New York, New York 10013 Attention: Structured Finance Agency and Trust – Hyundai Auto Receivables Trust 2006-B or to such other address as any party shall have provided to the other parties in writing. Any notice required to be in writing hereunder shall be deemed given if such notice is mailed by certified mail, postage prepaid, or hand-delivered to the address of such party as provided above. Section 11. Amendments. This Agreement may be amended from time to time by a written amendment duly executed and delivered by the Issuer, the Administrator and the Indenture Trustee, with prior written notice to each Rating Agency, without the consent of the Owner Trustee, the Noteholders and the Certificateholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement to cure any ambiguity, to correct or supplement any provisions in this agreement; provided that (a) such amendment will not materially and adversely affect the interest of any Noteholder or Certificateholder as confirmed by an opinion of counsel provided to the Indenture Trustee and (ii) the Administrator shall have delivered to the Owner Trustee and the Indenture Trustee, an Opinion of Counsel stating that, in the opinion of such counsel, either (i) all financing statements and continuation statements have been filed that are necessary to fully preserve and protect the interest of the Owner Trustee and the Indenture Trustee in the Receivables, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (ii) no such action shall be necessary to preserve and protect such interest. This Agreement may also be amended by the Issuer, the Administrator and the Indenture Trustee with the written consent of the Owner Trustee and the holders of Notes evidencing at least a majority of the Outstanding Amount of the Controlling Class and the holders of Trust Certificates evidencing at least a majority of the Certificate Percentage Interests for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of Noteholders or the Certificateholders; provided, however, that no such amendment may (a) reduce the interest rate or principal amount of any Note or Certificate or delay the Stated Maturity Date of any Note without the consent of any Holder of such Note or (b) reduce the aforesaid percentage of the holders of Notes and Trust Certificates which are required to consent to any such amendment, without the consent of the holders of all the outstanding Notes and Trust Certificates. Notwithstanding the foregoing, the Administrator may not amend this Agreement without the permission of the Seller, which permission shall not be unreasonably withheld. Prior to consenting to any such amendment the Indenture Trustee shall have the right to receive (at other than its own expense) an Opinion of Counsel that such amendment is authorized or permitted by this Agreement. Section 12. Successors and Assigns. This Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer and the Owner Trustee and subject to the satisfaction of the Rating Agency Condition in respect thereof. An assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Agreement may be assigned by the Administrator without the consent of the Issuer or the Owner Trustee to a corporation or other organization that is a (2006-B Owner Trust Administration Agreement) 10 --------------------------------------------------------------------------------   successor (by merger, consolidation or purchase of assets) to the Administrator; provided that such successor organization executes and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an agreement in which such corporation or other organization agrees to be bound hereunder by the terms of said assignment in the same manner as the Administrator is bound hereunder and represents that it has the financial ability to satisfy its indemnification obligations hereunder. Notwithstanding the foregoing, the Administrator can transfer its obligations to any affiliate that succeeds to substantially all of the assets and liabilities of the Administrator and who has represented and warranted that it is not less creditworthy than the Administrator. Subject to the foregoing, this Agreement shall bind any successors or assigns of the parties hereto. Section 13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 14. Headings. The section headings hereof have been inserted for convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. Section 15. Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be an original, but all of which together shall constitute but one and the same agreement. Section 16. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 17. Not Applicable to Citibank, N.A. in Other Capacities. Nothing in this Agreement shall affect any obligation Citibank, N.A. may have in any other capacity. Section 18. Limitation of Liability of Owner Trustee and Indenture Trustee.      (a) Notwithstanding anything contained herein to the contrary, this instrument has been executed by the Owner Trustee solely in its capacity as Owner Trustee and in no event shall the Owner Trustee in its individual capacity or any beneficial owner of the Issuer have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement.      (b) Notwithstanding anything contained herein to the contrary, this Agreement has been countersigned by the Indenture Trustee solely as Indenture Trustee and in no event shall the Indenture Trustee have any liability for the representations, warranties, (2006-B Owner Trust Administration Agreement) 11 --------------------------------------------------------------------------------   covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer.      (c) No recourse under any obligation, covenant or agreement of the Issuer contained in this Agreement shall be had against any agent of the Issuer (including the Administrator and the Owner Trustee) as such by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely an obligation of the Issuer as a Delaware statutory trust, and that no personal liability whatever shall attach to or be incurred by any agent of the Issuer (including the Administrator and the Owner Trustee), as such, under or by reason of any of the obligations, covenants or agreements of the Issuer contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by the Issuer of any such obligations, covenants or agreements, either at common law or at equity, or by statute or constitution, of every such agent is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. Section 19. Third-Party Beneficiary. The Seller, the Depositor and the Owner Trustee are third-party beneficiaries to this Agreement and are entitled to the rights and benefits hereunder and may enforce the provisions hereof as if each were a party hereto. Section 20. Nonpetition Covenants. Notwithstanding any prior termination of this Agreement, the Administrator and the Indenture Trustee shall not, prior to the date which is one year and one day after the termination of this Agreement with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any court of government authority for the purpose of commencing or sustaining a case against the Issuer under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Issuer. Section 21. Liability of Administrator. Notwithstanding any provision of this Agreement, the Administrator shall not have any obligations under this Agreement other than those specifically set forth herein, and no implied obligations of the Administrator shall be read into this Agreement. Neither the Administrator nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken in good faith by it or them under or in connection with this Agreement, except for its or their own negligence or willful misconduct and in no event shall the Administrator be liable under or in connection with this Agreement for indirect, special or consequential losses or damages of any kind, including lost profits, even if advised of the possibility thereof and regardless of the form of action by which such losses or damages may be claimed. Without limiting the foregoing, the Administrator may (a) consult with legal counsel (including counsel for the Issuer), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts and (b) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile) believed by it to be genuine and signed or sent by the proper party or parties. (2006-B Owner Trust Administration Agreement) 12 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written.                       HYUNDAI AUTO RECEIVABLES TRUST 2006-B                       By:   WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee                           By:   /s/ Robert J. Perkins                                   Name: Robert J. Perkins                 Title: Sr. Financial Services Officer     (2006-B Owner Trust Administration Agreement) S-1 --------------------------------------------------------------------------------                         CITIBANK, N.A., not in its individual capacity but solely as Indenture Trustee                           By:   /s/ Karen Schluter                                   Name: Karen Schluter                 Title: Vice President     (2006-B Owner Trust Administration Agreement) S-2 --------------------------------------------------------------------------------                         HYUNDAI MOTOR FINANCE COMPANY, as Administrator                           By:   /s/ Jae Min Song                                   Name: Jae Min Song                 Title: Treasurer     (2006-B Owner Trust Administration Agreement) S-3 --------------------------------------------------------------------------------   EXHIBIT A POWER OF ATTORNEY               STATE OF     )             )       COUNTY OF     )            KNOW ALL MEN BY THESE PRESENTS, that Hyundai Auto Receivables Trust 2006-B (the “Issuer”), does hereby make, constitute and appoint Hyundai Motor Finance Company, as administrator (the “Administrator”) under the Owner Trust Administration Agreement dated November 3, 2006 (the “Administration Agreement”), among the Issuer, the Administrator, the Owner Trustee, and Citibank, N.A., as Indenture Trustee, as the same may be amended from time to time, and its agents and attorneys, as Attorneys-in-Fact to execute on behalf of the Owner Trustee or the Issuer all such documents, reports, filings, instruments, certificates and opinions as it should be the duty of the Owner Trustee or the Issuer to prepare, file or deliver pursuant to the Basic Documents, or pursuant to Section 5.04(a), (b), (c) or (d) of the Trust Agreement, including, without limitation, to appear for and represent the Owner Trustee and the Issuer in connection with the preparation, filing and audit of federal, state and local tax returns pertaining to the Issuer, and with full power to perform any and all acts associated with such returns and audits that the Owner Trustee could perform, including without limitation, the right to distribute and receive confidential information, defend and assert positions in response to audits, initiate and defend litigation, and to execute waivers of restrictions on assessments of deficiencies, consents to the extension of any statutory or regulatory time limit, and settlements.      All powers of attorney for this purpose heretofore filed or executed by the Owner Trustee are hereby revoked.      Capitalized terms that are used and not otherwise defined herein shall have the meanings ascribed thereto in the Administration Agreement.      EXECUTED this 3rd day of November, 2006.                       HYUNDAI AUTO RECEIVABLES TRUST 2006-B                       By:   WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee                           By:                                       Name:                 Title:     (2006-B Owner Trust Administration Agreement) Exhibit A - 1 --------------------------------------------------------------------------------                 STATE OF     )             )       COUNTY     )            Before me, the undersigned authority, on this day personally appeared                     , known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that s/he signed the same for the purposes and considerations therein expressed. Sworn to before me this 3rd day of November, 2006. Notary Public — State of                      (2006-B Owner Trust Administration Agreement) Exhibit A - 2

  Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT   This NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as of this ______ day of _________, between UNITRIN, INC., a Delaware corporation (the "Company"), and ________________, the ("Option Holder"). RECITALS A. The Board of Directors and Shareholders of the Company have adopted the 1995 Non-Employee Director Stock Option Plan. B. The Plan provides, among other things, for the automatic grant of stock options to non-employee directors of the Company in the amounts and at the times set forth in the Plan. C. The option granted hereby is not intended to qualify as an "incentive stock option" under Section 422A of the Internal Revenue Code of 1986, as amended. D. Terms used herein and not otherwise defined shall have the meanings given to such terms in the Plan. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option . The Company grants to the Option Holder the right and option to purchase on the terms and conditions hereinafter set forth, all or any part of an aggregate of four thousand (4,000) shares of the Common Stock of the Company (the "Option") at the purchase price of $_____ per share, exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the tenth anniversary of the date of this Agreement or such later date as may result from the application of Section 6 (the "Expiration Date"). This Option is also subject to early termination in accordance with Section 5. 2. Vesting . The Option Holder may not purchase any shares by exercise of this Option between the date of this Agreement and the first anniversary date hereof. The shares subject to this Option shall become exercisable in full by the Option Holder commencing on the first anniversary date of this Agreement. Subject to earlier termination under Section 5 or the terms of the Plan and no later than the Expiration Date, the Option Holder may purchase all or any part of the shares subject to this Option which are currently exercisable in the manner and under the terms specified in Section 3 hereof. The number of shares subject to the Option which the Option Holder may purchase shall be reduced by the number of shares previously purchased by the Option Holder pursuant to the Agreement. 3. Manner of Exercise . Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company. Such notice shall identify the Options being exercised. When applicable, the notice shall also specify the number of Mature Shares (as defined in the Plan) that the Option Holder plans to deliver in payment of all or part of the exercise price. Before shares will be issued, the full purchase price of the shares subject to the Options being exercised shall be paid to the Company using the following methods, individually or in combination: (i) in cash or by certified, cashier's or (as funds clear) personal check payable to the order of the Company; (ii) by Constructive or Actual Delivery (as defined in the Plan) of Mature Shares with a fair market value as of the close of business on the date of exercise equal to or greater than the purchase price; (iii) by wire transfer to an account specified by the Company, or (iv) by delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay such full purchase price (in which case the exercise will be effective upon the earlier of the trade date or receipt of such proceeds by the Company for the related sale of shares). The Company reserves the right to accept shares of stock of the Company in payment of the purchase price of an option only if such shares have been held by the Option Holder for a specified minimum period of time during which such shares were not exchanged to effectuate another option exercise. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than: (i) one hundred (100) shares; or (ii) the total number of shares then eligible for exercise, if less than one hundred (100) shares. This Option may be exercised: (i) during the lifetime of the Option Holder only by the Option Holder or in the event a guardian or legal representative is appointed during the Option Holder's lifetime to handle the affairs of the Option Holder, such guardian or legal representative; and (ii) after the Option Holder's death by his or her transferees by will or the laws of descent or distribution, and not otherwise, regardless of any community property interest therein of the spouse of the Option Holder, or such spouse's successors in interest. If the spouse of the Option Holder shall have acquired a community property interest in this Option, the Option Holder, or the Option Holder's permitted successors in interest, may exercise the Option on behalf of the spouse of the Option Holder or such spouse's successors in interest. 4. Fair Market Value of Common Stock. The fair market value of a share of Common Stock shall be determined for purposes of this Agreement by reference to the closing price of a share of Common Stock on the New York Stock Exchange, as reported by The Wall Street Journal for the Grant Date or date of exercise, as applicable, or if such date is not a business day, for the business day immediately preceding such date, (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof). 5. Cessation of Services, Death or Permanent Disability . All rights of the Option Holder in this Option shall terminate three (3) months after the date of the termination of Option Holder's service as a director of the Company for any reason other than: (i) the death of Option Holder; (ii) cessation of services as a director because Option Holder, although nominated by the Board of Directors, is not elected by the shareholders to the Board of Directors; or (iii) retirement of Option Holder because of total and permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (each of which events is hereafter collectively referred to as a "Termination Event"). If Option Holder ceases to be a director of the Company because of a Termination Event, then this Option shall vest immediately to the extent not already vested and shall expire twelve (12) months (and not three months) after the date of such Termination Event. In the event of Option Holder's death, any vested, unexercised portion of this Option may be exercised by the person or persons to whom the Option Holder's rights under the Option shall pass by any reason of the death of the Option Holder, whether by will or by the applicable laws of descent and distribution. However, in no event may the Option be exercised to any extent by anyone after the Expiration Date. 6. Extension of Expiration in Certain Cases. From time to time, the Company may declare "blackout" periods during which directors and covered employees are prohibited from engaging in certain transactions in Company securities. In the event that the scheduled Expiration Date of this Option shall fall within a blackout period that has been declared by the Company and that applies to the Option Holder, then the Expiration Date shall automatically, and without further notice to Option Holder, be extended until such time as fifteen (15) consecutive business days have elapsed after the scheduled Expiration Date without interruption by any blackout period that applied to the Option Holder. 7. Shares to be Issued in Compliance with Federal Securities Laws and Other Rules . No shares issuable upon the exercise of this Option shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange (or such other exchange(s) or market(s) 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. The Company shall use its best efforts and take all necessary or appropriate actions to assure that such full compliance on the part of the Company is made. By signing this Agreement, the Option Holder represents and warrants that none of the shares to be acquired upon exercise of this Option will be acquired with a view towards any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder, or any applicable "blue sky" laws, and that Option Holder hereby agrees to indemnify the Company in the event of any violation by Option Holder of such Act, rules, regulations or laws. 8. Withholding of Taxes . Upon the exercise of this Option, the Company shall require the Option Holder or the Option Holder's permitted successor in interest to pay the Company the amount of taxes, if any, which the Company may be required to withhold with respect to such shares. 9. Transferability . This Option and all other rights and privileges granted hereby shall not be transferred, assigned, pledged or otherwise encumbered in any way, whether by operation of the law or otherwise except by will or the laws of descent and distribution. Without limiting the generality of the preceding sentence, no rights or privileges granted hereby may be assigned or otherwise transferred to the spouse or former spouse of the Option Holder pursuant to any divorce proceedings, settlement or judgment. Upon any attempt so to transfer, assign, pledge, encumber or otherwise dispose of this Option or any other rights or privileges granted hereby contrary to the provisions hereof, this Option and all other rights and privileges contained herein shall immediately become null and void and of no further force or effect. 10. Adjustment for Reorganizations, Stock Splits, etc. If the outstanding shares of the Common Stock of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares receivable upon the exercise of this Option, without change in the aggregate purchase price applicable to the unexercised portion of this Option but with a corresponding adjustment in the price for each share or other unit of any security covered by this Option. No fractional shares of stock shall be issued under the Plan on any such adjustment. 11. Participation by Option Holder in Other Company Plans . Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other welfare plan or program of the Company or of any subsidiary of the Company in which non-employee directors of the Company are otherwise eligible to participate. 12. No Rights as a Stockholder Until Issuance of Shares . Neither the Option Holder nor any other person legally entitled to exercise this Option shall be entitled to any of the rights or privileges of a shareholder of the Company in respect of any shares issuable upon any exercise of this Option unless and until such shares shall have been issued and delivered to: (i) Option Holder in the form of certificates, (ii) a brokerage or other account for the benefit of Option Holder either in certificate form or via "DWAC" or similar electronic means, or (iii) a book entry or direct registration account in the name of Option Holder. 13. No Right to Continue as a Director . Nothing herein contained shall be construed as an agreement by the Company, expressed or implied, that Option Holder has a right to continue as a director of the Company for any period of time or at any particular rate of compensation. 14. Agreement Subject to Stock Option Plan . The Option hereby granted is subject to, and the Company and the Option Holder agree to be bound by, all of the terms and conditions of the Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Option Holder's rights under this Option without the prior written consent of the Option Holder. In the event that the terms or conditions of this Agreement conflict with the terms or conditions of the Plan, the Plan shall govern. 15. Restorative Stock Options . A Restorative Option (as defined in the Plan) will be granted in connection with the exercise of this Option and any Restorative Option resulting from this Option if: (i) the Option Holder elects to pay some or all of the exercise price of such 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) the Fair Market Value of a share of the Company's Common Stock on the exercise date exceeds the exercise price of a share of Common Stock subject to the Underlying Option by at least fifteen percent (15%). The number of shares of Common 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 of Common Stock 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 a share of the Common 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. No Restorative Option shall be granted if on the date of exercise of the Underlying Option: (i) the Option Holder does not meet the eligibility requirements under Section 4 of the Plan; (ii) such Option would be scheduled to expire within twelve (12) months; or (iii) the Fair Market Value of a share of the Company's Common Stock does not meet the fifteen percent (15%) appreciation requirement set forth above. To the extent the Option Holder is granted a Restorative Option under the Plan pursuant to the exercise of this Option, the undersigned Option Holder and his or her spouse agree to be bound by all the terms and conditions of this Option Agreement and the Plan with respect to such Restorative Option. 16. Execution . This Option has been granted, executed and delivered as of the day and year first above written at Chicago, Illinois, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the state of Illinois without application of its conflicts of laws and principles.   UNITRIN, INC. OPTION HOLDER     By: __________________________ _________________________________ Richard C. Vie   By his or her signature below, the spouse of the Option Holder agrees to be bound by all of the terms and conditions of the foregoing Option Agreement.   ________________________________ _________________________________ Print Name

Exhibit 10.2   DIGIMARC CORPORATION 1995 STOCK INCENTIVE PLAN, AS AMENDED   1.             Purposes and Scope of the Plan.   1.1  Purposes of Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company’s business.   1.2  Scope of Plan. Options granted hereunder may be either “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or “nonqualified stock options,” at the discretion of the Board and as reflected in the terms of the written option agreement. In addition, shares of the Company’s Common Stock may be Sold hereunder independent of any Option grant.   2.             Definitions.  As used herein, the following definitions shall apply:   2.1  “Board” shall mean the Committee, if one has been appointed, or the Board of Directors of the Company, if no Committee is appointed.   2.2  “Code”  shall mean the Internal Revenue Code of 1986, as amended.   2.3  “Common Stock”  shall mean the Common Stock of the Company.   2.4  “Company”  shall mean Digimarc Corporation, an Oregon corporation.   2.5  “Committee” shall mean the Committee appointed by the Board of Directors in accordance with Section of the Plan, if one is appointed.   2.6  “Consultant” shall mean any person who is engaged by the Company or any Subsidiary to render consulting services and is compensated for such consulting services and any director of the Company whether compensated for such services or not.   2.7  “Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety days or reemployment upon the expiration of such leave is guaranteed by contract or statute.   2.8  “Employee” shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company.   2.9  “Exchange Act”  shall mean the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   2.10 “Incentive Stock Option” shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.   2.11 “Nonqualified Stock Option” shall mean an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.   2.12 “Option” shall mean a stock option granted pursuant to the Plan.   2.13 “Optioned Stock” shall mean the Common Stock subject to an Option.   2.14 “Optionee” shall mean an Employee or Consultant who receives an Option.   2.15 “Parent” shall mean a “parent corporation,” whether now or hereafter existing, as defined in Section 424 of the Code.   2.16 “Plan” shall mean this Stock Incentive Plan.   2.17 “Sale” or “Sold” shall include, with respect to the sale of Shares under the Plan, the sale of Shares for consideration in the form of cash or notes, as well as a grant of Shares without consideration, except past or future services.   2.18 “Share” shall mean a share of the Common Stock, as adjusted in accordance with Section of the Plan.   2.19 “Subsidiary” shall mean a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424 of the Code.   3.             Stock Subject to the Plan.   3.1  Size of Plan Pool. Subject to the provisions of Section of the Plan, the maximum aggregate number of Shares which may be optioned and/or Sold under the Plan is 5,600,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.   3.2  Return of Unexercised Option Shares. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan.   3.3  Return of Unvested or Restricted Shares. If Shares Sold under the Plan or purchased upon the exercise of an Option are repurchased by the Company pursuant to restrictions applicable to such Shares, the number of Shares repurchased shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan.   3.4  Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 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   2 --------------------------------------------------------------------------------   respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.   4.             Administration of the Plan.   4.1  Procedure. The Plan shall be administered by the Board of Directors of the Company.   4.1.1  Committee. Subject to subparagraph, the Board of Directors may    appoint a Committee consisting of not less than two (2) members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.   4.1.2  Conflicts. Members of the Board who are either eligible for Options and/or Sales or have been granted Options or Sold Shares may vote on any matters affecting the administration of the Plan or the grant of any Options or Sale of any Shares pursuant to the Plan, except that no such member shall act upon the granting of an Option or Sale of Shares to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of Options or Sale of Shares to him.   4.1.3  Grants Following Registration, to Officers or Directors, Only by Disinterested Persons. Notwithstanding the foregoing subparagraph, if and in any event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, from the effective date of such registration until six (6) months after the termination of such registration, any grants of Options to officers or directors shall only be made by the Board if each member of the Board is a disinterested person, or if every member of the Board is not a disinterested person, by a committee of two or more directors, each of whom is a disinterested person. A “disinterested person” is a director who has not, during the one year period prior to service as an administrator of the Plan, or during such service, been granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates, with these qualifications:   (a)  Formula Plans don’t disqualify. Participation in a formula plan meeting the conditions in paragraph (c)(2)(ii) of SEC Rule 16b-3 shall not disqualify a director from being a disinterested person.   (b)  Ongoing Acquisition Plans Don’t Disqualify. Participation in an ongoing securities acquisition plan meeting the conditions in paragraph (d)(2) (i) of SEC Rule 16b-3 shall not disqualify a director from being a disinterested person.   3 --------------------------------------------------------------------------------   (c)  Annual Retainers in Stock Don’t Disqualify. An election to receive an annual retainer fee in either cash or an equivalent amount of securities, or partly in cash and partly in securities, shall not disqualify a director from being a disinterested person.   (d)  Disqualification applies Only To Plan In Which Director Participates. Participation in a plan shall not disqualify a director from being a disinterested person for the purpose of administering another plan that does not permit participation by directors.   4.2  Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion, to do any or all of these things:   4.2.1  Grant Options. To grant Incentive Stock Options in accordance with Section 422 of the Code, or Nonqualified Stock Options.   4.2.2  Authorize Sales.  To authorize Sales of Shares of Common Stock hereunder.   4.2.3  Determine Fair Market Value. To determine, upon review of relevant information and in accordance with Section of the Plan, the fair market value of the Common Stock.   4.2.4  Determine Exercise or Purchase Price. To determine the exercise/purchase price per Share of Options to be granted or Shares to be Sold, which exercise/purchase price shall be determined in accordance with Section of the Plan.   4.2.5  Decide Who Gets Options. To determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option.   4.2.6  Decide Who Gets Stock. To determine the Employees or Consultants to whom, and the time or times at which, Shares shall be Sold and the number of Shares to be Sold.   4.2.7  Interpret Plan.  To interpret the Plan.   4.2.8  Make Rules About Plan. To prescribe, amend and rescind rules and regulations relating to the Plan.   4.2.9  Set and Amend Option Terms. To determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option.   4.2.10 Set and Amend Sale Terms. To determine the terms and provisions of each Sale of Shares (which need not be identical) and, with the consent of the purchaser thereof, modify or amend each Sale.   4 --------------------------------------------------------------------------------   4.2.11 Change Exercise Dates of Options. To accelerate or defer (with the consent of the Optionee) the exercise date of any Option.   4.2.12 Change Vesting Restrictions. To accelerate or defer (with the consent of the Optionee or purchaser of Shares) the vesting restrictions applicable to Shares Sold under the Plan or pursuant to Options granted under the Plan.   4.2.13 Authorize Signers. To authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option or Sale of Shares previously granted or authorized by the Board.   4.2.14 Establish Shareholder Agreement Restrictions. To determine the restrictions on transfer, vesting restrictions, repurchase rights, or other restrictions applicable to Shares issued under the Plan.   4.2.15 Cancel and Reissue Options (subject to Price Restrictions). To effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options under the Plan covering the same or different numbers of Shares, but having an Option price per Share consistent with the provisions of Section of this Plan as of the date of the new Option grant.   4.2.16 Make Case by Case Exceptions at Termination of Employment. To establish, on a case-by-case basis, different terms and conditions pertaining to exercise or vesting rights upon termination of employment, whether at the time of an Option grant or Sale of Shares, or thereafter.   4.2.17 Do Other Things Needed or Advisable. To make all other determinations deemed necessary or advisable for the administration of the Plan.   4.3  Effect of Board’s Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan or Shares Sold under the Plan.   5.             Eligibility.   5.1  Persons Eligible. Options may be granted and/or Shares Sold only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Sold Shares may, if he is otherwise eligible, be granted an additional Option or Options or Sold additional Shares.   5.2  ISO Limitation. No Incentive Stock Option may be granted to an Employee which, when aggregated with all other Incentive Stock Options granted to such Employee by the Company or any Parent or Subsidiary, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the Option covering such Share) in excess of $100,000 becoming first available for purchase upon exercise of one or more Incentive Stock Options during any calendar year.   5 --------------------------------------------------------------------------------   5.3  Section Limitations. Section of the Plan shall apply only to an Incentive Stock Option evidenced by an “Incentive Stock Option Agreement” which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option. Section of the Plan shall not apply to any Option evidenced by a “Nonqualified Stock Option Agreement” which sets forth the intention of the Company and the Optionee that such Option shall be a Nonqualified Stock Option.   5.4  No Right to Continued Employment. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company’s right to terminate his employment or consulting relationship at any time.   6.             Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section of the Plan. It shall continue in effect for a term of ten (10) years, unless sooner terminated under Section of the Plan.   7.             Term of Options.   7.1  Term of ISOs to 10% or Less Holders. The term of each Incentive Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement.   7.2  Term of Nonqualified Options to 10% or Less Holders. The term of each Nonqualified Stock Option shall be ten (10) years and one (1) day from the date of grant thereof or such other term as may be provided in the Stock Option Agreement.   7.3  Terms for Holders of More than 10%. In the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the Stock Option Agreement, or (b) if the Option is a Nonqualified Stock Option, the term of the Option shall be five (5) years and one (1) day from the date of grant thereof or such other term as may be provided in the Stock Option Agreement.   8.             Exercise/Purchase Price and Consideration.   8.1  Exercise/Purchase Price. The per-Share exercise/purchase price for the Shares to be issued pursuant to exercise of an Option or a Sale (other than a Sale which is a grant for which no purchase price is payable) shall be such price as is determined by the Board, but shall be subject to the requirements of this Section.   8.2  ISO Price.   8.2.1  ISO Price to Holders of more than 10%. In the case of an Incentive Stock Option granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per   6 --------------------------------------------------------------------------------   Share exercise price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant.   8.2.2  ISO Price to Holders of 10% or Less. In the case of an Incentive Stock Option granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant.   8.3  Nonqualified Option and Sale Price.   8.3.1  Nonqualified Price to Holders of More than 10%. In the case of a Nonqualified Stock Option or Sale granted or Sold to a person who, at the time of the grant of such Option or authorization of such Sale, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise/purchase price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant or authorization of Sale, unless otherwise expressly determined by the Board of Directors.   8.3.2  Nonqualified Price to Holders of 10% or Less. In the case of a Nonqualified Stock Option or Sale granted or Sold to any other person, the per Share exercise/purchase price shall be no less than eighty-five percent (85%) of the fair market value per Share on the date of grant or authorization of Sale, unless otherwise expressly determined by the Board of Directors.   8.3.3  Requirement for Below Market Options and Sales. Any determination to sell stock at less than fair market value on the date of the grant or authorization of Sale shall be accompanied by an express finding by the Board of Directors specifying that the sale is in the best interest of the Company, and specifying both the fair market value and the grant or sale price of the stock.   8.4  Sales After Registration. In the case of an Option granted or Sale authorized on or after the effective date of registration of any class of equity security of the Company pursuant to Section 12 of the Exchange Act and prior to six (6) months after the termination of such registration, the per Share exercise/purchase price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant or authorization of Sale.   8.5  Fair Market Value. The fair market value per Share shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the closing price of the Common Stock for the date of grant or authorization of Sale, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option or authorization of Sale, as reported in The Wall Street Journal.   8.6  Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option or pursuant to a Sale, including the method of payment, shall be determined by the Board and may consist in whole or part of:   7 --------------------------------------------------------------------------------   8.6.1  Cash, Check, Note.  Cash, Check, or Promissory Note.   8.6.2  Transferred or Withheld Shares. Transfer to the Company of Shares having a Fair Market Value at the time of such exercise equal to the Option exercise price, or delivery of instructions to the Company to withhold from the Shares that would otherwise be issued on the exercise that number of Shares having a Fair Market Value at the time of such exercise equal to the Option exercise price. If the Fair Market Value of the number of whole Shares transferred or the number of whole Shares surrendered is less than the total exercise price of the Option, the shortfall must be made up in cash or by check.   9.             Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.   10.           Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve.   11.           Nontransferability of Options. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will, or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by the Optionee or, if incapacitated, by his or her legal guardian or legal representative.   12.           Exercise of Option.   12.1 When Exercisable. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.   12.2 No Fractional Shares. An Option may not be exercised for a fraction of a Share.   12.3 How Exercised. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section of the Plan.   12.3.1  Deposits for Withholding Taxes. Each Optionee who exercises an Option shall, upon notification of the amount due (if any) and prior to or concurrent with delivery of the certificate representing the Shares, pay to the Company amounts necessary to satisfy applicable federal, state and local tax withholding requirements.   12.3.2  Shareholder Agreements. An Optionee must also provide a duly  executed copy of any stock transfer agreement then in effect and determined to be applicable by the Board.   8 --------------------------------------------------------------------------------   12.4 No Shareholder Rights or Adjustments Until Issuance. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section of the Plan.   12.5 Effect of Exercise on Plan Pool. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.   12.6 Termination of Status as an Employee or Consultant. If an Employee or Consultant ceases to serve as an Employee or Consultant (as the case may be), he may, but only within three (3) months (or such other period of time not exceeding the limitations of Section above as is determined by the Board at the time of grant of an Option or thereafter) after the date he ceases to be an Employee or Consultant (as the case may be) of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate.   12.7 Disability of Optionee. Notwithstanding the provisions of Section above, in the event an Employee or Consultant is unable to continue his employment or consulting relationship (as the case may be) with the Company as a result of his total and permanent disability (as defined in Section 22(e)(3) of the Code), he may, but only within twelve (12) months (or such other period of time not exceeding the limitations of Section above as is determined by the Board at the time of grant of an Option or thereafter) from the date of termination, exercise his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate.   12.8 Death of Optionee. In the event of the death of an Optionee during the term of the Option who is at the time of his death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within twelve (12) months (or such other period of time not exceeding the limitations of Section above as is determined by the Board at the time of grant of an Option or thereafter) following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise as of the date of death.   13.           Adjustments Upon Changes in Capitalization or Merger.   13.1 Stock Splits and the Like. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock which have been authorized for issuance under the Plan   9 --------------------------------------------------------------------------------   but as to which no Options have yet been granted or Sales made or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.   13.2 Termination on Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable.   13.3 Substitution or Exercise on Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice or such shorter period as the Board may specify in the notice, and the Option will terminate upon the expiration of such period.   14.           Amendment and Termination of the Plan.   14.1 Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that if required to qualify the Plan under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), no amendment shall be made more than once every six months that would change the amount, price or timing of the option grants, other than to comport with changes in the Code, or the rules and regulations promulgated thereunder; and provided, further, that, if required to qualify the Plan under Rule 16b-3, no amendment shall be made without the approval of the stockholders of the Company in the manner described in Section of the Plan and within the times required by Section 422 of the Code (if any), if the amendment would:   10 --------------------------------------------------------------------------------   14.1.1  Increase Shares. Increase the number of Shares subject to the Plan, other than in connection with an adjustment under Section 13 of the Plan;   14.1.2  Change Class of Employee or Consultant Eligible. Make a change in the designation of the class of Employees or Consultants eligible to be granted Options; or   14.1.3  Increase Benefits After Registration. If the Company has a class of equity security registered under Section 12 of the Exchange Act at the time of such revision or amendment, cause any material increase in the benefits accruing to participants under the Plan.   14.2 Stockholder Approval. If any amendment requiring stockholder approval under Section of the Plan is made subsequent to the first registration of any class of equity security by the Company under Section 12 of the Exchange Act, such stockholder approval shall be solicited as described in Section of the Plan.   14.3 Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.   15.  Conditions Upon Issuance of Shares.   15.1 General Compliance Requirement. Shares shall not be issued pursuant to the exercise of an Option or a Sale unless the exercise of such Option or consummation of the Sale 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, applicable state securities laws, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange (including NASDAQ) upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.   15.2 Investment Intent Warranty. As a condition to the exercise of an Option or a Sale, the Company may require the person exercising such Option or to whom Shares are being Sold to represent and warrant at the time of any such exercise or Sale that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.   16. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is adopted. If such stockholder approval is obtained at a duly held stockholders’ meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company, such holders being present or represented and entitled to vote thereon. If and in the event that the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, the approval of such stockholders of the Company shall be obtained as follows:   11 --------------------------------------------------------------------------------   16.1 Solicitation. Approval shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, or solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished.   16.2 Time. Approval shall be obtained at or prior to the first annual meeting of stockholders held subsequent to the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act.   16.3 If by Written Consent: Compliance with State Law. If such stockholder approval is obtained by written consent, it must be obtained by the written consent of stockholders of the Company in compliance with the requirements of applicable state law.   17.  Six Month Holding Period for Affiliates. If the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, then from the effective date of such registration until six (6) months after the termination of such registration (the Public Period), these limits will apply to each officer, director and beneficial owner of ten percent (10%) or more of any class of equity securities of the Company (Affiliates.) During the Public Period, any Affiliate shall hold Shares Sold hereunder at least six months from the date of Sale. During the Public Period, at least six months must elapse from the date of grant of an Option to an Affiliate to the date the Affiliate disposes of the Shares acquired upon exercise of the Option, or (if the Option is disposed of other than by exercise) to the date of disposition of the Option itself.   12 --------------------------------------------------------------------------------

CONSULTANT AGREEMENT This CONSULTANT AGREEMENT (the “Agreement”) is entered into by and between the Asia Global Holdings Corp., a Nevada corporation (the “Company”) and Leung, Ching Kwok 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:                                     Leung, Ching Kwok    Rm 815 Sau Yuen House Chuk Yuen South Estate Hong Kong   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/ Leung, Ching Kwok   Leung, Ching Kwok        A natural person         4 --------------------------------------------------------------------------------    

Exhibit 10.1 EMPLOYMENT AGREEMENT THIS AGREEMENT (“Agreement”), dated as of ___________ __ 2006, between J&L America, Inc. (DBA as J&L Industrial Supply), a Michigan corporation (the “Company”), and Michael Wessner (the “Executive”). W I T N E S S E T H WHEREAS, MSC Acquisition Corp. VI (“Buyer”) has agreed to acquire (the “Acquisition”) all of the outstanding stock of the Company, of which the Executive is an employee, pursuant to a certain Stock Purchase Agreement dated March __, 2006 between MSC Industrial Direct Co., Inc. (“MSC”), Buyer, JLK Direct Distribution, Inc. and Kennametal Inc. (“Kennametal”); and WHEREAS, the Company desires to employ the Executive, and the Executive desires to accept such employment, on and subject to the occurrence of the “Effective Date” as defined below and on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, it is hereby agreed as follows: 1.             Employment. Effective as of and contingent upon the consummation of the Acquisition, the Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. The date of consummation of the Acquisition and accordingly the Effective Date of Executive’s employment with the Company hereunder shall hereinafter be referred to as the “Effective Date.”  Concurrently with the Executive’s execution of this Agreement, the Executive has executed the Associate Confidentiality, Non-Solicitation and Non-Competition Agreement, attached as Exhibit B hereto (the “Confidentiality Agreement”). 2.             Term. Subject to the provisions of Section 8 hereof, the period of the Executive’s employment under this Agreement shall be from the Effective Date through the one year anniversary of the Effective Date, unless sooner terminated by the Company or upon the voluntary resignation of the Executive (the “Term”). Unless the parties otherwise agree in writing, continuation of the Executive’s employment with the Company beyond the expiration of the Term shall be deemed an employment at will and Executive’s employment may thereafter be terminated at will by Executive or the Company, provided, however, that Section 9 and the Confidentiality Agreement shall survive expiration of the Term and termination of the Executive’s employment. --------------------------------------------------------------------------------   3.             Position and Duties. (a)           During the first twelve months of the Term, the Executive shall serve as the President of the Company and shall have such responsibilities and duties, consistent with the Executive’s responsibilities and duties to the Company prior to the Effective Date, as from time to time may be prescribed by the President and/or the Board of Directors of the Company. In connection with the future integration of the Company and MSC, after the first twelve months of the Term, Executive’s title may be changed, in consultation with the Executive, to reflect the coordination of MSC’s and the Company’s respective title structures, provided, however, that the Executive’s duties shall not be materially diminished as a result of such change in title. (b)           Subject to Section 3(a), during the Term, the Executive shall perform and discharge the duties that may be assigned to him from time to time by the President of the Company, and the Executive shall devote his best talents, efforts and abilities to the performance of his duties hereunder. (c)           During the Term, the Executive shall perform such duties on a full-time basis and the Executive shall have no other employment and no other outside business activities whatsoever; provided, however, that the Executive shall not be precluded from making passive investments which do not require the Executive’s devotion of any significant time or effort. 4.             Compensation. (a)  For the Executive’s services hereunder, during the Term, the Company shall pay the Executive salary (the “Base Salary”) at an annual rate of $365,000, payable and earned at a bi-weekly rate of $14,038.46 in accordance with the customary payroll practices of the Company and MSC. (b)          Subject to Sections 8 and 9, following completion of 12 months of employment with the Company and subject to the terms of the Company’s integration bonus program and in consultation with the Executive, Executive shall be eligible to receive an integration bonus (the “Integration Bonus”) currently targeted to be $500,000 (the “Target Bonus”). The actual amount of the Integration Bonus payable to Executive shall be no less than 30% less than, and no more than 30% greater than, the Target Bonus; and shall be determined by the MSC Compensation Committee in its discretion taking into account the Executive’s performance and based on mutually agreed goals and objectives between the Company and the Executive. Any such Integration Bonus shall be paid to Executive on the 13 month anniversary of the Effective Date, provided that the Executive is an employee of the Company on the 12 month anniversary of the Effective Date. 5.             Other Benefits. During the Term,  as an employee of the Company, then a subsidiary of MSC, the Executive shall be entitled to participate in MSC benefits programs and plans in accordance with the terms of such programs and plans which include major medical and dental insurance, the MSC Industrial Direct Co., Inc. 401(k) Plan (the “401(k) Plan”) and tuition reimbursement. The Executive shall be credited with service with the Company and its affiliates 2   --------------------------------------------------------------------------------   prior to the Effective Date for purposes of vesting and eligibility, including eligibility and vesting under the 401(k) Plan to the extent such service was credited for such purposes under Kennametal’s 401(k) Plan and in the determination of vacation. 6.             Automobile Allowance. During the Term, the Company shall pay the Executive $1,200 per month for expenses such as lease, registration, insurance, repairs, maintenance, license fees, parking, gasoline and oil incurred by the Executive incident to his use of such automobile in connection with his duties hereunder. 7.             Reimbursement of Expenses. During the Term, the Company shall pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive in the performance of his duties hereunder upon presentation of expense statements and/or such other supporting information as the Company may reasonably require of the Executive and in accordance with and subject to the Company’s and MSC’s general procedures and policies. 8.             Termination. (a)           The Company shall have the right to terminate the Executive’s employment at any time, with or without Cause, prior to the expiration of the Term. (b)           For purposes of this Agreement, “Cause” means (i) commission by the Executive of any act or omission that would constitute a felony or any crime of moral turpitude under Federal law or the law of the state or foreign law in which such action occurred; (ii) dishonesty, disloyalty, fraud, embezzlement, theft, disclosure of trade secrets or confidential information or other acts or omissions that result in a breach of fiduciary duty to the Company; (iii) continued reporting to work or working under the influence of alcohol, an illegal drug, an intoxicant or a controlled substance which renders Executive incapable of performing his or her material duties to the satisfaction of the Company or (iv) breach of this Agreement or the Confidentiality Agreement. (c)           For purposes of this Agreement, “Termination Date” is the date as of which the Executive incurs a termination of employment with the Company that constitutes “separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended. Any notice of termination of the Executive’s employment given by the Executive or the Company pursuant to the provisions of this Agreement shall specify the Termination Date. 9.             Obligations of Company on Termination. Notwithstanding anything in this Agreement to the contrary, the Company’s obligations on termination of the Executive’s employment shall be as described in this Section 9. (a)           Obligations of the Company in the Case of Termination by the Company Without Cause. In the event that prior to the expiration of the Term, the Company terminates the Executive’s employment other than for Cause, the Company shall provide the Executive with the following: 3   --------------------------------------------------------------------------------   (i)            Amount of Severance Payment. Subject to Sections 9(c) and 9(d) below, in addition to any Base Salary and unreimbursed expenses accrued but unpaid as of the Termination Date (which shall be paid in accordance with the customary payroll practices of the Company, the Company shall pay the Executive (the “Severance Payment”) the following: (A)          the Base Salary otherwise payable to the Executive during the period beginning on the six-month anniversary of the Termination Date (the “Payment Date”) and continuing through the then remaining duration of the Term, if any, payable in substantially equal biweekly installments in accordance with the customary payroll practices of the Company; (B)           the Base Salary that would have been paid to the Executive during the period beginning on the Termination Date through the day prior to the Payment Date, payable in a single lump sum payment on the Payment Date; (C)           any vacation pay accrued but unpaid as of the Termination Date, payable in a single lump sum payment on the Payment Date; and (D)          any Integration Bonus that would otherwise have been payable to the Executive, payable in a single lump sum on the 13 month anniversary of the Effective Date. (ii)           Continued Medical Coverage. In the event that the Executive timely elects under the provision of COBRA to continue his or her coverage in effect prior to the Termination Date under a group health plan sponsored by  the Company or MSC, the Executive will be entitled to continuation of such coverage, at the Company’s expense, for the then remaining duration of the Term. Notwithstanding the foregoing, nothing in Section 9(a)(ii) shall prohibit the Executive from continuing his or her group health coverage for the remainder of the period during which he or she is entitled to COBRA continuation coverage, if any, at the Executive’s sole expense. (iii)          Automobile Allowance.  For the otherwise remaining duration of the Term, the Company shall pay the Executive for automobile related expenses as follows: (A)          $1,200 multiplied by the number of full calendar months beginning after the Termination Date but prior to the Payment Date, representing the automobile allowance otherwise payable to the Executive for the period beginning on the Termination Date and ending on the day prior to the Payment Date, payable in a single lump sum payment on the Payment Date; and (B)           $1,200 per month, payable on the [first/last] business day of each month occurring on or after the Payment Date through the then remaining duration of the Term, if any. 4   --------------------------------------------------------------------------------   (iv)          Completion Bonus. On the one-year anniversary of the Termination Date, the Company shall pay the Executive a lump sum completion bonus of $250,000, provided that all of the following conditions (A) through (D) are met: (A)          The Executive remains employed by the Company for the full 12 month Term of this Agreement; and (B)           The Executive continues in employment with the Company following the expiration of the Term; and (C)           The Executive’s employment with the Company is terminated by the Company without Cause during the 12-month period immediately following the expiration of the Term; and (D)          The Company and MSC determine, in their sole discretion, that the Executive did not breach any provision of the Confidentiality Agreement. (b)           Obligations of the Company in case of Termination for Death, Disability, Cause or Voluntary Resignation by Executive. (i)            Upon termination of the Executive’s employment for death, disability or for Cause or Executive’s voluntary resignation, the Company shall have no payment or other obligations hereunder to the Executive, except for the payment of any Base Salary, benefits or unreimbursed expenses accrued but unpaid as of the date of such termination and, in the event of the Executive’s voluntary resignation following the Company’s uncured material diminution of his duties, any completion bonus payable in accordance with Section 9(b)(ii) below. (ii)           Completion Bonus. On the one-year anniversary of the Termination Date, the Company shall pay the Executive a lump sum completion bonus of $250,000, provided that all of the following conditions (A) through (D) are met: (A)          The Executive remains employed by the Company for the full 12 month Term of this Agreement; and (B)           The Executive continues in employment with the Company following the expiration of the Term; and (C)           The Executive voluntarily resigns from his employment with the Company during the 12-month period immediately following the expiration of the Term on account of the material diminution of his duties by the Company which diminution is not cured by the Company within 15 days of the Executive’s providing written notice to the Company of such diminution; and (D)          The Company and MSC determine, in their sole discretion, that the Executive did not breach any provision of the Confidentiality Agreement. 5   --------------------------------------------------------------------------------   (c)           As a condition of receiving the Severance Payment, at least 10 days prior to the Payment Date, the Executive shall execute and deliver to the Company the General Release in the form attached as Exhibit A hereto (the “Release”). Notwithstanding anything in this Agreement to the contrary, payment of any Severance Payment hereunder is expressly conditioned on the Executive’s compliance with the terms of the Release and the Confidentiality Agreement and no further Severance Payment shall be made following the Company’s determination, in its sole discretion, that the Executive has breached any provision of the Release or the Confidentiality Agreement. (d)           Confidentiality, Non-Solicitation and Non-Competition. In consideration of the Executive’s employment and continued employment, and any and all payments to the Executive by the Company, the Company’s entrusting the Executive with Confidential Information (as defined in the Confidentiality Agreement), and the benefits provided hereunder, including without limitation the Severance Payment, the parties have entered into the Confidentiality Agreement, which is hereby incorporated by reference herein and made a part hereof as if set forth in full herein. 10.           Severability. If any provision of this Agreement for any reason shall be held, by a court of competent jurisdiction, to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not render the entire Agreement illegal, invalid or unenforceable, the parties hereto agree, and it is their desire, that such court shall amend or modify this Agreement, and that this Agreement, in its modified form, shall be enforceable and valid to the maximum extent permitted by applicable law, and each other provision hereof shall not thereby be affected and shall be given full force and effect, and the parties shall cooperate in good faith to further modify this Agreement so as to preserve to the maximum extent possible the intended benefits to be received by the parties. 11.           Successors and Assigns. The Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, administrators, executors, personal representatives, successors and assigns. Notwithstanding the foregoing, the Executive’s duties and responsibilities hereunder shall not be assignable. 12.           Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any rules respecting the conflicts of laws. 13.           Notices. All notices, requests and demands given to or made upon the respective parties hereto shall be in writing and shall be deemed to have been given or made three business days after the date of mailing when mailed by registered or certified mail, postage prepaid, or on the date of delivery if delivered by hand, or one business day after the date of delivery by Federal Express or other reputable overnight delivery service, addressed to the parties at their addresses set forth below or to such other addresses furnished by notice given in accordance with this Section 13:  (a) if to the Company, c/o MSC Industrial Direct Co., Inc., 75 Maxess Road, Melville, New York 11747, Attn: President and (b) if to the Executive, ________________________________. 6   --------------------------------------------------------------------------------   14.           Withholding. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and other payroll deductions in accordance with applicable law and the Company’s policies applicable to executive employees of the Company. 15.           Resolution of Disputes. Any controversy or claim arising out of this Agreement, or the breach thereof, shall be submitted to final and binding arbitration before the American Arbitration Association (“AAA”), at its offices located in Nassau County and shall be governed by the AAA’s Employment Dispute Rules. In such arbitration, each party shall bear its own legal fees and related costs, except that the parties shall share the fee of the arbitrator, where Executive pays an amount equal to the cost of the filing fee or purchasing an index number in federal or state court, whichever is less. Judgment on any award an arbitrator enters may be entered in any court having jurisdiction over the parties and the arbitrator shall have the discretion to award the same relief a court could award. To the extent that any claim is found not to be subject to arbitration, such claim shall be either decided by the arbitrator, or the appropriate New York state court, and all such claims shall be adjudicated by a judge sitting without a jury. 16.           Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the matters referred to herein, and no waiver of or modification to the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. All prior and contemporaneous agreements and understandings with  respect to the subject matter of this Agreement are hereby terminated and superseded by this Agreement. 17.           Modification; Waiver. (a)           This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and the Executive or in the case of a waiver, by the party against whom the waiver is to be effective. Any such waiver shall be effective only to the extent specifically set forth in such writing. (b)           No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 18.           Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement. 19.           Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 7   --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in its corporate name by one of its officers duly authorized to enter into and execute this Agreement, and the Executive has manually signed his name hereto, all as of the day and year first above written.   J&L AMERICA, INC. DBA J&L   INDUSTRIAL SUPPLY               By: /s/ Clarence V. Spawr     Name: Clarence V. Spawr     Title: Vice President                 /s/ Michael P. Wessner     Michael Wessner   8   -------------------------------------------------------------------------------- Exhibit A RELEASE                   WHEREAS, ___________ (the “Associate”) was a party to an Agreement dated as of __________, 200_ (the “Agreement”) by and between the Associate and J&L AMERICA, INC. DBA J&L INDUSTRIAL SUPPLY, a Michigan corporation (the “Corporation”), pursuant to which the Associate served as the ___________ of the Corporation, and the employment of the Associate with the Corporation has been terminated; and                 WHEREAS, it is a condition to the Corporation’s obligations to make the severance payments and benefits available to the Associate pursuant to the Agreement that the Associate execute and deliver this Release to the Corporation.                 NOW, THEREFORE, in consideration of the receipt by the Associate of the benefits under the Agreement, which constitute a material inducement to enter into this Release, the Associate intending to be legally bound hereby agrees as follows:                 Subject to the next succeeding paragraph, effective upon the expiration of the 7-day revocation period following execution hereof as provided below, the Associate irrevocably and unconditionally releases the Corporation and MSC Industrial Direct Co., Inc. (“MSC”) and each’s owners, stockholders, predecessors, successors, assigns, affiliates, control persons, agents, directors, officers, employees, representatives, divisions and subdivisions (collectively, the “Related Persons”) from any and all causes of action, charges, complaints, liabilities, obligations, promises, agreements, controversies and claims (a) arising out of the Associate’s employment with the Corporation and the conclusion thereof, including, without limitation, any federal, state, local or other statutes, orders, laws, ordinances, regulations or the like that relate to the employment relationship and/or specifically that prohibit discrimination based upon age, race,   -------------------------------------------------------------------------------- religion, sex, national origin, disability, sexual orientation or any other unlawful bases, including, without limitation, as amended, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Civil Rights Acts of 1866 and 1871, the Americans With Disabilities Act of 1990, the National Labor Relations Act,  the Employee Retirement Income Security Act of 1974, Sections 1981 through 1988 of Title 42 of the United States Code, the Immigration Reform and Control Act, the Workers Adjustment and Retraining Notification Act, the Occupational Safety and Health Act, the New York State Executive Law (including its Human Rights Law), the New York City Administrative Code (including its Human Rights Law), the New York State Labor Law, the New York wage and wage-hour laws, any other federal, state or local civil, human rights, bias, whistleblower, discrimination, retaliation, compensation, employment, labor or other federal, state or local law, regulation or ordinance, and any applicable rules and regulations promulgated pursuant to or concerning any of the foregoing statutes, laws or ordinances; (b) arising out of any benefit, payroll or other plan, policy or program of the Corporation; (c) arising out of any public policy, contract, third-party beneficiary or common law claim;  (d) for tort, tortious or harassing conduct, infliction of emotional distress, interference with contract, fraud, libel or slander; and (e) for breach of contract or for damages, including, without limitation, punitive or compensatory damages or for attorneys’ fees, expenses, costs, salary, severance pay, vacation, injunctive or equitable relief, whether, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, which, from the beginning of the world up to and including the date hereof, exists, have existed, or may arise, which the Associate, or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold against the Corporation, MSC and/or any Related Person.   2 --------------------------------------------------------------------------------                 Notwithstanding anything contained herein to the contrary, the Associate is not releasing the Corporation or MSC from any of the Corporation’s or MSC’s obligations (a) under the Agreement, (b) to provide the Associate with insurance coverage defense and/or indemnification as an officer or director of the Corporation, if applicable to Associate, to the extent generally made available at the date of termination to the Corporation’s officers and directors in respect of facts and circumstances existing or arising on or prior to the date hereof, or (c) in respect of the Associate’s rights under the MSC’s 2005 Omnibus Equity Plan.                 Associate affirms that he has not filed, caused to be filed, or presently is a party to any claim, complaint, or action against the Corporation, MSC or any Related Person in any forum or form.  Associate further affirms that he has no known workplace injuries or occupational diseases and has been provided and/or has not been denied any leave requested under the Family and Medical Leave Act.                    This Release shall be governed and conformed in accordance with the laws of the State of New York without regard to its conflict or choice of law provisions.  In the event the Associate or the Corporation breaches any provision of this Agreement, Associate and the Corporation affirm that either may institute an action to specifically enforce any term or terms of this Release.  If any provision of this Release is declared illegal or unenforceable by any court of competent jurisdiction, the parties agree the court shall have the authority to modify, alter or change the provision(s) in question to make the Release legal and enforceable.  If this Release cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Release in full force and effect.  If the general release language is found to be illegal or unenforceable, Associate agrees to   3 -------------------------------------------------------------------------------- execute a binding replacement release or, if requested by the Corporation or MSC, return the monies paid pursuant to this Release.                 Any controversy or claim arising out of this Release, or the breach thereof, shall be submitted to final and binding arbitration before the American Arbitration Association (“AAA”), at its offices located in Nassau County and shall be governed by the AAA’s Employment Dispute Rules.  In such arbitration, each party shall bear its own legal fees and related costs, except that the parties shall share the fee of the arbitrator, where Associate pays an amount equal to the cost of the filing fee or purchasing an index number in federal or state court, whichever is less.  Judgment on any award an arbitrator enters may be entered in any court having jurisdiction over the parties and the arbitrator shall have the discretion to award the same relief a court could award.  To the extent that any claim is found not to be subject to arbitration, such claim shall be either decided by the arbitrator, or the appropriate New York state court, and all such claims shall be adjudicated by a judge sitting without a jury.                 The Corporation has advised the Associate in writing to consult with an attorney of his choosing prior to the signing of this Release and the Associate hereby represents to the Corporation that he has in fact consulted with such an attorney prior to the execution of this Release.  The Associate acknowledges that he has had at least twenty-one days to consider the waiver of his rights under the ADEA.  Upon execution of this Release, the Associate shall have seven additional days from such date of execution to revoke his consent to the waiver of his rights under the ADEA.  Any revocation within this period must be submitted, in writing, to ____________ [Identify Company representative] and state, “I hereby revoke my acceptance of our Release.”  The revocation must be personally delivered to _________________ [Identify Company representative]  or [his/her] designee, or mailed to ____________________   4 -------------------------------------------------------------------------------- [Identify Company representative]  and postmarked within seven (7) calendar days of execution of this Release.  This Release shall not become effective or enforceable until the revocation period has expired.  If the last day of the revocation period is a Saturday, Sunday, or legal holiday in the state in which Associate was employed at the time of his last day of employment, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday.  If no such revocation occurs, the Associate’s waiver of rights under the ADEA shall become effective seven days from the date the Associate executes this Release.                 IN WITNESS WHEREOF, the undersigned has executed this Release on the ___ day of ______________, 200_.                         [Name]   5 -------------------------------------------------------------------------------- Exhibit B [g148621kii001.jpg]     ON DATE OF HIRE ASSOCIATE CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION AGREEMENT     ASSOCIATE CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION AGREEMENT dated as of ________________, between MSC Industrial Direct Co., Inc., on behalf of itself and its subsidiaries including, without limitation, J&L America, Inc. (d/b/a J&L Industrial Supply) (“J&L”) (collectively, “Employer” or “Company”), and _____________________ (“Associate”).   In consideration of Associate’s employment and/or continued employment by J&L and Associates entering into an Employment Agreement dated as of __________, 2006 with J&L, the payment of Associate’s compensation by J&L, and J&L’s entrusting to Associate of confidential information relating to its business, Associate agrees to and accepts the conditions of employment hereinafter set forth.   1. Confidentiality.    a. During the term of Associate’s employment with J&L, Associate will not use or disclose to any individual or entity any Confidential Information (as defined below) except (i) in the performance of Associate’s duties for J&L, (ii) as authorized in writing by Employer, or (iii) as required by law or legal process, provided that, prior written notice of such required disclosure is provided to Employer and, provided further that all reasonable efforts to preserve the confidentiality of such information shall be made.     b. As used in this Agreement, “Confidential Information” shall mean information that (i) is used or potentially useful in Employer’s business, (ii) Employer treats as proprietary, private or confidential, and (iii) is not generally known to the public.  “Confidential Information” includes, without limitation, information relating to Employer’s products or services, processing, manufacturing, marketing, selling, customer lists, call lists, customer data, memoranda, notes, records, technical data, sketches, plans, drawings, chemical formulae, trade secrets, composition of products, research and development data, sources of supply and material, operating and cost data, financial information, personal information and information contained in manuals or memoranda.  “Confidential Information” also includes proprietary and/or confidential information of Employer’s customers, suppliers and trading partners who may share such information with Employer pursuant to a confidentiality agreement or otherwise.  The Associate agrees to treat all such customer, supplier or trading partner information as “Confidential Information” hereunder.  The foregoing restrictions on the use or disclosure of confidential information shall continue after Associate’s employment -------------------------------------------------------------------------------- terminates for any reason for so long as the information is not generally known to the public.    2. Non-competition.     A. ASSOCIATE RECOGNIZES THAT THE COMPANY’S RELATIONSHIP AND GOODWILL WITH ITS CUSTOMERS HAVE BEEN ESTABLISHED AT SUBSTANTIAL COST AND EFFORT BY THE COMPANY.   B. THEREFORE, ASSOCIATE SHALL NOT ENTER INTO COMPETITION (AS DEFINED BELOW) WITH EMPLOYER DURING THE TERM OF ASSOCIATE’S EMPLOYMENT WITH J&L, AND    C. FOR A PERIOD OF ONE (1) YEAR FOLLOWING CESSATION OF ASSOCIATE’S EMPLOYMENT WITH J&L FOR ANY REASON, ASSOCIATE WILL NOT, IN ANY CAPACITY, ACCEPT EMPLOYMENT WITH THE EMPLOYER WITH WHOM ASSOCIATE WAS EMPLOYED IMMEDIATELY PRECEDING THE COMMENCEMENT OF ASSOCIATE’S EMPLOYMENT WITH THE COMPANY, NOR WILL ASSOCIATE, IN ANY CAPACITY, ACCEPT EMPLOYMENT WITH THE FOLLOWING BUSINESS ENTITIES, INCLUDING ANY PARENT OR SUBSIDIARY ENTITIES OR OTHER AFFILIATED ORGANIZATIONS:  W.W. GRAINGER, INC.; FASTENAL COMPANY; MCMASTER CARR; KENNAMETAL INC. OR ITS AFFILIATES; AND THE HOME DEPOT, INC.     3. Non-Solicitation.      A. ASSOCIATE RECOGNIZES THAT THE COMPANY’S RELATIONSHIP AND GOODWILL WITH ITS CUSTOMERS HAVE BEEN ESTABLISHED AT SUBSTANTIAL COST AND EFFORT BY THE COMPANY.   B. THEREFORE, WHILE EMPLOYED BY J&L, AND FOR AN ADDITIONAL PERIOD OF ONE (1) YEAR AFTER THE TERMINATION OF EMPLOYMENT, ASSOCIATE SHALL NOT IN ANY CAPACITY EMPLOY OR SOLICIT FOR EMPLOYMENT, OR RECOMMEND THAT ANOTHER PERSON EMPLOY OR SOLICIT FOR EMPLOYMENT, ANY PERSON WHO IS THEN, OR WAS AT ANY TIME DURING THE SIX (6) MONTHS IMMEDIATELY PRECEDING THE TERMINATION OF ASSOCIATE’S EMPLOYMENT, AN ASSOCIATE, SALES REPRESENTATIVE OR AGENT OF EMPLOYER OR ANY PRESENT OR FUTURE SUBSIDIARY OR AFFILIATE OF EMPLOYER.   C. FURTHER, ASSOCIATE AGREES THAT WHILE EMPLOYED BY J&L, AND FOR A PERIOD OF ONE (1) YEAR AFTER HIS/HER EMPLOYMENT WITH J&L ENDS, S/HE WILL NOT, ON BEHALF OF HIMSELF/HERSELF, OR ANY OTHER PERSON, FIRM OR CORPORATION, SOLICIT ANY OF THE COMPANY’S OR ITS AFFILIATE’S CUSTOMERS WITH WHOM S/HE HAS HAD CONTACT WHILE WORKING FOR J&L; NOR WILL ASSOCIATE IN ANY WAY, DIRECTLY OR INDIRECTLY, FOR HIMSELF/HERSELF, OR ANY OTHER PERSON, FIRM, CORPORATION OR ENTITY, DIVERT, OR TAKE AWAY ANY CUSTOMERS OF THE COMPANY OR ITS AFFILIATES WITH WHOM ASSOCIATE HAS HAD CONTACT.  FOR PURPOSES OF THIS PARAGRAPH, THE TERM “CONTACT” SHALL MEAN ENGAGING IN ANY COMMUNICATION, WHETHER WRITTEN OR ORAL, WITH THE CUSTOMER OR A REPRESENTATIVE OF THE CUSTOMER, OR -------------------------------------------------------------------------------- OBTAINING ANY INFORMATION WITH RESPECT TO SUCH CUSTOMER OR CUSTOMER REPRESENTATIVE.   4. Employment At-Will.  Associate acknowledges that his or her employment by J&L following the expiration of the Term (as defined in the Employment Agreement) will not be for any specified period of time and that it can be terminated by either Associate or Employer at any time following the expiration of the Term for any lawful reason.  This is an “employment at will.”   5. Termination of Employment.  In the event of termination of employment by either party, this Agreement will remain in effect.  Upon termination, Associate will immediately deliver to Employer all property belonging to Employer then in the Associate’s possession or control, including all Documents (as defined herein) embodying Confidential Information.  As used herein, “Documents” shall mean originals or copies of files, memoranda, correspondence, notes, manuals, photographs, slides, overheads, audio or video tapes, cassettes, or disks, and records maintained on computer or other electronic media.     6. Notice to Future Employers.  For the period of one year immediately following the end of Associate’s employment with J&L, Associate will inform each new employer, in writing, prior to accepting employment, of the existence and details of this Agreement and will provide that employer with a copy of this Agreement.  Associate will send a copy of each such writing to MSC at the time the Associate informs each new employer of the Agreement.     7.  Remedies.  Associate acknowledges that this Agreement, its terms and his/her compliance is necessary to protect the Company’s confidential and proprietary information, its business and its goodwill; and that a breach of any of Associate’s promises contained in this Agreement will irreparably and continually damage the Company to an extent that money damages may not be adequate.  For these reasons, Associate agrees that in the event of a breach or threatened breach by the Associate of this Agreement, the Company shall be entitled to a temporary restraining order and preliminary injunction restraining Associate from such breach.  Nothing contained in this provision shall be construed as prohibiting the Company from pursuing any other remedies available for such breach or threatened breach or any other breach of this Agreement.  If Associate violates this Agreement, then the duration of the restrictions contained in paragraphs 2 and 3 shall be extended for an amount of time equal to the period of time during which Associate was in violation of the Agreement.   8.  Entire Agreement.  This Agreement embodies the entire agreement and understanding between the Parties with regard to the subject matter of this Agreement, is binding upon and inures to the benefit of the Parties, and it supersedes any and all prior agreements or understandings between the Company and Associate.   9.  Modification.  This Agreement may be modified or amended only by an instrument in writing executed by the Parties hereto, or in accordance with paragraph 15 herein. --------------------------------------------------------------------------------   10. Governing Law and Venue.  This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York, and may be enforced in any court of competent jurisdiction.      11. Waiver.  If in one or more instances either party fails to insist that the other party perform any of this Agreement’s terms, this failure shall not be construed as a waiver by the party of any past, present, or future right granted under this Agreement; the obligations of both Parties under this Agreement shall continue in full force and effect.   12. Assignment. This Agreement may not be assigned by Associate.  The Company shall have the right to assign its rights and obligations hereunder without the consent of the Associate.   13. Arbitration. Except as otherwise provided in this Agreement, any controversy or claim arising out of Associate’s employment with J&L or the termination thereof, including without limitation any claim related to this Agreement or the breach thereof shall be resolved  by binding arbitration in accordance with the rules then in effect of the American Arbitration Association, at the office of the American Arbitration Association nearest to where the Associate performed the Associate's principal duties for the J&L.  Nothing in this paragraph shall prevent the parties from seeking injunctive relief from the courts pending arbitration.  Each party shall be permitted to engage in arbitral discovery in the form of document production, information requests, interrogatories, depositions and subpoenas.  The parties shall share equally the fee of the arbitration panel.   To the extent that an arbitrator or court shall find that any dispute between the parties,  including any claim made under or relating to this Agreement, is not subject to arbitration, such claim shall be decided by the courts of the State and the County, in which this agreement was executed, in a proceeding held before a Judge of the Trial Court of the State and County in which this agreement was executed  or in the United States District Court in and for the District Court of covering the County in which this agreement was executed.  Any trial of such a claim shall be heard by the Judge of such Court, sitting without a jury at a bench trial, to ensure more rapid adjudication of that claim and application of existing law. 14. Attorneys’ Fees.  If any party to this Agreement breaches any of this Agreement’s terms,   then that party shall pay to the non-defaulting party all of the non-defaulting party’s costs and expenses, including reasonable attorneys’ fees, incurred by that party in enforcing this Agreement.  15. Severability.  If any one or more of the provisions contained in this Agreement is held illegal or unenforceable by an arbitrator or court and cannot be modified to be enforceable (which the parties expressly authorize such court, arbitrator, or other forum to do), no other provisions shall be affected by this holding.     16. Acknowledgment.  I have read this agreement, have had an opportunity to ask Employer's representatives questions about it, and understand that my signing this -------------------------------------------------------------------------------- agreement is a condition of employment.   17. Section Headings.  Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.       THUS, the parties knowingly and voluntarily execute this Agreement as of the dates set forth below.       J&L MANAGER:     ASSOCIATE:           By: /s/ C.V. Spawr___   Signature: /s/ Michael P Wessner           Title: NPHR__   Printed Name: M P Wessner           Date: 14 March 2006   Date: 3-14-06   --------------------------------------------------------------------------------

SETTLEMENT AND RELEASE AGREEMENT         THIS SETTLEMENT AND RELEASE AGREEMENT is entered into in Provo, Utah, by and between Nu Skin International, Inc., 75 West Center Street, Provo, Utah 84601, and Lori Bush. PARTIES         1.        Nu Skin or Company. As used herein, Nu Skin or Company shall mean and refer to Nu Skin International, Inc., or any affiliate of Nu Skin International, Inc. Affiliate means any person or entity that controls, is controlled by or is under common control with Nu Skin International, Inc., including, without limitations, any direct or indirect parent or subsidiary of Nu Skin International, Inc., or any officer, director, shareholder, employee, or agent of Nu Skin International, Inc., or of any parent or direct or indirect subsidiary of Nu Skin International, Inc.         2.        Employee. As used herein, Employee shall mean and refer to Lori Bush. BACKGROUND         Employee was hired on February 28, 2000 and has been an at-will employee of Nu Skin since that date. On March 31, 2006, the relationship ended. As Employee and Nu Skin sever their employment relationship, they mutually agree it is in the best interests of both parties to enter into a mutual understanding, settle and compromise of all claims and disputes, if any, between them. AGREEMENT         Now, therefore, in consideration of the foregoing, the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt, adequacy, and legal sufficiency of which are hereby acknowledged, the parties mutually agree as follows:         1.        Upon the effective date of this Agreement, Nu Skin agrees to pay in a lump sum to Employee a severance payment of $800,000.00, less federal and state withholding taxes and other applicable deductions. Nu Skin shall reimburse claims made within thirty (30) days against Employee’s Cafeteria Plan account for Employee’s period of employment         2.        In consideration for the amount and statements set forth in paragraph 1 hereof, Employee shall not accept employment with, engage in or participate, directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, partner, joint venturer, agent, equity, equity owner, distributor, or in any other capacity whatsoever, with any direct sales or multi-level marketing company that competes with the business of Nu Skin whether for market share of products or for independent distributors in a territory in which Nu Skin is doing business. The restrictions set forth in this paragraph shall remain in effect for a period of eighteen months following the termination of employment.         The Employee acknowledges: (a) that compliance with the restrictive covenant contained in this paragraph is necessary to protect the business and goodwill of Nu Skin and (b) that a breach will result in irreparable and continuing damage to Nu Skin, for which money damages may not provide adequate relief. Consequently, Employee agrees that, in the event that she breaches or threatens to breach this restrictive covenant or violates or breaches this Agreement, Nu Skin shall be entitled to: (1) a preliminary or permanent injunction to prevent the continuation of harm, (2) money damages insofar as they can be determined, (3) recover from Employee the monies paid to Employee pursuant to paragraph 1 above, and (4) attorneys fees. Nothing in this agreement shall be construed to prohibit Nu Skin from also pursuing any other remedy, the parties having agreed that all remedies are cumulative.         It is further recognized and agreed that the covenant set forth herein is for the purpose of restricting Employee’ activities to the extent necessary for the protection of the legitimate business interests of Nu Skin and that Employee agrees that said covenant does not and will not preclude her from engaging in activities sufficient for the purpose of earning a living. Should Employee breach, in the sole opinion of Nu Skin, this restrictive covenant or any of the restrictive covenants found in Employee Key-Employee Covenants Agreement enumerated in part under paragraph 6 of this Agreement, Nu Skin shall have the right to stop making payments to Employee under this Agreement.         3.        Further, in consideration for the amounts and statements set forth in Paragraph 1 hereof, Employee, all persons and entities claiming by, through, or under Employee, hereby completely releases Nu Skin from all claims, charges, demands, grievances, and/or causes of action which Employee had, has, or may claim to have based on, arising from, or relating to Employee’s employment with Nu Skin or the termination thereof, including, without limitation, any claims, charges, demands, grievances, and/or causes of action under:   (a)   Title VII of the Civil Rights Acts of 1964 and 1991, as amended, which prohibit discrimination on the basis of race, color, sex, religion, or national origin;   (b)   Section 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race;   (c)   The Employee Retirement Income Security Act as of the effective date of this Agreement;   (d)   any state laws against discrimination;   (e)   any other federal, state, or local statute or common law relating to employment; or         The foregoing release also includes, without limitation, release of any claims for wrongful discharge, breach of express or implied contract of employment, employment-related torts, personal injury (whether physical or mental), or any other claims in any way related to Employee’s employment with or separation from Nu Skin. Employee acknowledges and agrees that Employee has not been discriminated against in any manner prohibited by law during Employee’s employment with Nu Skin or with regard to Employee’s separation from employment with Nu Skin.         Notwithstanding the foregoing, Employee does not waive any rights to unemployment insurance benefits or worker’s compensation benefits. Employee further understands that nothing in this Paragraph 3 prohibits Employee from paying COBRA premiums to maintain Employee’s participation in Nu Skin’s group health plan to the extent allowed by law and subject to the terms, conditions, and limitations set forth in Nu Skin’s group health plan.         Employee will continue to be covered by Nu Skin’s medical and dental benefits through the last day of the month in which the employment terminates. Except as expressly set forth herein, all employee benefits available to Employee under current policies of Nu Skin will cease at 11:59 p.m. on March 31, 2006.         The release herein does not apply to any claims that may arise regarding the obligations contained in this Agreement including, but not limited to, Nu Skin's obligations to make the severance payments provided for in Section 1. Nothing herein shall be construed to limit or prevent Employee from seeking relief based upon an alleged breach of this Agreement - including, but not limited to an alleged breach of the obligations contained in Section 1.         4.        Employee acknowledges that Employee is waiving and releasing any rights Employee may have under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary. Employee and Nu Skin agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the effective date of this Agreement. Employee acknowledges that the consideration given for this waiver and release agreement is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that Employee has been advised by this writing that:   a.   Employee should consult with an attorney prior to executing this Agreement;   b.   Employee has at least forty-five (45) days within which to consider this Agreement, although Employee may accept the terms of this Agreement at any time within those 45 days;   c.   Employee has at least seven (7) days following the execution of this Agreement by the parties to revoke this Agreement; and   d.   this Agreement will not be effective until the revocation period has expired.         5.        Employee acknowledges that Nu Skin does not have a formal severance policy and that Nu Skin has no obligation to pay severance to Employee except as required by this Agreement.         6.        Employee is reminded that the Key-Employee Covenants Agreement signed by Employee will remain in force following termination of employment, except to the extent modified by this Agreement including the Non-Competition clauses thereof, and including but not limited to the following clauses:   a.   Confidentiality Information: Employee acknowledges that during the term of employment with the Company he or she may develop, learn and be exposed to information about the Company and its business, including but not limited to formulas, business plans, financial data, vendor lists, product and marketing plans, distributor lists and training in Company’s manner of dong business in both product categories and direct selling and multi-level marketing strategies, and other trade secrets which information is secret, confidential and vital to the continued success of the Company ("Confidential Information"). Employee agrees that he or she will not at any time (whether during employment or after termination of employment with Company), without the express written consent of the Company, disclose, copy, retain, remove from Company’s premises or make any use of such Confidential Information except as may be required in the course of his or her employment with Company.   b.   Non-Solicitation: Employee shall not in any way, directly or indirectly at any time during employment or within two (2) years after either a voluntary or involuntary employment termination: (a) solicit, divert, or take away Company’s distributors; (b) solicit in any manner Company’s employees or vendors; or (c) assist any other person in any manner of persons in an attempt to do any of the foregoing. Notwithstanding any provision to the contrary found herein, Employee may solicit or contact a Company vendor if and only if (1) Employee had business dealings with such vendor prior to joining Company as an Employee, (2) such solicitation does not involve products that complete with or are similar to any products being sold or distributed by Company, and (3) such solicitation or resulting relationship does not in any way adversely impact Company’s relationship with such vendor or its ability to procure products or supplies from such vendor. In the event of any such adverse impact related to any solicitation of vendor by Employee, Employee will be deemed to have breached the provisions of this Section 6.b.   c.   Non-Disparagement: Employee shall not in any way, directly or indirectly, at any time after during employment or after either voluntary or involuntary employment termination, commercially disparage Company, Company products, or Company Distributors.   d.   Non-Endorsement: Employee shall not in any way, directly or indirectly, at any time during employment or within eighteen (18) months after either voluntary or involuntary employment termination endorse any product that competes with products of Company, promote or speak on behalf of any company whose products compete with those of Company, allow Employee’s name or likeness to be used in any way to promote any company or product that competes with products of Company.         7.        At the time of termination of employment, Employee shall return to Nu Skin all confidential information, computers, laptops, cell phones, and all other equipment or materials owned by Nu Skin in the possession of Employee.         8.        Employee promises not to file or allow to be filed on Employee’s behalf any lawsuit, charge, or complaint against Nu Skin regarding the claims released in Paragraph 3 and 4 above.         9.        In consideration of the promises, releases, and covenants made by Employee herein, Nu Skin hereby releases Employee from any and all claims, charges, demands, grievances and/or causes of action which Nu Skin had, has or may claim to have based on, arising from or relating to Employee’s employment with Nu Skin or termination thereof.         10.        This Agreement is a negotiated settlement of all claims, charges, demands, grievances, and/or causes of action, if any, between the parties. This Agreement does not constitute an admission by Nu Skin, and Nu Skin specifically denies that Nu skin has violated any contract, law, or regulation or that it has discriminated against Employee or otherwise infringed upon Employee’s rights and privileges or done any other wrongful act.         11.        This Agreement is confidential information owned by Nu Skin. No party may disclose the contents of this Agreement except to the extent required by law. Notwithstanding the foregoing, Employee may disclose the terms of the Agreement to Employee’s attorney or to Employee’s immediate family (spouse and children). If Employee discloses the terms of this Agreement to Employee’s attorney or to Employee’s immediate family, Employee will advise them that they must not disclose the terms of this Agreement except to the extent required by law.         12.        The provisions of this Agreement are severable. Should any provision hereof be voidable or unenforceable under applicable law, such voidable, or unenforceable provision shall not effect the validity of any other clause or provision, which shall remain in full force and effect. In addition, it is the intention and agreement of the parties that all of the terms and conditions hereof be enforced to the fullest extent permitted by law.         13.        The validity of this Agreement and the interpretation and performance of all of its terms shall be governed by the substantive and procedural laws of the State of Utah. Each party expressly submits and consents to exclusive personal jurisdiction and venue in the courts of Utah County, State of Utah or in any Federal District Court in Utah.         14.        This is the entire Agreement between the parties. No other promises or agreements have been made to Employee or Nu Skin other than those contained in this Agreement. Employee and Nu Skin acknowledge that they have read this agreement carefully, fully understand the meaning of the terms of this Agreement, and are signing this Agreement knowingly and voluntarily. This Agreement may not be modified except by an instrument in writing signed by all of the parties hereto. DATED: April 13, 2006   /s/ Lori Bush Employee DATED: April 20, 2006   NU SKIN INTERNATIONAL, INC. By:    /s/ D. Matthew Dorny Its:    Vice President and Secretary

-------------------------------------------------------------------------------- Exhibit 10.1   AMENDMENT AND RATIFICATION AGREEMENT   This Amendment and Ratification Agreement (“Amendment and Ratification Agreement”) is executed by Computershare Shareholder Services, Inc. (“CSSI”), a Delaware corporation, and its wholly-owned subsidiary Computershare Trust Company, N.A. (the “Trust Company” and collectively with CSSI, “Computershare”) and ICO, Inc. (the “Company”). By the execution of this Amendment and Ratification Agreement, Computershare and the Company agree as follows:   1.     Acknowledgment. Computershare acknowledges that (i) Society National Bank, a national banking association organized under the laws of the United States of America and headquartered in Cleveland, Ohio (“Society National Bank”) and the Company entered into that certain Deposit Agreement (the “Deposit Agreement”) dated November 1993, and attached hereto as Exhibit A, pursuant to which Society National Bank served as depositary for the Company’s $6.75 Convertible Exchangeable Preferred Stock and (ii) by operation of the provisions of Section 5.04 of the Deposit Agreement, Computershare is the successor Depositary.   2.     Amendment. Computershare and the Company hereby amend the Deposit Agreement as follows:     A. The definition of the term “business day” contained in Article 1 is hereby amended by replacing “Cleveland, Ohio” with “Canton, Massachusetts, Jersey City, New Jersey, Chicago, Illinois”.     B. The definition of the term “Depositary” contained in Article 1 is hereby amended by replacing “Society National Bank, a national banking association organized under the laws of the United States of America and headquartered in Cleveland, Ohio” with “Computershare Shareholder Services, Inc., a Delaware corporation (“CSSI”), and its wholly-owned subsidiary Computershare Trust Company, and any successor as Depositary hereunder; provided, however, that Depositary shall mean only CSSI and any successor hereunder where the Depositary is required by the terms of this Agreement to handle cash funds”.     C. The definition of the term “New York Office” contained in Article 1 is hereby deleted.     D. The definition of the term “Depositary’s Office” is hereby added to Article 1 and shall mean “any office of the Depositary at which at any particular time its depositary receipt business shall be administered”.     E. Section 2.01 is hereby amended by deleting “; provided, however, that such signature may be a facsimile if a Registrar (other than a Depositary) shall have been appointed and such Receipts are countersigned by manual signature of a duly authorized signatory of the Registrar”.     F. The second paragraph of Section 2.02 is hereby amended by deleting “at its Cleveland offices”.   --------------------------------------------------------------------------------   G. The fourth paragraph of Section 2.02 is hereby amended by replacing “New York” with “Depositary’s” and adding “, to the extent practicable” to the end of the sentence.     H. The second paragraph of Section 2.03 is hereby amended by deleting “and the Depositary shall surrender to the Company a certificate or certificates (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state) representing the number of shares of Stock to be so redeemed” from the first sentence.     I. The third paragraph of Section 2.04 is hereby amended by deleting the first sentence “On the Exchange Date, the Depositary shall surrender to the Company certificates representing all the shares of Stock.”     J. The second paragraph of Section 2.05 is hereby amended by adding “Notwithstanding the foregoing, to the extent the Depositary’s standard business conversion procedures at the time of any conversion differ from the procedures set forth in this paragraph, the Depositary may utilize its then current standard business conversion procedures to the extent such procedures do not materially and adversely alter the rights of the holders of Depositary Shares.” to the end of the paragraph.     K. Section 2.06 is hereby amended by replacing “at the New York Office or such other offices in the city of New York as the Depositary may designate for such purpose” with “at the Depositary’s Office” and by adding “properly endorsed or accompanied by a properly executed instrument of transfer including a guarantee of the signature thereon by a participant in a signature guarantee medallion program approved by the Securities Transfer Association” before the word “together” in the first parenthetical of Section 2.06.     L. The second paragraph of Section 2.08 is hereby amended by replacing “Cleveland office” with Depositary’s Office” and by adding “, to the extent practicable” to the end of the sentence.     M. Section 2.10 is hereby amended by adding “and the provision of an open penalty surety bond satisfactory to the Depositary and holding it and the Company harmless” after the word “Company”.     N. The first paragraph of Section 5.01 is hereby amended by replacing “its Cleveland office” with “the Depositary’s Office”.     O. The second paragraph of Section 5.01 is hereby amended by deleting “and Registrar and transfer agent with respect to the Stock”.     P. The third paragraph of Section 5.01 is hereby amended by deleting “, acting as transfer agent and Registrar,”, by replacing “its Cleveland office” with “the Depositary’s office” and by deleting “The Depositary shall consult with the Company upon receipt of any request for inspection.”   2 --------------------------------------------------------------------------------   Q. Section 5.01 is hereby amended by addition the following to the end of the section “To the extent provisions of this Deposit Agreement regarding transfer or registrar functions of the Depositary conflict with the terms of any transfer agency agreement into which the Company and the Depositary may enter, the transfer agency agreement shall control; provided, however, that if any such provisions materially and adversely alter the rights of the holders of Depositary Shares, then the provisions in the Deposit Agreement shall control.”     R. The seventh paragraph of Section 5.03 is hereby amended by replacing “state of Ohio” with “United States of America”.     S. The first paragraph of Section 7.04 is hereby amended by replacing “100 Glenborough Drive, Suite 250, Houston, Texas 77067” with “1811 Bering Drive, Suite 200, Houston, Texas 77057”.     T. The second paragraph of Section 7.04 is hereby amended by replacing “the Depositary’s Office, c/o Society National Bank, 1201 Elm Street, Suite 3200, Dallas, Texas 75270, Attention: Jill S. Wessell, Assistant Vice President” with Computershare Trust Company, N.A., c/o Computershare Shareholder Services, Inc., 250 Royall Street, Canton, Massachusetts, 02021, Attn: General Counsel, Facsimile No. 781.575.4210”.     U. Section 7.08 is hereby amended by replacing “Cleveland and Dallas office” with “Office”.     V. The Deposit Agreement is hereby amended by adding Section 7.10 as follows: “Section 7.10 Force Majeure. Notwithstanding anything to the contrary contained herein, the Depositary, the Registrar, and the Depositary’s Agents shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.”   3.     Ratification. Computershare and the Company hereby ratify the terms of the Deposit Agreement, and agree that, except as expressly modified by this Amendment and Ratification Agreement, the terms of the Deposit Agreement shall remain unchanged and the Deposit Agreement shall continue in full force and effect. The Deposit Agreement and this Amendment and Ratification Agreement shall be considered one and the same agreement.   4.     Definitions. All capitalized terms used in this Amendment and Ratification Agreement without definition shall have the meanings given to them in the Deposit Agreement.   5.     Governing Law. This Amendment and Ratification Agreement shall be construed and enforced in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof.   3 -------------------------------------------------------------------------------- 6.     Counterparts. This Amendment and Ratification Agreement may be signed in any number of counterparts with the same effect as if the signatures on each such counterparts were on the same instrument.       4 -------------------------------------------------------------------------------- EXECUTED AND DATED on this 15th day of September, 2006.     COMPUTERSHARE SHAREHOLDER SERVICES, INC.             By: /s/ Dennis V. Moccia     Name: Dennis V. Moccia     Title: Managing Director                   COMPUTERSHARE TRUST COMPANY, N.A.             By: /s/ Dennis V. Moccia     Name: Dennis V. Moccia     Title: Managing Director                   ICO, INC.             By: /s/ Jon C. Biro     Name: Jon C. Biro     Title: Chief Financial Officer and Treasurer         5 -------------------------------------------------------------------------------- EXHIBIT A [1993 DEPOSIT AGREEMENT] 6 --------------------------------------------------------------------------------   ICO, INC.,   Society National Bank, As Depositary   AND   THE HOLDERS FROM TIME TO TIME OF   THE DEPOSITARY RECEIPTS ISSUED HEREUNDER                 DEPOSIT AGREEMENT         Dated as of November __, 1993     -------------------------------------------------------------------------------- DEPOSIT AGREEMENT   DEPOSIT AGREEMENT dated as of November __, 1993, among ICO, INC., a Texas corporation, Society National Bank, a national banking association organized under the laws of the United States of America and headquartered in Cleveland, Ohio and the holders from time to time of the Depositary Receipts issued hereunder.   W I T N E S S E T H:   WHEREAS, the Company desires to provide as hereinafter set forth in this Deposit Agreement, for the deposit of the Stock with the Depositary, for the purposes set forth in this Deposit Agreement and for the issuance hereunder of the Receipts evidencing Depositary Shares representing an interest in the Stock so deposited; and   WHEREAS, the Receipts are to be substantially in the form of Exhibit A annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement.   NOW, THEREFORE, in consideration of the premises contained herein, the parties hereto agree as follows:   1  DEFINITIONS   The following definitions shall for all purposes, unless otherwise indicated, apply to the respective terms used in this Deposit Agreement and the Receipts;   “Articles of Incorporation” shall mean the Articles of Incorporation, as amended and restated from time to time, of the Company.   “Business Day” shall mean a day which is not a Saturday, Sunday or other day on which commercial banking institutions in the City of Houston, Texas, Cleveland, Ohio or the City of New York, New York are authorized or obligated by law or executive order to close.   “Common Stock” shall mean the Company’s common stock, no par value.   “Commission” shall mean the Securities and Exchange Commission.   “Company” shall mean ICO, Inc., a Texas corporation, having its principal office at 100 Glenborough Drive, Suite 250, Houston, Texas 77067, and its successors.   “Debentures” shall mean the Company’s ___% Convertible Subordinated Debentures due 2003, that are issuable pursuant to the terms of the Indenture in exchange for the Stock.   “Deposit Agreement” shall mean this Deposit Agreement, as amended, modified or supplemented from time to time.   “Depositary” shall mean Society National Bank, a national banking association organized under the laws of the United States of America and headquartered in Cleveland, Ohio, and any successor as Depositary hereunder.   “Depositary Shares” shall mean the rights evidenced by the Receipts executed and delivered hereunder, including the interests in Stock granted to holders of Depositary Shares pursuant to the terms and conditions of this Deposit Agreement. Each Depositary Share shall represent one-   -------------------------------------------------------------------------------- quarter (¼) of one share of Stock deposited with the Depositary hereunder and the same proportionate interest in any and all other property received by the Depositary in respect of such shares of Stock and held under this Deposit Agreement. Subject to the terms of this Deposit Agreement, each record holder of a Depositary Share or Depositary Shares is entitled, proportionately, to all the rights, preferences and privileges of the Stock represented by such Depositary Share or Depositary Shares, including the dividend, conversion, voting, exchange, redemption and liquidation rights contained in the Statement of Designations, and to the benefits of all obligations and duties of the Company in respect of the Stock under the Statement of Designations and the Articles of Incorporation.   “Depositary’s Agent” shall mean an agent appointed by the Depositary as provided, and for the purposes specified, in Section 7.05.   “Dividend Payment Date” shall mean a date fixed by the Company for the payment of dividends on the Stock pursuant to the terms of the Statement of Designations.   “Dividend Record Date” shall mean a date fixed by the Company for determination of holders entitled to receive dividends on the Stock pursuant to the terms of the Statement of Designations.   “Exchange Date” shall mean a date fixed by the Company for the exchange of Debentures for the Stock pursuant to the terms of the Statement of Designations.   “Indenture” shall mean the Indenture between the Company and Texas Commerce Trust Company, National Association, as trustee, relating to the Debentures.   “New York Office” shall mean the office maintained by the Depositary in New York, New York, which at the date of this Deposit Agreement is located at 5 Hannover Square, 10th Floor, New York, New York 10004.   “Receipts” shall mean the depositary receipt certificates executed and delivered hereunder, whether in definitive or temporary form, evidencing any whole number of Depositary Shares, as the same may be amended from time to time in accordance with the provisions hereunder.   “Record holder” or “holder” as applied to a Depositary Share shall mean the person in whose name such Depositary Share is registered on the books of the Depositary maintained by or on behalf of the Depositary for such purpose.   “Redemption Date” shall mean a date fixed by the Company for the redemption, in whole or in part, of the Stock pursuant to the terms of the Statement of Designations.   “Redemption Price” shall mean the price to be paid by the Company for the redemption, in whole or in part, of the Stock pursuant to the terms of the Statement of Designations.   “Registrar” shall mean any bank or trust company appointed to register ownership and transfers of Receipts as herein provided.   “Securities Act” shall mean the Securities Act of 1933, as amended.   “Statement of Designations” shall mean the Statement of Designations Establishing the $____ Convertible Exchangeable Preferred Stock adopted by the Board of Directors of the Company establishing and setting forth the rights, preferences, privileges and limitations of the Stock and filed with the Secretary of State of the State of Texas establishing the Stock as a series of preferred stock of the Company.   2 -------------------------------------------------------------------------------- “Stock” shall mean up to 345,000 shares of the Company’s $____ Convertible Exchangeable Preferred Stock, no par value.   “Trustee” shall mean Texas Commerce Trust Company, National Association.   Capitalized terms used herein but not otherwise defined in this Deposit Agreement shall have the meanings assigned to them in the Statement of Designations.   2  FORM OF RECEIPTS; DEPOSIT OF STOCK; EXECUTION AND DELIVERY OF RECEIPTS; TRANSFER, SURRENDER, REDEMPTION, CONVERSION AND EXCHANGE OF DEPOSITARY SHARES   2.1    Form and Transfer of Receipts. Receipts shall be engraved or printed or lithographed or in such other form as may be agreed upon by the Company and the Depositary and shall be substantially in the form set forth in Exhibit A attached hereto, with appropriate insertions, modifications and omissions, as hereinafter provided. Pending the preparation of definitive Receipts, the Depositary, upon written order of the Company delivered in compliance with Section 2.02, shall execute and deliver temporary Receipts which are printed, lithographed, typewritten, mimeographed or otherwise substantially of the tenor of the definitive Receipts in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the person executing such Receipts may determine, as evidenced by their execution of such Receipts. If temporary Receipts are issued, the Company and the Depositary will cause definitive Receipts to be prepared without unreasonable delay. After the preparation of definitive Receipts, the temporary Receipts shall be exchangeable for definitive Receipts upon the surrender of the temporary Receipts to the Depositary at such office, if any, as the Depositary may designate, without charge to the holder. Upon surrender of any one or more temporary Receipts, the Depositary shall execute and deliver in exchange therefor definitive Receipts representing the same number of Depositary Shares as represented by the surrendered temporary Receipt or Receipts. Such exchange shall be made at the Company’s expense and without any charge therefor to the holder of the Receipts. Until so exchanged, the temporary Receipts shall in all respects be entitled to the same benefits under this Deposit Agreement, and with respect to the Stock, as definitive Receipts. Receipts shall be executed by the Depositary by the manual signature of a duty authorized signatory of the Depositary; provided, however, that such signature may be a facsimile if a Registrar (other than the Depositary) shall have been appointed and such Receipts are countersigned by manual signature of a duly authorized signatory of the Registrar. No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose unless it shall have been executed as provided in the preceding sentence. The Depositary shall record on its books each Receipt executed as provided above and delivered as hereinafter provided. Receipts bearing the facsimile signature of anyone who was at any time a duly authorized signatory of the Depositary or a Registrar, as the case may be, shall bind the Depositary or Registrar, as the case may be, notwithstanding that such signatory has ceased to be an authorized signatory prior to the delivery of such Receipts.   Receipts may be issued in denominations of any number of whole Depositary Shares. All Receipts shall be dated the date of their execution.   3 -------------------------------------------------------------------------------- Receipts may be endorsed with or have incorporated in the text thereof such legends (in addition to the legends included in the form of Receipt set forth in Exhibit A) or recitals or changes not inconsistent with the provisions of this Deposit Agreement as may be required by the Depositary (or, at the election of the Depositary, the Registrar) or required to comply with any applicable law or any regulation, or to indicate any special limitations or restrictions which any particular Receipts are subject by reason of the date of issuance of the underlying Stock or otherwise.   Title to Depositary Shares evidenced by any Receipt that is properly endorsed or accompanied by a properly executed instrument of transfer, shall be transferable by delivery with the same effect as in the case of investment securities in general; provided, however, that until transfer of a Receipt shall be registered on the books of the Depositary as provided in Section 2.06, the Depositary may, notwithstanding any notice to the contrary, treat the record holder thereof at such time as the absolute owner thereof for the purpose of determining the person entitled to dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes.   Each holder of Depositary Shares is entitled, proportionately, to all the rights, preferences and privileges of the Stock represented thereby (including dividend, conversion, voting, exchange, redemption and liquidation rights) and the same proportionate interest in any and all other property received by the Depositary in respect of such Stock and at the time held under this Deposit Agreement.   2.2    Deposit of Stock; Execution and Delivery of Receipts in Respect Thereof. Subject to the terms and conditions of this Deposit Agreement, the Company may deposit, on the date of original issuance, all of the Stock required to be deposited under this Deposit Agreement by delivery to the Depositary of a certificate or certificates for the Stock to be deposited, together with all such certifications as may be required by the Depositary in accordance with the provisions of this Deposit Agreement, and together with a written order of the Company, directing the Depositary to execute and deliver to, or upon the written order of, the person or persons stated in such order, a Receipt or Receipts for the number of Depositary Shares representing such deposited Stock.   Certificates representing Stock shall be held by the Depositary at its Cleveland offices.   Upon receipt by the Depositary of a certificate or certificates for Stock to be deposited hereunder, together with the other documents required as specified above, and upon recordation of the Stock on the books of the Company in the name of the Depositary or its nominee, the Depositary, subject to the terms and conditions of this Deposit Agreement, shall execute and deliver, to or upon the order of the person or persons named in the written order delivered to the Depositary referred to in the first paragraph of this Section, a Receipt or Receipts for the number of Depositary Shares representing the Stock so deposited and registered in such name or names as may be required by such person or persons.   The Depositary shall execute and deliver such Receipt or Receipts at the New York Office, except that, at the request, risk and expense of the person entitled to receive any Receipt, such delivery may be made at such other place as may be requested by such person.   4 -------------------------------------------------------------------------------- The Company shall deliver to the Depositary from time to time such quantities of Receipts as the Depositary may request to enable the Depositary to perform its obligations under this Depositary Agreement.   2.3    Redemption of Stock. Whenever the Company shall elect to redeem shares of Stock in accordance with the Statement of Designations, it shall (unless otherwise agreed in writing with the Depositary) give the Depositary in its capacity as Depositary not less than 10 Business Days’ prior notice of the proposed date of the mailing of a notice of redemption of Stock and the simultaneous redemption of the Depositary Shares representing the Stock to be redeemed, and the number of shares of Stock to be redeemed, which notice shall be accompanied by (i) a certificate from the Company stating that such redemption of Stock is in accordance with the provisions of the Statement of Designations and (ii) the form of notice of redemption (which shall contain substantially the same information as the notice required by the Statement of Designations for the redemption of the Stock) to be delivered by the Depositary. Not more than 60 nor less than 30 days prior to the Redemption Date, the Depositary shall, as directed by the Company in writing, mail or cause to be mailed, first-class postage prepaid, notice (in the form provided to the Depositary by the Company) of redemption of the Depositary Shares representing the Stock to be redeemed, to the holders of record of the Depositary Shares to be so redeemed at the addresses of such holders as shown on the records of the Depositary. Any notice which is so mailed shall be conclusively presumed to have been duly given whether or not the holder receives such notice; and failure to give such notice by mail, or any defect in such notice, to the holders of any Depositary Shares designated for redemption shall not affect the sufficiency of the proceedings for redemption with respect to other holders. If fewer than all of the then outstanding Depositary Shares are to be redeemed, the Depositary Shares to be redeemed shall be selected ratably or by lot as may be determined by the Company’s Board of Directors, and the Company shall deliver instructions relating to such manner of redemption to the Depositary.   On the Redemption Date, the Company shall deliver to the Depositary funds sufficient to redeem in full the Stock called for redemption and the Depositary shall surrender to the Company a certificate or certificates (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state) representing the number of shares of Stock to be so redeemed. On or after the Redemption Date, upon surrender by the holders thereof of Receipts (properly endorsed or assigned for transfer, if the Depositary shall so require, and otherwise in accordance with the notice of redemption of Depositary Shares) evidencing Depositary Shares and any other documentation as shall be required by the Depositary in its sole discretion, the Depositary shall pay to such holders from the funds received from the Company an amount per Depositary Share equal to one-quarter of the Redemption Price per share paid in respect of the shares of Stock redeemed. If, on the Redemption Date, the Company shall have delivered to the Depositary funds necessary for the redemption in full of the shares of Stock called for redemption, then, notwithstanding that the Receipts evidencing Depositary Shares representing the shares of Stock called for redemption have not been surrendered, the dividends in respect thereof shall cease to accrue after the Redemption Date, such Depositary Shares shall no longer be deemed outstanding and all rights whatsoever with respect to such Depositary Shares (except the right of the holders to receive the redemption payment therefor without interest upon surrender of the Receipts evidencing such Depositary Shares) shall terminate.   If fewer than all the Depositary Shares evidenced by a Receipt are redeemed, the Depositary shall deliver to the holder of such Receipt upon its surrender to the Depositary, together with the   5 -------------------------------------------------------------------------------- redemption payment, a new Receipt evidencing the unredeemed balance of the Depositary Shares evidenced by the Receipt so surrendered.   2.4    Exchange of Stock. If the Company shall be permitted in accordance with the Statement of Designations and shall elect to exchange the shares of the Stock in whole, but not in part, for Debentures, it shall (unless otherwise agreed to in writing with the Depositary) give the Depositary not less than 5 Business Days’ prior notice of the proposed date of the mailing of a notice of exchange of Stock and the simultaneous exchange of Depositary Shares representing the Stock to be exchanged, which notice shall be accompanied by (i) a certificate from the Company stating that such exchange of Stock is in accordance with the provisions of the Statement of Designations and (ii) a form of notice of exchange (which shall contain substantially the same information as the notice required by the Statement of Designations for the exchange of the Stock) to be delivered by the Depositary.   Not more than 60 nor less than 30 days prior to the Exchange Date, the Depositary shall, as directed by the Company in writing, mail or cause to be mailed, first-class postage paid, notice (in the form provided to the Depositary by the Company) of the exchange of Stock and the simultaneous exchange of Depositary Shares representing the Stock to be exchanged to the holders of record of the Depositary Shares to be exchanged, at the addresses of such holders as shown on the records of the Depositary. Any notice which is so mailed shall be conclusively presumed to have been duly given whether or not the holder receives such notice; and failure to give such notice by mail, or any defect in such notice, to the holders of any Depositary Shares designated for exchange shall not affect the sufficiency of the proceedings for exchange with respect to other holders. No exchange of Debentures for shares of Stock shall be made unless the terms and conditions specified in the Statement of Designations shall have been satisfied.   On the Exchange Date, the Depositary shall surrender to the Company certificates representing all the shares of the Stock. Upon surrender by a holder thereof of a Receipt or Receipts evidencing Depositary Shares in accordance with the terms of the notice of exchange, the Company will cause the Debentures to be authenticated and issued in exchange for the Stock underlying such Depositary Shares and the Depositary will cause the Debentures to be mailed to the holder of the Receipts so surrendered at such holder’s address of record or such other address as the holder shall specify upon surrender of such Receipts.   Upon such exchange, the rights of the holders of Receipts evidencing Depositary Shares shall cease (except the right to receive on the Exchange Date an amount equal to the amount of accrued and unpaid dividends on the Stock represented by such Depositary Shares to the Exchange Date and the Debentures), and the person or persons entitled to receive the Debentures issuable upon such exchange shall be treated for all purposes as the registered holder or holders of such Debentures.   2.5    Conversion at Option of Holder. In order to cause the conversion of any whole or fractional share of Stock into whole shares of Common Stock pursuant to Section 3 of the Statement of Designations, the holder of the Depositary Shares representing such whole or fractional shares of Stock shall surrender the Receipts (properly endorsed or assigned for transfer as the Depositary shall require) evidencing such Depositary Shares to the Depositary at the New York Office or at the office of such Depositary’s Agent as the Depositary may designate for such purpose, together with (i) an irrevocable notice of election to cause the conversion duly completed and executed, specifying the number of shares of underlying Stock to be so converted   6 -------------------------------------------------------------------------------- (provided that any notice of election to cause conversion of shares of Stock will not be honored if received by the Depositary after the close of business on a Redemption Date relating to such shares, unless the Company defaults in payment of the redemption price, in which case the right to cause conversion shall be reinstated), (ii) the name or names (with addresses) in which a certificate or certificates evidencing shares of Common Stock are to be issued, (iii) if such certificate or certificates are to be issued in a name or names other than that of the record holder of the Receipts surrendered, payment of any applicable transfer taxes and such other documentation as shall be required by the Depositary in its sole discretion and (iv) if applicable, any payments required pursuant to this Section 2.05. Such written notice shall constitute the holder’s direction to the Depositary to convert the number of whole or fractional shares of Stock represented by such Depositary Shares into Common Stock at the conversion price then in effect under the Statement of Designations. If more than one Receipt shall be delivered for conversion at one time by the same holder, the number of whole shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Stock to be converted at the direction of that holder on that occasion.   Upon receipt by the Depositary of a Receipt or Receipts accompanied by the required written notice of conversion, the Depositary shall promptly surrender to the Company for conversion, in accordance with the procedures established in the Statement of Designations, a certificate or certificates representing at least the number of shares of Stock to be converted (properly endorsed or assigned for transfer), together with a proper notice of conversion and any other required documentation and, if applicable, funds received by the Depositary in payment of any transfer taxes or any other applicable payments from the holder of the surrendered Receipts, and, as soon as practicable thereafter, the Company shall deliver to the Depositary for delivery to such holder a certificate or certificates evidencing the number of whole shares of Common Stock issuable upon such conversion, together with cash due in lieu of fractional shares of Common Stock as hereinafter provided. If less than all the shares of Stock represented by a certificate or certificates are surrendered by the Depositary for purposes of conversion, the Company shall issue to the Depositary a new certificate or certificates representing the shares of Stock not surrendered for conversion. If less than all the Depositary Shares represented by a Receipt or Receipts are surrendered to the Depositary for purposes of conversion, the Depositary shall cause the Registrar to issue to the holder thereof a new Receipt or Receipts for any whole Depositary Shares not surrendered for conversion. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been made as of the date of surrender of the Receipts evidencing Depositary Shares representing shares of Stock to be converted and the receipt thereof by the Depositary, and the person or persons entitled to receive the Common Stock deliverable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock on such date; provided, however, that neither the Company nor the Depositary shall be required to cause the conversion of any shares of Stock while the share transfer books of the Company are closed for any purpose, but the surrender of Receipts evidencing Depositary Shares representing Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books as if the surrender had been made on the date of such reopening, and the conversion shall be at the conversion rate in effect on such date.   Any Depositary Shares surrendered to the Depositary for conversion after any Dividend Record Date and prior to the Dividend Payment Date with respect to such dividend, the dividend   7 -------------------------------------------------------------------------------- due on such Dividend Payment Date shall be payable to the holder of such Depositary Shares as of such Dividend Record Date notwithstanding such conversion prior to the Dividend Payment Date or the default by the Company in the payment of the dividends due on such Dividend Payment Date. Any Depositary Shares surrendered to the Depositary for conversion during the period from the close of business on any Dividend Record Date to the opening of business on the Dividend Payment Date with respect to such dividend shall (except in the case of Depositary Shares which have been called for redemption on a redemption date within such period) be accompanied by payment in immediately available funds or other funds acceptable to the Company of an amount equal to the dividend payable on such Dividend Payment Date on the Depositary Shares being surrendered for conversion. The dividend with respect to a Depositary Share called for redemption on a redemption date during the period from the close of business on any Dividend Record Date to and including the Dividend Payment Date with respect to such dividend shall be payable on such Dividend Payment Date to the holder of record of such Depositary Shares on such Dividend Record Date notwithstanding the conversion of such Depositary Share after such Dividend Record Date and prior to such Dividend Payment Date, and the holder converting such Depositary Share need not include a payment of such dividend amount upon surrender of such Depositary Share for conversion. Except as provided in this paragraph, no payment or adjustment shall be made upon any conversion of Depositary Shares for accrued and unpaid dividends on the Stock represented by such Depositary Shares or for dividends on the Common Stock issued upon conversion.   Upon the conversion of any shares of Stock represented by Depositary Shares for which a request for conversion has been made by the holder of such Depositary Shares, all dividends in respect of such Depositary Shares shall cease to accrue, such Depositary Shares shall no longer be deemed outstanding, all rights of the holder of the Receipt or Receipts evidencing such Depositary Shares (except the right to receive the Common Stock, any cash payable with respect to any fractional shares of Common Stock as provided herein and in the Statement of Designations and any Receipts evidencing Depositary Shares not so converted) shall terminate, and the Receipt or Receipts evidencing the Depositary Shares so converted shall be cancelled in accordance with Section 2.11 hereof.   No fractional shares or scrip representing fractional shares of Common Stock shall be issuable upon conversion of Stock. If any holder who delivers Receipts to the Depositary with instructions for conversion of the underlying Stock would be entitled to a fractional share of Common Stock upon such conversion, the Company shall deliver to the Depositary for delivery to such holder the cash payment in lieu of such fractional share required to be paid pursuant to the terms of the Statement of Designations.   If any event occurs that requires prior notice to the holders of shares of Stock pursuant to Section 3(xi) of the Statement of Designations, then the Company shall, not less than 20 days prior to the record or effective date of such event or, if the notice is required pursuant to Section 9(c) of the Statement of Designations, the Company shall promptly deliver a form of notice (which shall contain substantially the same information as the notice required by the Statement of Designations) to the Depositary. Not less than 15 days prior to the record or effective date of such event or, if the notice is required pursuant to Section 9(c) of the Statement of Designations, promptly following receipt of such notice from the Company, the Depositary shall mail or cause to be mailed, first-class postage prepaid, notice (in the form provided to the Depositary by the Company) of such event to the holders of record of the Depositary Shares, at the addresses as   8 -------------------------------------------------------------------------------- shown on the records of the Depositary. Failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.   Upon the occurrence of a Change of Control or a Fundamental Change (both as defined in the Statement of Designations), the Company shall, within 5 Business Days after such occurrence, notify the Depositary in writing of such occurrence and shall deliver to the Depositary a form of notice (which shall contain substantially the same information as the notice required by the Statement of Designations). Upon its receipt of such form of notice from the Company, the Depositary shall mail or cause to be mailed, first-class postage prepaid, notice (in the form provided to the Depositary by the Company) of such occurrence to all holders of record of Depositary Shares at the addresses as shown on the records of the Depositary.   Upon the occurrence of a Change of Control or Fundamental Change, a holder of a Receipt or Receipts may direct the Depositary to instruct the Company to cause the conversion of all, but not less than all, the Stock underlying such holder’s Depositary Shares into Common Stock at an adjusted conversion price per share equal to the Special Conversion Price (as defined in the Statement of Designations), in accordance with the terms and subject to the conditions set forth in the Statement of Designations. Such a holder of Receipts evidencing Depositary Shares must exercise this special conversion right within the 45-day period after the mailing of the notice by the Depositary or such special conversion right shall expire.   2.6    Registration of Transfer of Depositary Shares. Subject to the terms and conditions of this Deposit Agreement, the Registrar shall register on its books from time to time transfers of Depositary Shares upon surrender of the Receipt or Receipts evidencing such Depositary Shares (together with such certificates of the transferor and the transferee and such other documents as the Depositary, upon the instructions of the Company, shall require to demonstrate compliance with any applicable restrictions on transfer of such Depositary Shares), at the New York Office or at such other offices in the city of New York as the Depositary may designate for such purpose, by the record holder in person or by a duly authorized attorney, properly endorsed or accompanied by a properly executed form of assignment appearing on the Receipts, together with evidence of the payment of any transfer taxes as may be required by law and any other documentation that may be requested by the Registrar in its sole discretion. Upon such surrender, the Registrar shall execute a new Receipt or Receipts and deliver the same to or upon the order of the person entitled thereto evidencing the same aggregate number of Depositary Shares evidenced by the Receipt or Receipts surrendered.   2.7    Split-ups and Combinations of Receipts. Upon surrender of a Receipt or Receipts at the New York Office or at such other offices as the Registrar may designate for the purpose of effecting a split-up or combination of Receipts, subject to the terms and conditions of this Deposit Agreement, the Registrar shall execute and deliver a new Receipt or Receipts in the authorized denominations requested evidencing the same aggregate number of Depositary Shares evidenced by the Receipt or Receipts surrendered; provided, however, that the Depositary shall not issue any Receipt evidencing a fractional Depositary Share.   2.8    Withdrawal Rights. A holder of Depositary Shares representing one or more whole shares of Stock shall be entitled to exchange such Depositary Shares for such whole shares of Stock and all money and other property, if any, represented thereby. In order to   9 -------------------------------------------------------------------------------- exercise that right, such holder shall surrender the Receipt or Receipts evidencing such Depositary Shares (properly endorsed or assigned for transfer as the Depositary shall require) to the Depositary accompanied by a written request for exchange specifying the number of shares of Stock to be issued in exchange. Upon receipt of such request, the Depositary shall surrender to the transfer agent for the Stock one or more certificates representing the number of whole shares of Stock and all money and other property, if any, represented by the Receipt or Receipts so surrendered for withdrawal. Shares of Stock transferred by the Depositary in such an exchange may not thereafter be re-deposited with the Depositary and the holder of such shares of Stock shall not thereafter be entitled to receive Depositary Shares therefor. If a Receipt delivered by the holder to the Depositary in connection with such withdrawal shall evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of Stock to be so withdrawn, the Depositary shall at the same time, in addition to such number of whole shares of Stock and such money and other property, if any, to be so withdrawn, deliver to such holder, or (subject to Section 2.06) upon his order, a new Receipt evidencing such excess number of Depositary Shares. Delivery of the Stock and money and other property being withdrawn may be made by the delivery of such certificates, documents of title and other instruments as the Depositary may deem appropriate. In no event shall any fractional share of Stock be so transferred.   Delivery of the Stock and the money and other property, if any, represented by Receipts surrendered for withdrawal shall be made by the Depositary at the Cleveland office, except that, at the request, risk and expenses of the holder surrendering such Receipt or Receipts and for the account of the holder thereof, such delivery may be made at such other place as may be designated by such holder.   2.9    Limitations on Execution and Delivery; Transfer, Surrender and Exchange of Receipts. As a condition precedent to the execution and delivery, registration of transfer, split-up, combination, surrender or exchange of any Receipt or the delivery or any distribution thereon, the Depositary, any of the Depositary’s Agents of the Company may require any or all of the following: (i) payment to it of a sum sufficient for the payment (or, in the event that the Depositary or the Company shall have made such payment, the reimbursement to it) of any charges or expenses payable by the holder of a Receipt pursuant to Section 5.07; (ii) production of proof satisfactory to it as to the identity and genuineness of any signature; (iii) production of a transfer notice in the form appearing on the Receipts, together with other documentation required by such transfer notice; and (iv) compliance with such reasonable regulations, if any, as the Depositary, Registrar or the Company may establish not inconsistent with the provisions of this Deposit Agreement.   The registration of transfer, split-up, combination, surrender or exchange of outstanding Receipts may be refused or suspended (i) during any period when the share transfer book of the Company is closed, or (ii) if any such action is deemed necessary or advisable by the Depositary, any of the Depositary’s Agents or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission or under any provision of this Deposit Agreement, or (iii) with the approval of the Company, for any other reason.   2.10    Lost Receipts. In case any Receipt shall be mutilated, destroyed, lost or stolen, the Depositary shall execute and deliver a Receipt of like form and tenor in exchange and   10 -------------------------------------------------------------------------------- substitution for such mutilated Receipt, or in lieu of and in substitution for such destroyed, lost or stolen Receipt unless the Depositary has notice that such Receipt has been acquired by a bona-fide purchaser, provided, however, that the holder thereof provides the Depositary with (i) evidence satisfactory to the Depositary of such destruction or loss or theft of such Receipt, of the authenticity thereof and of his or her ownership thereof, (ii) reasonable indemnification satisfactory to the Depositary, Registrar and the Company and (iii) payment of any expenses (including fees, charges and expenses of the Depositary) in connection with such execution and delivery.   2.11    Cancellation and Destruction of Surrendered Receipts. All Receipts surrendered to the Registrar or any Registrar’s Agent shall be cancelled by the Depositary. The Depositary shall retain or return to the Company, subject to any applicable law, all Receipts so cancelled.   3  CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY   3.1    Filing Proofs, Certificates and Other Information. Any holder of a Receipt may be required from time to time to file such proof of residence or other information, to execute such certificates and to make such representations and warranties as the Depositary, Registrar or the Company may reasonably deem necessary or proper. The Depositary, Registrar or the Company may withhold or delay the delivery of any Receipt, the registration of transfer, split-up or combination of any Receipt, the conversion, redemption or exchange of any Receipt or the withdrawal of the Stock represented by the Depositary Shares evidenced by any Receipt or the distribution of any dividend or other distribution or the sale of any rights or of the proceeds thereof or the conversion of any Stock until such proof or other information is filed, such certificates are executed or such representations and warranties are made.   3.2    Payment of Taxes or Other Governmental Charges. Holders of Receipts shall be obligated to make payments to the Depositary or Registrar of certain charges and expenses, as provided in Section 5.07. Until such payment is made, registration of transfer of any Receipt or any withdrawal of Stock and all money or other property, if any, represented by the Depositary Shares evidenced by such Receipt may be refused, any dividend or other distribution may be withheld and any part or all the Stock or other property (including Common Stock received in connection with a conversion of Stock) represented by the Depositary Shares evidenced by such Receipt may be sold for the account of the holder thereof (after attempting by reasonable means to notify such holder prior to such sale). Any dividend or other distribution so withheld and the proceeds of any such sale may be applied to any payment of such charges or expenses, the holder of such Receipt remaining liable for any deficiency.   3.3    Withholding. The Registrar shall act as the tax withholding agent for any payments, distributions and exchanges made with respect to the Depositary Shares and Receipts, and the Stock, Common Stock or other securities or assets represented thereby (collectively, the “Securities”). The Registrar shall be responsible with respect to the Securities for the timely (i) collection and deposit of any required withholding or backup withholding tax, and (ii) filing of any information returns or other documents with federal taxing authorities.   11 -------------------------------------------------------------------------------- 3.4    Warranties as to Stock. The Company hereby represents and warrants that (i) the Stock, when issued, will be duly authorized, validly issued, fully paid and nonassessable; (ii) the deposit of the Stock and each certificate therefor are valid and (iii) the person making such deposit is duly authorized to do so. Such representations and warranties shall survive the deposit of the Stock and the issuance of Receipts therefor.   4  THE STOCK; NOTICES   4.1    Cash Distributions. Whenever the Depositary shall receive any cash dividend or other cash distribution on the Stock, the Depositary shall, subject to Sections 3.01 and 3.02, distribute to record holders of Depositary Shares on the record date fixed pursuant to Section 4.04 such amounts of such dividend or distribution as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares held by such holders; provided, however, that in case the Company or the Depositary shall be required to withhold and shall withhold from any cash dividend or other cash distribution in respect of the Stock an amount on account of taxes, the amount made available for distribution or distributed in respect of Depositary Shares shall be reduced accordingly; provided further, that if such withholding is required only as to a part of the Stock or certain Depositary Shares, but not all of the Stock or Depositary Shares generally, such reduction of the amount made available for distribution or distributed in respect of the Depositary Shares shall only affect the Depositary Shares as to which such withholding is required. The Depositary shall distribute or make available for distribution, as the case may be, only such amount, however, as can be distributed without attributing to any record holder of Depositary Shares a fraction of one cent and any balance not so distributable shall be held by the Depositary (without liability for interest thereon) and shall be added to and be treated as part of the next sum received by the Depositary for distribution to record holders of Depositary Shares then outstanding.   4.2    Distributions Other than Cash, Rights, Preferences or Privileges. Whenever the Depositary shall receive for distribution securities or property other than cash, rights, preferences or privileges upon the Stock, the Depositary shall, subject to Sections 3.01 and 3.02, distribute to record holders of Depositary Shares on the record date fixed pursuant to Section 4.04 such amounts of the securities or property received by it as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares held by such holders, in any manner that the Company may deem equitable and practicable for accomplishing such distribution. If in the opinion of the Depositary such distribution cannot be made proportionately among such record holders, or if for any other reason (including any requirement that the Company or the Depositary withhold an amount on account of taxes) the Depositary deems, after consultation with the Company, such distribution not to be feasible, the Depositary may, with the approval of the Company (which approval shall not be unreasonably withheld), adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including the sale (at public or private sale) of the securities or property thus received, or any part thereof, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sale shall, subject to Sections 3.01 and 3.02, be distributed or made available for distribution, as the case may be, by the Depositary to record holders of Depositary Shares as provided by Section 4.01 the case of a distribution received in cash. Neither the Company nor the Depositary shall make any distribution of securities unless the Company shall have provided the Depositary an   12 -------------------------------------------------------------------------------- opinion of counsel stating that such securities have been registered under the Securities Act or do not need to be registered to effect such distribution.   4.3    Subscription Rights, Preferences or Privileges. If the Company shall at any time offer or cause to be offered to the Depositary, as the person in whose name the Stock is registered on the books of the Company, any rights, preferences or privileges to subscribe for or to purchase any securities or any rights, preferences or privileges of any nature, such rights, preferences or privileges shall in each such instance be made available by the Depositary to the record holders of Depositary Shares in such manner as the Company shall instruct (including by the issue to such record holders of warrants representing such rights, preferences or privileges); provided, however, that (i) if at the time of issue or offer of any such rights, preferences or privileges the Company determines and instructs the Depositary in writing that it is not lawful or feasible to make such rights, preferences or privileges available to some or all holders of Depositary Shares (by the issue of warrants or otherwise), or (ii) if and to the extent so instructed by holders of Depositary Shares who do not desire to exercise such rights, preferences or privileges, the Depositary shall then, in each case, if applicable laws or the terms of such rights, preferences or privileges permit such transfer, sell such rights, preferences or privileges at public or private sale, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sale shall, subject to Sections 3.01 and 3.02, be distributed by the Depositary to the record holders of Depositary Shares entitled thereto as provided by Section 4.01 in the case of a distribution received in cash. The Company shall not make any distribution of any such rights, preferences or privileges unless the Company shall have provided the Depositary an opinion of counsel stating that such rights, preferences or privileges have been registered under the Securities Act or do not need to be registered to effect such distribution.   If registration under the Securities Act of the securities to which any rights, preferences or privileges relate is required in order for holders of Depositary Shares to be offered or sold such securities, the Company shall file promptly a registration statement pursuant to the Securities Act with respect to such rights, preferences or privileges and securities and use its best efforts and take all steps available to it to cause such registration statement to become effective sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges. In no event shall the Depositary make available to the holders of Depositary Shares any right, preference or privilege to subscribe for or to purchase any securities unless and until such a registration statement shall have become effective, or unless the offering and sale of such securities to such holders are exempt from registration under the provisions of the Securities Act.   If any other action under the laws of any jurisdiction or any governmental or administrative authorization, consent or permit is required in order for such securities or rights, preferences or privileges to be made available to holders of Depositary Shares the Company agrees with the Depositary that the Company will use its best efforts to take such action or obtain such authorization, consent or permit sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges.   4.4    Notice of Dividends; Fixing of Record Date for Holders of Receipts. Whenever (i) any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or if rights, preferences or privileges shall at any time be offered, with respect to the Stock, or (ii) the Depositary shall receive notice of any meeting at   13 -------------------------------------------------------------------------------- which holders of Stock are entitled to vote or of which holders of Stock are entitled to notice, or whenever the Depositary and the Company shall decide it is appropriate, the Depositary shall in each such instance fix a record date (which shall be the same date as the record date fixed by the Company with respect to the Stock) for the determination of the holders of Depositary Shares (x) who shall be entitled to receive such dividend, distribution, rights, preferences or privileges or the net proceeds of the sale thereof, or (y) who shall be entitled to give instructions for the exercise of voting rights at any such meeting, in connection with such written consent or to receive notice of such meeting or for any other appropriate reasons. The Company shall advise the Depositary of all such record dates.   4.5    Voting Rights. Upon receipt of notice of any meeting at which the holders of Stock are entitled to vote, the Depositary shall, as soon as practicable thereafter, mail or cause to be mailed to the record holders of Depositary Shares a notice, the form of which shall have been delivered by the Company to the Depositary, which shall contain (i) such information as is contained in such notice of meeting, (ii) a statement that the holders of Depositary Shares at the close of business on a specified record date fixed pursuant to Section 4.04 will be entitled, subject to any applicable provision of law, the Articles of Incorporation or the Statement of Designations, to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Stock represented by their respective Depositary Shares (including an express indication that instructions may be given to the Depositary to give a discretionary proxy to a person designated by the Company) and (iii) a brief statement as to the manner in which such instructions may be given. Upon the written request of a holder of Depositary Shares on such record date, the Depositary shall endeavor, insofar as practicable, to vote or cause to be voted the Stock represented by such Depositary Shares in accordance with the instructions set forth in such requests. The Company hereby agrees to take all action which may be deemed necessary by the Depositary in order to enable the Depositary to vote such Stock or cause such Stock to be voted. In the absence of specific instructions from the holder of Depositary Shares the Depositary will abstain from voting (but, at its discretion, not from appearing at any meeting with respect to such Stock unless directed to the contrary by the holders of all Depositary Shares) to the extent of the Stock represented by the Depositary Shares.   4.6    Changes Affecting the Stock and Reclassifications, Recapitalizations, etc. Upon any split-up, consolidation or any other reclassification of the Stock or upon any recapitalization, reorganization, merger, amalgamation or consolidation affecting the Company or to which it is a party, or sale of all or substantially all of the Company’s assets, the Depositary may, subject to the terms of the Statement of Designations, with the approval of, or upon the instructions of, the Company, (i) make such adjustments as are approved or directed by the Company in (w) the fraction of an interest represented by one Depositary Share in one share of Stock, (x) the ratio of the redemption price per Depositary Share to the redemption price of a share of Stock, (y) the ratio of the conversion price per Depositary Share to the conversion price of a share of Stock and (z) the rate at which Debentures are exchanged for Stock in each case as may be necessary fully to reflect the effects of such changes in par or stated value, split-up, combination or other reclassification of Stock, or of such recapitalization, reorganization, merger, amalgamation, consolidation, or sale of all or substantially all of the Company’s assets, and (ii) treat any shares of stock or other securities or property (including cash) that shall be received by the Depositary in exchange for or upon conversion of or in respect of the Stock as new deposited property under this Deposit Agreement, and Depositary Shares then outstanding   14 -------------------------------------------------------------------------------- shall thenceforth represent the proportionate interests of holders thereof in the new deposited property so received in exchange for or upon conversion in respect of such Stock. In any such case the Depositary may in its discretion, with the approval of the Company, execute and deliver additional Receipts, or may call for the surrender of all outstanding Receipts to be exchanged for new Receipts specifically describing such new deposited property. Anything to the contrary herein notwithstanding, holders of Receipts shall have the right from and after the effective date of any such split-up, consolidation or other reclassification of the Stock or any such recapitalization, reorganization, merger, amalgamation, consolidation, or sale of all or substantially all of the Company’s assets, to surrender such Receipts to the Depositary with instructions to convert, exchange or surrender the Stock represented thereby only into or for, as the case may be, the kind and amount of shares of stock and other securities and property and cash into which the Stock represented by such Receipts might have been converted or for which such Stock might have been exchanged or surrendered immediately prior to the effective date of such transaction.   4.7    Reports. The Company or, at the option of the Company, the Depositary shall forward to the holders of Depositary Shares any reports and communications received from the Company that are received by the Depositary as the holder of Stock.   4.8    List of Holders. Promptly upon request from time to time by the Company, the Depositary shall furnish to it a list, as of a recent date, of the names, addresses and holdings of Depositary Shares of all persons in whose names Depositary Shares are registered on the books of the Depositary. At the expense of the Company, the Company shall have the right to inspect transfer or registration records of the Depositary, any Depositary’s Agent or the Registrar, take copies thereof and require the Depositary, any Depositary’s Agent or the Registrar to supply copies of such portions of such records as the Company may request.   5  THE DEPOSITARY; THE DEPOSITARY’S AGENTS; THE TRANSFER AGENT AND REGISTRAR; AND THE COMPANY   5.1    Maintenance of Offices, Agencies and Transfer Books by the Depositary; the Registrar. Upon execution of this Deposit Agreement in accordance with its terms, the Depositary shall maintain (i) at its Cleveland office, facilities for the execution and delivery, registration, registration of transfer, surrender and exchange, split-up, combination, redemption and conversion of Receipts and Depositary Shares and (ii) at the offices of the Depositary’s Agents, if any, facilities for the delivery, registration, registration of transfer, surrender and exchange, split-up, combination, conversion and redemption of Receipts and Depositary Shares, all in accordance with the provisions of this Deposit Agreement.   The Company hereby appoints the Depositary to act as the Registrar, transfer agent and paying agent with respect to the Depositary Shares and Registrar and transfer agent with respect to the Stock, and the Depositary hereby accepts such appointment.   The Depositary, acting as transfer agent and Registrar, shall keep books at its Cleveland office for the registration and transfer of Depositary Shares, which books at all reasonable times shall be open for inspection by the record holders of Depositary Shares provided, that any such holder requesting to exercise such right shall certify to the Depositary that such inspection shall be for a   15 -------------------------------------------------------------------------------- proper purpose reasonably related to such person’s interest as an owner of Depositary Shares. The Depositary shall consult with the Company upon receipt of any request for inspection. The Depositary may close such books, at any time or from time to time, when deemed expedient by it in connection with the performance of its duties hereunder.   5.2    Prevention or Delay in Performance by the Depositary, the Depositary’s Agents, the Registrar or the Company. Neither the Depositary; any Depositary’s Agent; the Registrar nor the Company shall incur any liability to any holder of any Depositary Shares, if by reason of any provision of any present or future law or regulation thereunder of the United States of America or of any other governmental authority or, in the case of the Depositary, the Registrar or any Depositary’s Agent, by reason of any provision, present or future, of the Articles of Incorporation or the Statement of Designations or, in the case of the Company, the Depositary, the Registrar or any Depositary’s Agent, by reason of any act of God or war or other circumstances beyond the control of the relevant party, the Depositary, any Depositary’s Agent, the Registrar or the Company shall be prevented or forbidden from doing or performing any act or thing that the terms of this Deposit Agreement provide shall be done or preformed; nor shall the Depositary, any Depositary’s Agent, the Registrar or the Company incur any liability to any holder of Depositary Shares (i) by reason of any nonperformance or delay, caused as aforesaid, in the performance of any act or thing that the terms of this Deposit Agreement provide shall or may be done or performed, or (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement except, in the case of the Depositary, any Depositary’s Agent or the Registrar, if any such exercise or failure to exercise discretion is caused by its negligence or bad faith.   5.3    Obligations of the Depositary. the Depositary’s Agents, the Registrar and the Company. The Company assumes no obligation and shall be subject to no liability under this Deposit Agreement to holders of Receipts or other persons, except to perform such obligations as are specifically set forth and undertaken by it to perform in this Deposit Agreement other than for its negligence or bad faith. Each of the Depositary, the Depositary’s Agents and time Registrar assumes no obligation and shall be subject to no liability under this Deposit Agreement to holders of Receipts or other persons, except to perform such obligations as are specifically set forth and undertaken by it to perform in this Deposit Agreement other than for its negligence or bad faith.   Neither the Depositary, any Depositary’s Agent, the Registrar nor, except as expressly provided herein, the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding that in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required.   Neither the Depositary, any Depositary’s Agent, the Registrar nor, except as expressly provided herein, the Company shall be liable for any action or any failure to act by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Stock for deposit, any holder of a Receipt or any other person believed by it in good faith to be competent to give such advice or information. The Depositary, any Depositary’s Agent, the Registrar and the Company may each rely and shall each be protected in acting upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.   16 -------------------------------------------------------------------------------- The Depositary, the Registrar and any Depositary’s Agent may own and deal in any class of securities of the Company and its affiliates and in Depositary Shares The Depositary, the Registrar and any Depositary Agent may also act as transfer agent or registrar of any of the securities of the Company and its affiliates. The Depositary may loan money to the Company and its affiliates and may engage in any other business with or for the Company and its affiliates.   It is intended that neither the Depositary; any Depositary’s Agent nor the Registrar shall be deemed to be an “issuer” of the Stock, the Depositary Shares, the Receipts or the Common Stock or other securities issued upon conversion or redemption of the Stock under the federal securities laws or applicable state securities laws, it being expressly understood and agreed that the Depositary and any Depositary’s Agent and the Registrar are acting only in a ministerial capacity; provided, however, that the Depositary agrees to comply with all information reporting and withholding requirements applicable to it under law or this Deposit Agreement in its capacity as Depositary.   Neither the Depositary (or its officers, directors, employees or agents); any Depositary’s Agent nor the Registrar makes any representation or has any responsibility as to the validity of the Stock, the Depositary Shares or any instruments referred to therein or herein, or as to the correctness of any statement made therein or herein; provided, however, that the Depositary is responsible for its representations in this Deposit Agreement.   Notwithstanding any other provision herein or in the Receipts, the Depositary hereby represents and warrants as follows: (i) the Depositary has been duly organized and is validly existing and in good standing as a national banking association qualified to conduct banking and trust business in the state of Ohio, with full power, authority and legal right under such law to execute, deliver and carry out the terms of this Deposit Agreement; (ii) this Deposit Agreement has been duly authorized, executed and delivered by the Depositary; and (iii) this Deposit Agreement constitutes a valid and binding obligation of the Depositary, enforceable against the Depositary in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors’ rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).   5.4    Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary hereunder by written notice via registered mail of its election to do so delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.   The Depositary may at any time be removed, with or without cause, by the Company by written notice of such removal delivered to the Depositary, such removal to take effect upon the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.   In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall, within 60 days after the delivery of the notice of resignation or removal, as the case may be, appoint a successor depositary, which shall be a bank or trust company, or an affiliate of a bank or trust company, having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000. If a successor depositary shall not have   17 -------------------------------------------------------------------------------- been appointed within 60 days, the resigning or removed Depositary may petition a court of competent jurisdiction to appoint a successor depositary. Every successor depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor and for all purposes shall be the Depositary under this Deposit Agreement, and such predecessor, upon payment of all sums due it, shall promptly execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and deliver all rights, title and interest in the Stock and any moneys or property held hereunder to such successor and shall deliver to such successor a list of the record holders of all outstanding Depositary Shares. Any successor depositary shall promptly mail notice of its appointment to the record holders of Depositary Shares.   Any corporation into or with which the Depositary may be merged, consolidated or converted Shall be the successor of such Depositary without the execution or filing of any document or any further act. Such successor depositary may execute the Receipts either in the name of the predecessor depositary or in the name of the successor depositary.   5.5    Corporate Notices and Reports. The Company agrees that it will transmit to the record holders of Depositary Shares, in each case at the addresses furnished to it pursuant to Section 4.08, all notices and reports (including without limitation financial statements) required by law, by the rules of any national securities exchange upon which the Stock, the Depositary Shares or the Receipts are listed, by the Company’s Articles of Incorporation, or by the Statement of Designations to be furnished by the Company to holders of Stock. Such transmission will be at the Company’s expense.   5.6    Indemnification by the Company. The Company shall indemnify the Depositary, any Depositary’s Agent and any Registrar against, and hold each of them harmless from, any loss, liability or expense (including the costs and expenses of defending itself) which may arise out of or in connection with (i) acts performed or omitted under this Deposit Agreement and the Receipts (a) by the Depositary, any Registrar or any of their respective agents (including any Depositary’s Agent), except for any liability arising out of negligence or bad faith on the respective parts of any such person or persons, or (b) by the Company or any of its agents, or (ii) the offer, sale or registration of the Depositary Shares or the Stock pursuant to the provisions hereof. The obligations of the Company set forth in this Section 5.06 shall survive any succession of any Depositary, Registrar or Depositary’s Agent.   5.7    Fees, Charges and Expenses. The Company shall pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. The Company shall pay all charges of the Depositary in connection with the initial deposit of the Stock and the initial issuance of the Depositary Shares, redemption of the Stock at the option of the Company, conversion of the Stock into Common Stock and all withdrawals of shares of the Stock by owners of Depositary Shares. All other transfer and other taxes and governmental charges shall be at the expense of holders of Depositary Shares. If, at the request of a holder of Depositary Shares, the Depositary incurs fees, charges or expenses for which it is not otherwise liable hereunder, such holder will be liable for such fees, charges and expenses. All other fees, charges and expenses of the Depositary and any Depositary’s Agent hereunder and of any Registrar (including, in each case, fees and expenses of counsel) incident to the performance of   18 -------------------------------------------------------------------------------- their respective obligations hereunder will be paid upon consultation and agreement between the Depositary and the Company as to the amount and nature of such fees, charges and expenses. The Depositary shall present its statement for fees, charges and expenses to the Company once every month or at such other intervals as the Company and the Depositary may agree.   6  AMENDMENT AND TERMINATION   6.1    Amendment. The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect which they may deem necessary or desirable; provided, however, that no such amendment that shall materially and adversely alter the rights of the holders of Depositary Shares shall be effective unless such amendment shall have been approved by the holders of at least a majority of the Depositary Shares outstanding. Every holder of outstanding Depositary Shares at the time any such amendment so becomes effective shall be deemed, by continuing to hold such Depositary Shares, to consent and agree to such amendment and to be bound by this Deposit Agreement as amended thereby.   6.2    Termination. This Deposit Agreement may be terminated by the Company or the Depositary only after (i) all outstanding Depositary Shares shall have been redeemed pursuant to Section 2.03, or exchanged pursuant to Section 2.04 and all shares of Common Stock, cash and other property shall have been distributed to holders of Depositary Shares, (ii) each share of Stock shall have been converted into shares of Common Stock pursuant to Section 2.05, or (iii) there shall have been made a final distribution in respect of the Stock in connection with any liquidation, dissolution or winding up of the Company and such distribution shall have been distributed to the holders of Depositary Shares pursuant to Section 4.01 or 4.02, as applicable.   Upon the termination of this Deposit Agreement, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary, any Depositary’s Agent and any Registrar under Sections 5.06 and 5.07.   7  MISCELLANEOUS   7.1    Counterparts. This Deposit Agreement may be executed by the Company and the Depositary in separate counterparts, each of which when so executed and delivered, shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to the Deposit Agreement shall be effective as delivery of a manually executed counterpart of the Deposit Agreement.   7.2    Exclusive Benefit of Parties. This Deposit Agreement is for the exclusive benefit of the parties hereto, and their respective successors hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever.   7.3    Invalidity of Provisions. In case any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable   19 -------------------------------------------------------------------------------- in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.   7.4    Notices. Any and all notices to be given to the Company hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail or by facsimile transmission confirmed by letter, addressed to the Company at 100 Glenborough Drive, Suite 250, Houston, Texas 77067, Attention: Secretary, or any other place to which the Company shall have notified the Depositary in writing.   Any and all notices to be given to the Depositary hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail or by facsimile transmission confirmed by letter, addressed to the Depositary at the Depositary’s Office, c/o Society National Bank, 1201 Elm Street, Suite 3200, Dallas, Texas 75270, Attention: Jill S. Wessell, Assistant Vice President or at any other address of which the Depositary shall have notified the Company in writing.   Any and all notices to be given to any record holder of Depositary Shares hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail or by facsimile transmission confirmed by letter, addressed to such record holder at the address of such record holder as it appears on the books of the Depositary or, if such holder shall have filed with the Depositary a written request that notices intended for such holder be mailed to some other address, at the address designated in such request.   Delivery of a notice sent by mail or by facsimile transmission shall be deemed to be effected at the time when a duly addressed letter containing the same (or a duly addressed letter confirming an earlier notice in the case of a facsimile transmission) is deposited, postage prepaid, in a post office letter box. The Depositary or the Company may, however, act upon any facsimile transmission received by it from the other or from any holder of Depositary Shares, notwithstanding that such facsimile transmission message shall not subsequently be confirmed by letter as aforesaid.   7.5    Depositary’s Agents. The Depositary may with the approval of the Company, which approval shall not be unreasonably withheld, from time to time appoint one or more Depositary’s Agents to act in any respect for the Depositary for the purposes of this Deposit Agreement and vary or terminate the appointment of such Depositary’s Agents.   7.6    Holders are Parties. Notwithstanding that holders of Depositary Shares have not executed and delivered this Deposit Agreement or any counterpart hereof, the holders of Depositary Shares from time to time shall be deemed to be parties to this Deposit Agreement and shall be bound by all of the terms and conditions, and be entitled to all of the benefits, hereof and of the Receipts by acceptance of delivery of Receipts.   7.7    Governing Law. This Deposit Agreement and the Receipts and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to principles of conflict of laws.   7.8    Inspection of Deposit Agreement. Copies of this Deposit Agreement shall be filed with the Depositary, the Registrar and the Depositary’s Agents and shall be open to   20 -------------------------------------------------------------------------------- inspection during business hours at the Depositary’s Cleveland and Dallas offices and the respective offices of the Depositary’s Agents, if any, by any holder of Depositary Shares.   7.9    Headings. The headings of articles and sections in this Deposit Agreement and in the form of the Receipt set forth in Exhibit A hereto have been inserted for convenience only and are not to be regarded as part of this Deposit Agreement or the Receipts or have any bearing upon the meaning or interpretation of any provision contained herein or in the Receipts.       21 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, ICO Inc. and Society National Bank have duly executed this Deposit Agreement as of the day and year first above set forth and all holders of Depositary Shares shall become parties hereto by and upon acceptance by them of delivery of Receipts issued in accordance with the terms hereof.       ICO INC.           By:       Name:       Title:                     SOCIETY NATIONAL BANK           By:       Name:       Title:     22

Exhibit 10.9 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (As Amended and Restated as of January 1, 1998) This Supplemental Executive Retirement Plan (the "Supplemental Plan") was adopted and established, effective September 28, 1989 and amended and restated effective as of January 1, 1995, by Handy & Harman, a New York corporation (the "Company"), for Eligible Executives who participate in the Handy & Harman Pension Plan (the "Pension Plan") which Pension Plan is intended to satisfy the requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Supplemental Plan is hereby amended and restated, effective as of January 1, 1996. 1. PURPOSE. The Supplemental Plan shall provide for the payment of supplementary retirement benefits to compensate an Eligible Executive for the amount of the reduction, if any, in his benefits under the Pension Plan on account of (i) the application of Section 401(a)(17) or Section 415 of the Code, or (ii) the exclusion from "Pay," as defined in Section 3.10 of the Pension Plan of amounts received under the Company's Management Incentive Plan ("MIP"). 2. PARTICIPATION. As used in the Supplemental Plan, the term "Eligible Executive" shall mean any corporate officer of the Company who participates in the Pension Plan and is designated by the Committee (as defined in Section 6 hereof) to participate herein. Subject to the provisions of Section 10 hereof, (i) no payment of any benefit accrued hereunder shall commence to a Participant prior to the time payments would otherwise commence under the terms of the Pension Plan and (ii) no payment shall he payable hereunder to any Participant who has not been a corporate officer of the Company for at least five (5) years. 3. RETIREMENT BENEFITS. The Participant's Accrued Monthly Pension under the Supplemental Plan shall be equal to the excess, if any, of (a) over (b), where: (a) equals the Participant's Accrued Monthly Pension pursuant to the Pension Plan determined without regard to the limits of Section 401(a)(17) or Section 415 of the Code and including within the definition of "Pay" under the Pension Plan either (x) fifty percent (50%) of the amounts awarded to the Eligible Executive pursuant to the MIP in respect of MIP plan years up to and including 1994, or (y) twenty-five percent (25%) of the amounts awarded to the Eligible Executive pursuant to the MIP in respect of MIP plan years including 1995 and thereafter (with the MIP award included in Pay for the plan year in which it is paid); and (b) equal the Participant's Accrued Monthly Pension as calculated under the Pension Plan. Except as provided in Section 10 hereof, the pension under the Supplemental Plan shall become payable at the same time as the pension under the Pension Plan. A Participant may elect a form of payment under the Supplemental Plan that is different than the pension payable under the Pension Plan. The following forms of pensions are available under the Supplemental Plan. (i) the optional forms of pension benefit listed in the Pension Plan (ii) the lump sum option described in Section 11 of the Supplemental Plan (iii) any other form of monthly pension that is approved by the Committee Upon the death of an Eligible Executive who has been a corporate officer of the Company for at least five years and has been married for the one year period ending on the date of his death, a monthly pension will be payable to his surviving spouse during the same period that the preretirement spouse pension is payable to the surviving spouse under the Pension Plan. The amount of the monthly pension to the surviving spouse will be equal to the excess, if any, of (c) over (d), where: (c) equals the monthly pension that is based on the amount of the Participant's Accrued Monthly Pension as described in (a) above and converted to a Preretirement Spouse Pension as described in the Pension Plan assuming that the spouse pension is payable on the 100% Joint and Survivor Pension basis, and (d) equals the amount of monthly pension payable under the Pension Plan. The amount of Supplemental Plan pension payable to the Participant or to the surviving spouse shall not be adjusted by cost of living increases provided under the Pension Plan and the Supplemental Plan pension shall not be decreased by any increase in the Pension Plan pension due to cost of living increases under the Pension Plan. -2- 4. SOURCE OF BENEFITS. The benefits payable under the Supplemental Plan shall be paid exclusively from the Company's general assets. In this regard. the Company may create a grantor trust (within the meaning of section 671 of the Code) in connection with the Supplemental Plan to which it shall from time to time contribute amounts to accumulate a reserve against its obligations hereunder. Such trust and any assets held by such trust to assist the Company in meeting its obligations under the Supplemental Plan shall conform to the terms of the model trust as described in Internal Revenue Service Procedure 92-64 (I.R.B. 1992-33). Notwithstanding the creation of such trust, the benefits hereunder shall be a general obligation of the Company. Payment of benefits from such trust shall, to that extent, discharge the Company's obligations under this Supplemental Plan. Eligible Executives shall have only a contractual right as general creditors of the Company to the amounts, if any, payable hereunder and such right shall not be secured by any assets of the Company or the trust. 5. CONSTRUCTION. The Company intends the Supplemental Plan to be a benefit plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of Title 1 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any ambiguities in construction shall be resolved in favor of interpretations which will effectuate such intention. The Supplemental Plan shall be governed by and construed in accordance with the laws of the State of New York to the extent such laws are not preempted by ERISA. 6. ADMINISTRATION OF THE SUPPLEMENTAL PLAN. The Supplemental Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Supplemental Plan and decide or resolve any and all questions including interpretations of the Supplemental Plan as may arise in connection with the Supplemental Plan. The Committee shall designate from time to time those eligible for inclusion in the Supplemental Plan. The Committee may employ agents and delegate to them such administrative duties as if sees fit and may consult with counsel who may be counsel to the Company. The decision or action of the Committee in respect of any question arising out of or in -3- connection with the administration, interpretation and application of the Supplemental Plan and the rules and regulations thereunder shall be final and conclusive and binding upon all persons having any interest therein. 7. TERMINATION SUSPENSION OR AMENDMENT. The Board of Directors of the Company in its sole discretion may terminate, suspend or amend the Supplemental Plan at any time or from time to time, in whole or in part; provided, however, that no such termination, suspension or amendment shall adversely affect the benefits of any corporate officer of the company who is vested or eligible for Disability Retirement under the Pension Plan, or the pension to the surviving spouse of such a corporate officer who is then entitled to a spouse pension. 8. EFFECTIVE DATE. The effective date of the Supplemental Plan shall be September 28, 1989, as amended December 13, 1993, as amended and restated as of January 1, 1995, and as amended and restated as of January 1, 1996. 9. GENERAL CONDITIONS. No interest of any person and no benefit payable hereunder shall be assigned as security for a loan and any such purported assignment shall be null, void and of no effect. No such interest or benefit shall be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through any person and any such purported action shall be null, void and of no effect. No Eligible Executive and no other person shall have any legal or equitable right or interest in the Supplemental Plan which are not expressly granted hereunder. Participation hereunder does not give any person any right to be retained in the service of the Company or to continue in its employ, the right and power of the Company to dismiss or discharge any executive is expressly reserved. 10. ACCELERATION OF PAYMENTS. In the event a "change of control" of the Company (as hereinafter defined) shall occur, the lamp sum payment (as hereinafter defined) of the amount of benefits hereunder shall be determined for each Eligible Executive and each such person shall be deemed to be 100% vested. -4- The aggregate amount of all such lump sum payments shall be paid into a grantor trust (which may include the grantor trust referred to in Section 4 hereof) established by the Company for payment to such Eligible Executives in accordance with the terms of such trust fund. Such amount to be paid shall be reduced by the value of the assets in such grantor trusts at the time of the payment with respect to the persons reflected in the lump sum amounts. Such amount shall be paid to the trusts immediately upon the occurrence of the change of control. Each participant will receive the amount of lump sum payment calculated on his behalf within 30 days of the change of control. The lump sum payment to each participant under this Supplemental Plan shall be equal to the excess of (i) over (ii), where: (i) equals the lump sum present value of the amount of monthly pension described in subsection (a) of Section 3 of this Supplemental Plan, determined as of the date of the change of control, in accordance with the methodology set forth in Section I.1 of the Pension Plan except that the interest rate for the Supplemental Plan will be equal to 80% of the applicable interest rate for the Pension Plan, and the lump sum payment will be calculated on the assumption that the pension would have commenced on the first day of the month following the participant's 60th birthday (current age if older) and that the Participant would have been entitled to receive such benefits as an Early Retirement Benefit on such date, and (ii) equals the lump sum present value of the amount of monthly pension described in subsection (b) of Section 3 of this Supplemental Plan, determined as of the date of the change of control, in accordance with the methodology set forth in Section 1.1 of the Pension Plan. In addition to the lump sum payment described above, the Company shall reimburse each participant who receives such a lump sum payment for any excise tax (and any income and excise tax due with respect to such reimbursement) imposed on such lump sum payments in connection with a change of control of the Company pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended. The basis for such reimbursement calculation shall be consistent with similar calculations described in change of control agreements of the Company. For purposes of the Supplemental Plan, a "change of control" shall occur if: (a) any "Person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, or securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; -5- (b) during any period of two consecutive years (not including any period prior to the adoption of the Supplemental Plan), individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c) or (d) of this Section) whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation; other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "Person" (as hereinabove defined) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 11. LUMP SUM OPTION. Unless his benefit is accelerated under Section 10 hereunder, a participant who has a valid lump sum payment election in effect at his termination of employment date will receive his benefits under the Supplemental Plan in a lump sum payment within the 30-day period following his termination of employment date or, if later, upon attainment of age 60. The payment will be made as soon as practical thereafter. A lump sum payment election will be valid if approved by trustee or if either (i) it has been in effect for at least 12 months and is on a form authorized by the Committee or (ii) in the event of extraordinary circumstances, it has been approved by the Committee, in as sole discretion, upon application by the participant in accordance with such procedures established by the Committee. -6- The amount of the lump sum payment will be equal to the monthly pension that is the excess of (a) over (b) as described in Section 3 multiplied by the applicable lump sum factor. The applicable lump sum factor shall be the same factor as determined for single sum amounts in Section 1.1 of the Pension Plan except that the applicable interest rate reflected in the calculation for the Supplemental Plan will be equal to 80% of the applicable interest rate for the Pension Plan. -7-

  Exhibit 10(y)                           Shares   Date of Grant:                      RESTRICTED STOCK AWARD YEARLY VESTING AWARDS 2004 OMNIBUS STOCK AND INCENTIVE PLAN FOR DENBURY RESOURCES INC.      RESTRICTED STOCK AWARD (“Award”) made effective ___(“Date of Grant”) between Denbury Resources Inc. (the “Company”) and ___(“Holder”).      WHEREAS, the Company desires to grant to the Holder ___Restricted Shares under and for the purposes of the 2004 Omnibus Stock and Incentive Plan for Denbury Resources Inc. (the “Plan”);      WHEREAS, in accordance with the provisions of Section 16(d) of the Plan, the Restricted Shares will be issued by the Company in the Holder’s name and be issued and outstanding for all purposes (except as provided below or in the Plan) but held by the Company (together with the stock power set forth below) until such time as such Restricted Shares are Vested by reason of the lapse of the applicable restrictions, after which time the Company shall make delivery of the Vested Shares to Holder; and      WHEREAS, the Company and Holder understand and agree that this Award is in all respects subject to the terms, definitions and provisions of the Plan, and all of which are incorporated herein by reference, except to the extent otherwise expressly provided in this Award.      NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows: 1. Restricted Share Award. The Company hereby sells, transfers, assigns and delivers to the Holder an aggregate of ___Restricted Shares (“Award Restricted Shares”) on the terms and conditions set forth in the Plan and supplemented in this Award, including, without limitation, the Vesting requirements set forth in Section 2 below, subject only to Holder’s execution of this Award agreement. 2. Vesting of Award Restricted Shares. The Restrictions on the Award Restricted Shares shall lapse (Award Restricted Shares with respect to which Restrictions have lapsed being herein referred to as “Vested Shares”) and become non-forfeitable with respect to a specified percentage of Award Restricted Shares on the dates set forth in (a) through (d) below, and will become 100% Vested on occurrence (if any) of the earliest of the dates set forth in (e) and (f) below: A-1 --------------------------------------------------------------------------------     (a)   25% of the Award Restricted Shares on the date of the 1st Anniversary of the Date of Grant;     (b)   25% of the Award Restricted Shares on the date of the 2nd Anniversary of the Date of Grant;     (c)   25% of the Award Restricted Shares on the date of the 3rd Anniversary of the Date of Grant;     (d)   25% of the Award Restricted Shares on the date of the 4th Anniversary of the Date of Grant;     (e)   100% of the Award Restricted Shares which have not previously Vested, on the date of Holder’s death or Disability; and     (f)   100% of the Award Restricted Shares which have not previously Vested, on the date of a Change in Control.      Vesting of this Award shall not be accelerated upon Holder’s retirement as an employee of the Company and, without limitation, neither the acceleration of vesting, if any, which is a general policy in the Company’s Employee Handbook, or the acceleration of vesting under a provision of the Plan, shall apply to these Award Restricted Shares. 3. Termination of Award. Upon Holder’s Separation, this Award expires, and the Holder’s right to retain all or any part of the Award Restricted Shares which have not become Vested Shares on or prior to such date of Separation is permanently forfeited, on such date of Separation. 4. Withholding. On each date Award Restricted Shares become Vested Shares, the minimum withholding required to be made by the Company shall be paid by Holder to the Administrator in cash, or by delivery of Shares, which Shares may be in whole or in part Vested Shares, based on the Fair Market Value of such Shares on the date of delivery. 5. Issuance of Shares. Without limitation, Holder shall have all of the rights and privileges of an owner of the Award Restricted Shares (including voting rights) except that Holder shall not be entitled to either delivery of the certificates evidencing any of the Award Restricted Shares, or to Restricted Share Distributions (i.e. dividends), unless and until such Award Restricted Shares become Vested Shares. As soon as reasonably possible following the date Award Restricted Shares become Vested Shares, the Administrator shall issue the certificates evidencing Vested Shares to the Holder, reduced by the number of Vested Shares (if any) delivered to the Administrator to pay required withholding under Section 4 above. 6. No Transfers Permitted. The rights under this Award are not transferable by the Holder otherwise than by will or the laws of descent and distribution, and so long as Holder lives, only Holder or his or her guardian or legal representative shall have the right to receive and retain Vested Shares. A-2 --------------------------------------------------------------------------------   7. Governing Law. without limitation, This Award shall be construed and enforced in accordance with and governed by the laws of delaware. 8. Binding Effect. This Award shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 9. Severability. If any provision of this Award is declared or found to be illegal, unenforceable or void, in whole or in part, the remainder of this Award will not be affected by such declaration or finding and each such provision not so affected will be enforced to the fullest extent permitted by law.      IN WITNESS WHEREOF, the Company has caused these presents to be executed on its behalf and its corporate seal to be affixed hereto by its duly authorized representative and the Holder has hereunto set his or her hand and seal, all on the day and year first above written.      Dated as of this                      day of                                                             , 200                    .                   DENBURY RESOURCES INC.               By:                            Gareth Roberts              President and CEO               By:                            Phil Rykhoek              Sr. Vice President and CFO A-3 --------------------------------------------------------------------------------   Assignment Separate From Certificate      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Denbury Resources Inc. the ___Shares subject to this Award, standing in the undersigned’s name on the books of said Denbury Resources Inc., and do hereby irrevocably constitute and appoint the corporate secretary of Denbury Resources Inc. as attorney to transfer the said stock on the books of Denbury Resources Inc. with full power of substitution in the premises.           Dated                                                                        Holder ACKNOWLEDGMENT      The undersigned hereby acknowledges (i) my receipt of this Award, (ii) my opportunity to review the Plan, (iii) my opportunity to discuss this Award with a representative of the Company, and my personal advisors, to the extent I deem necessary or appropriate, (iv) my understanding of the terms and provisions of the Award and the Plan, and (v) my understanding that, by my signature below, I am agreeing to be bound by all of the terms and provisions of this Award and the Plan.      Without limitation, I agree to accept as binding, conclusive and final all decisions or interpretations (including, without limitation, all interpretations of the meaning of provisions of the Plan, or Award, or both) of the Administrator upon any questions arising under the Plan, or this Award, or both.           Dated as of this                      day of                                         , 200                    .                              Holder A-4

PLACEMENT AGENT AGREEMENT   The undersigned, LitFunding Corp., a Nevada corporation (the “COMPANY”), hereby agrees with Brewer Financial Services, LLC., an Illinois limited liability company (the “PLACEMENT AGENT”) and Imperial Capital Holdings, a Nevis limited liability company (the “INVESTOR”) as follows:   1.            OFFERING. The Company hereby engages the Placement Agent to act as its exclusive placement agent in connection with the Investment Agreement, dated January 16, 2006 (the “INVESTMENT AGREEMENT”), pursuant to which the Company shall issue and sell to the Investor, from time to time, and the Investor shall purchase from the Company (the “OFFERING”) up to Three Million Dollars ($3,000,000) of the Company’s Voting Common Stock (the “COMMITMENT AMOUNT”), par value $0.001 per share (the “COMMON STOCK”), at a price per share equal to the Purchase Price, as that term is defined in the Investment Agreement. Pursuant to the terms hereof, the Placement Agent shall render consulting services to the Company with respect to the Investment Agreement and shall be available for consultation in connection with the advances to be requested by the Company pursuant to the Investment Agreement. All capitalized terms used herein and not otherwise defined herein shall have the same meaning ascribed to them as in the Investment Agreement. The Investor will be granted certain registration rights with respect to the Common Stock as more fully set forth in a Registration Rights Agreement between the Company and the Investor, dated January 16, 2006 (the “REGISTRATION RIGHTS AGREEMENT”). The documents to be executed and delivered in connection with the Offering, including, but not limited to, this Agreement, the Investment Agreement, and the Registration Rights Agreement, and any Prospectus or other disclosure document (including all amendments and supplements) utilized in connection with the Offering are referred to sometimes hereinafter collectively as the “OFFERING MATERIALS.” The Company’s Common Stock is sometimes referred to hereinafter as the “SECURITIES.” The Placement Agent shall not be obligated to sell any Securities and this Offering by the Placement Agent shall be solely on a “best efforts basis.”   2.            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT AGENT.     The Placement Agent represents, warrants and covenants as follows:   (a)         The Placement Agent has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby.   (b)        The execution and delivery by the Placement Agent of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Placement Agent is a party or by which the Placement Agent or its properties are bound, or any judgment, decree, order or, to the Placement Agent’s knowledge, any statute, rule or regulation applicable to the Placement Agent. This Agreement when executed and delivered by the Placement Agent, will constitute the legal, valid and binding obligations of the Placement Agent, enforceable in accordance with their respective terms, except to the extent that: (i) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from   1     --------------------------------------------------------------------------------   time to time in effect and affecting the rights of creditors generally, (ii) the enforceability hereof or thereof is subject to general principles of equity, or (iii) the indemnification provisions hereof or thereof may be held to be in violation of public policy.   (c)         Upon receipt and execution of this Agreement the Placement Agent will promptly forward copies of this Agreement to the Company or its counsel and to the Investor or its counsel.   (d)        The Placement Agent will not take any action that it reasonably believes would cause the Offering to violate the provisions of the Securities Act of 1933, as amended (the “1933 ACT”), the Securities Exchange Act of 1934 (the “1934 ACT”), the respective rules and regulations promulgated thereunder (the “RULES AND REGULATIONS”) or applicable “Blue Sky” laws of any state or jurisdiction.   (e)         The Placement Agent will use all reasonable efforts to determine whether the Investor is an Accredited Investor and that any information furnished by the Investor is true and accurate. The Placement Agent shall have no obligation to insure that: (i) any check, note, draft or other means of payment for the Common Stock will be honored, paid or enforceable against the Investor in accordance with its terms, or (ii) subject to the performance of the Placement Agent’s obligations and the accuracy of the Placement Agent’s representations and warranties hereunder, that the Offering is exempt from the registration requirements of the 1933 Act or any applicable state “Blue Sky” law or that the Investor is an Accredited Investor.   (f)         The Placement Agent is a member of the National Association of Securities Dealers, Inc., and is a broker-dealer registered as such under the 1934 Act and under the securities laws of the states in which the Securities will be offered or sold by the Placement Agent unless an exemption for such state registration is available to the Placement Agent. The Placement Agent is in compliance with all material rules and regulations applicable to the Placement Agent generally and applicable to the Placement Agent’s participation in the Offering.   3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.   The Company makes to the Placement Agent all the representations and warranties it makes to the Investor in the Investment Agreement and, in addition, represents and warrants as follows:   (a)         The execution, delivery and performance of each of this Agreement, the Investment Agreement and the Registration Rights Agreement has been or will be duly and validly authorized by the Company and is, and with respect to this Agreement, the Investment Agreement and the Registration Rights Agreement will each be, a valid and binding agreement of the Company, enforceable in accordance with its respective terms, except to the extent that: (i) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (ii) the enforceability hereof or thereof is subject to general principles of equity, or (iii) the indemnification provisions hereof or thereof may be held to be in violation of public policy. The Securities to be issued pursuant to the transactions contemplated by this Agreement and the Investment Agreement have been duly authorized and, when issued and paid for in accordance with (x) this Agreement, the Investment Agreement and the certificates/instruments representing such Securities, (y) will be valid and binding obligations of the Company, enforceable in accordance with their respective   2     --------------------------------------------------------------------------------   terms, except to the extent that (1) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, and (2) the enforceability thereof is subject to general principles of equity. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken by the Company.   (b)        The Company has a duly authorized, issued and outstanding capitalization as set forth herein and in the Investment Agreement. The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the agreements described herein and as described in the Investment Agreement, dated the date hereof and the agreements described therein. All issued and outstanding securities of the Company, have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or preemptive rights with respect thereto and are not subject to personal liability solely by reason of being security holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company. As of September 30, 2005, the authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $0.001 par value per share, of which 16,067,402 shares of Common Stock are issued and outstanding and 2,000,000 shares of Series A Preferred Stock are authorized, $0.001 par value per share, of which 800,000 shares were issued and outstanding as of September 30, 2005   (c)         The Common Stock to be issued in accordance with this Agreement and the Investment Agreement has been duly authorized and when issued and paid for in accordance with this Agreement, the Investment Agreement and the certificates/instruments representing such Common Stock, will be validly issued, fully-paid and non-assessable; the holders thereof will not be subject to personal liability solely by reason of being such holders; such Securities are not and will not be subject to the preemptive rights of any holder of any security of the Company.   4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.   The Investor makes to the Placement Agent all the representations and warranties it makes to the Company in the Investment Agreement and, in addition represents, warrants and covenants as follows:   (a)         The Investor has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby.   (b)        The execution and delivery by the Investor of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Investor is a party or by which the Investor or its properties are bound, or any judgment, decree, order or, to the Investor’s knowledge, any statute, rule or regulation applicable to the Investor. This Agreement when executed and delivered by the Investor, will constitute the legal, valid and binding obligations of the Investor, enforceable in accordance with their respective terms, except to the extent that: (i) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors   3     --------------------------------------------------------------------------------   generally, (ii) the enforceability hereof or thereof is subject to general principles of equity, or (iii) the indemnification provisions hereof or thereof may be held to be in violation of public policy.   (c)         the Investor is not, and will not be, as a result of the transactions contemplated by the Offering Materials a “dealer” within the meaning of the Securities Exchange Act of 1934 and applicable federal and state securities laws and regulations. The Investor covenants that in this respect it is and will remain in compliance with the requirements of applicable “no action” rulings of the U.S. Securities Exchange Commission.   (iv)       The Investor will promptly forward copies of any and all due diligence questionnaires compiled by the Investor to the Placement Agent.   5. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY.   The Company covenants and agrees at its expense and without any expense to the Placement Agent as follows:   (a)         To advise the Placement Agent of any material adverse change in the Company’s financial condition, prospects or business or of any development materially affecting the Company or rendering untrue or misleading any material statement in the Offering Materials occurring at any time as soon as the Company is either informed or becomes aware thereof.   (b)        To use its commercially reasonable efforts to cause the Common Stock issuable in connection with the Equity Line of Credit to be qualified or registered for sale on terms consistent with those stated in the Registration Rights Agreement and under the securities laws of such jurisdictions as the Placement Agent and the Investor shall reasonably request. Qualification, registration and exemption charges and fees shall be at the sole cost and expense of the Company.   (c)         Upon written request, to provide and continue to provide the Placement Agent and the Investor with copies of all quarterly financial statements and audited annual financial statements prepared by or on behalf of the Company at the time they are made available to the public, or other reports prepared by or on behalf of the Company for public disclosure and all documents delivered to the Company’s stockholders.   (d)        To deliver, during the registration period of the Investment Agreement, to the Placement Agent upon the Placement Agent’s request,   (i)          at such time as made available to the public (usually within forty five days), a statement of its income for each such quarterly period, and its balance sheet and a statement of cash flow as of the end of such quarterly period, all in reasonable detail, certified by its principal financial or accounting officer;   (ii)         at such time as made available to the public (usually within ninety days after the close of each fiscal year), its balance sheet as of the close of such fiscal year, together with a statement of income, a statement of changes in stockholders’ equity and a statement of cash flow for such fiscal year, such balance sheet, statement of income, statement of changes in stockholders’   4     --------------------------------------------------------------------------------   equity and statement of cash flow to be in reasonable detail and accompanied by a copy of the certificate or report thereon of independent auditors if audited financial statements are prepared; and   (iii)       a copy of all documents, reports and information furnished to its stockholders at the time that such documents, reports and information are furnished to its stockholders.   (iv)        a copy of all documents, reports and information furnished to the Investor at the time that such documents, reports and information are furnished to the Investor.     (e) To comply with the terms of the Offering Materials.   (f)         To ensure that any transactions between or among the Company, or any of its officers, directors and affiliates be on terms and conditions that are no less favorable to the Company, than the terms and conditions that would be available in an “arm’s length” transaction with an independent third party.   6. INDEMNIFICATION.   (a)         The Company hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the SEC’s Rules and Regulations promulgated thereunder (the “Rules and Regulations”), harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in (1) Section 4 of this Agreement, (2) the Offering Materials (except those written statements relating to the Placement Agent given by an indemnified person for inclusion therein), (3) any application or other document or written communication executed by the Company or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Common Stock under the securities laws thereof, or any state securities commission or agency; (ii) the omission or alleged omission from documents described in clauses (1), (2) or (3) above of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) the breach of any representation, warranty, covenant or agreement made by the Company in this Agreement. The Company further agrees that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Paragraph 6(a), any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Placement Agent or such indemnified person based upon specific finding of fact as to the Placement Agent or such indemnified person’s gross negligence or willful misfeasance will be promptly repaid to the Company.   5     -------------------------------------------------------------------------------- (b)        The Placement Agent hereby agrees that it will indemnify and hold the Company and each officer, director, shareholder, employee or representative of the Company, and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Company or such indemnified person of the Company may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon: (i) the conduct of the Placement Agent or its officers, employees or representatives in willful violation of any of such laws and regulations while acting as Placement Agent for the Offering or (ii) the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement (iii) any false or misleading information provided to the Company by one of the Placement Agent’s indemnified persons.   (c)         The Investor hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent, and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon: (i) the conduct of the Investor or its officers, employees or representatives in its acting as the Investor for the Offering or (ii) the material breach of any representation, warranty, covenant or agreement made by the Investor in the Offering Materials (iii) any false or misleading information provided to the Placement Agent by the Investor or one of the Investor’s indemnified persons.   (d)        The Placement Agent hereby agrees that it will indemnify and hold the Investor and each officer, director, shareholder, employee or representative of the Investor, and each person controlling, controlled by or under common control with the Investor within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding,   6     --------------------------------------------------------------------------------   including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Investor or such indemnified person of the Investor may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon: (i) the conduct of the Placement Agent or its officers, employees or representatives in willful violation of any of such laws and regulations while acting as the Placement Agent for the Offering or (ii) the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement (iii) any false or misleading information provided to the Investor by one of the Placement Agent’s indemnified persons.   (e)         Promptly after receipt by an indemnified party of notice of commencement of any action covered by Section 6(a), (b), (c) or (d), the party to be indemnified shall, within five (5) business days, notify the indemnifying party of the commencement thereof; the omission by one (1) indemnified party to so notify the indemnifying party shall not relieve the indemnifying party of its obligation to indemnify any other indemnified party that has given such notice and shall not relieve the indemnifying party of any liability outside of this indemnification if not materially prejudiced thereby. In the event that any action is brought against the indemnified party, the indemnifying party will be entitled to participate therein and, to the extent it may desire, to assume and control the defense thereof with counsel chosen by it which is reasonably acceptable to the indemnified party. After notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under such Section 6(a), (b), (c), or (d) for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, but the indemnified party may, at its own expense, participate in such defense by counsel chosen by it, without, however, impairing the indemnifying party’s control of the defense. Subject to the proviso of this sentence and notwithstanding any other statement to the contrary contained herein, the indemnified party or parties shall have the right to choose its or their own counsel and control the defense of any action, all at the expense of the indemnifying party if: (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action at the expense of the indemnifying party, or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying party; provided, however, that the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstance, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No settlement of any action or proceeding against an indemnified party shall be made without the consent of the indemnifying party.   (f)         In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 6 is due in accordance with its terms but is for any reason held by a court to be unavailable on grounds of policy or otherwise, the Company and the   7     --------------------------------------------------------------------------------   Placement Agent and the Investor shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with the investigation or defense of same) which the other may incur in such proportion so that the Company, the Placement Agent and the Investor shall be responsible for such percent of the aggregate of such losses, claims, damages and liabilities as shall equal the percentage of the gross proceeds paid to each of them.; provided, however, that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 6(f), any person controlling, controlled by or under common control with the Placement Agent, or any partner, director, officer, employee, representative or any agent of any thereof, shall have the same rights to contribution as the Placement Agent and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each officer of the Company and each director of the Company shall have the same rights to contribution as the Company and each person controlling, controlled by or under common control with the Investor within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each member of the general partner of the Investor shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this Section 6(f), notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any obligation they may have hereunder or otherwise if the party from whom contribution may be sought is not materially prejudiced thereby. The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified person or any termination of this Agreement.   7.           FEES. The Company hereby agrees to pay the Placement Agent one percent (1%) of the gross proceeds from each Put for all services rendered in connection with this Agreement.   8.            PAYMENT OF EXPENSES. The Company hereby agrees to bear all of the expenses in connection with the Offering, including, but not limited to the following: filing fees, printing and duplicating costs, advertisements, postage and mailing expenses with respect to the transmission of Offering Materials, registrar and transfer agent fees, and expenses, fees of the Company’s counsel and accountants, issue and transfer taxes, if any. The Company agrees to bear all the reasonable expenses of the Placement Agent in performing its services under this Agreement which are pre-approved by the Company in advance, including but not limited to the fees and expenses of counsel.   9.            CONDITIONS OF CLOSING. The Closing shall be held at the offices of the Investor or its counsel. The obligations of the Placement Agent hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Date of Closing (the “Closing Date”) with respect to the Company as if it had been made on and as of such Closing Date; the accuracy on and as of the Closing Date of the statements of the officers of the Company made pursuant to the provisions hereof; and the performance by the Company on and as of the Closing Date of its covenants and obligations hereunder and to the following further conditions:     8     --------------------------------------------------------------------------------     (a)         Upon the effectiveness of a registration statement in accordance with the Investment Agreement, the Placement Agent shall receive the opinions of Counsel to the Company and of the Investor, dated as of the date thereof, which opinion shall be in form and substance reasonably satisfactory to the Investor, the Company, their counsel and the Placement Agent.   (b)        At or prior to the Closing, the Placement Agent shall have been furnished such documents, certificates and opinions as it may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Agreement and the Offering Materials, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained.   (c)         At and prior to the Closing: (i) there shall have been no material adverse change nor development involving a prospective change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Offering Materials; (ii) there shall have been no transaction, not in the ordinary course of business except the transactions pursuant to the Investment Agreement entered into by the Company which has not been disclosed in the Offering Materials or to the Placement Agent in writing; (iii) except as set forth in the Offering Materials, the Company shall not be in default under any provision of any instrument relating to any outstanding indebtedness for which a waiver or extension has not been otherwise received; (iv) except as set forth in the Offering Materials, the Company shall not have issued any securities (other than those to be issued as provided in the Offering Materials) or declared or paid any dividend or made any distribution of its capital stock of any class and there shall not have been any change in the indebtedness (long or short term) or liabilities or obligations of the Company (contingent or otherwise) and trade payable debt; (v) no material amount of the assets of the Company shall have been pledged or mortgaged, except as indicated in the Offering Materials; and (vi) no action, suit or proceeding, at law or in equity, against the Company or affecting any of its properties or businesses shall be pending or threatened before or by any court or federal or state commission, board or other administrative agency, domestic or foreign, wherein an unfavorable decision, ruling or finding could materially adversely affect the businesses, prospects or financial condition or income of the Company, except as set forth in the Offering Materials.   (d)        At Closing, the Placement Agent shall receive a certificate of the Company signed by an executive officer and chief financial officer, dated as of the applicable Closing, to the effect that the conditions set forth in subparagraph (c) above have been satisfied and that, as of the applicable closing, the representations and warranties of the Company set forth herein are true and correct.   10.          TERMINATION. This Agreement shall be co-terminus with, and terminate upon the same terms and conditions as those set forth in, the Investment Agreement. The rights of the Investor and the obligations of the Company under the Registration Rights Agreement, and the rights and obligations of the Placement Agent and the rights and obligations of the Company shall survive the termination of this Agreement unabridged for a period of twenty-four (24) months after the Closing Date.       9     --------------------------------------------------------------------------------     11. MISCELLANEOUS.   (a)         This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all which shall be deemed to be one and the same instrument.   (b)        Any notice required or permitted to be given hereunder shall be given in writing and shall be deemed effective when deposited in the United States mail, postage prepaid, or when received if personally delivered or faxed (upon confirmation of receipt received by the sending party), addressed as follows:   If to Placement Agent, to: Brewer Financial Services, LLC     200 S. Michigan Avenue, 21st Floor   Chicago, IL 60604     Telephone: 773-880-8823     Facsimile: 773-880-8827     If to the Company, to: LitFunding Corp.     Attn: President     3700 Pecos McLeod, Suite 100   Las Vegas, NV 89121     Telephone: 702-317-1610     Facsimile: 702-317-1611     If to the Investor, to: Imperial Capital Holdings, LLC   Apdo. 10559-1000     San Jose, Costa Rica     Telephone: +506 (1) 258-6464     Facsimile: +506 (1) 258-6060     Copies to: Donald J. Stoecklein Stoecklein Law Group 402 West Broadway, Suite 400 San Diego, California 92101 Telephone: 619-595-4882   Facsimile 619-595-4883     or to such other address of which written notice is given to the others.   (c)         This Agreement shall be governed by and construed in all respects under the laws of the State of Nevada, without reference to its conflict of laws rules or principles. Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of Nevada as provided by law. The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of Nevada and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been commenced in an inconvenient forum.   10     --------------------------------------------------------------------------------     (d)        This Agreement and the other agreements referenced herein contain the entire understanding between the parties hereto and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought.   (e)         If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement.   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth below.   Dated: January 16, 2006.   COMPANY: LitFunding Corp.     By:/s/ Morton Reed                           Name: Morton Reed Title: President / CEO   PLACEMENT AGENT: Brewer Financial Services, LLC.   By:                                                          Name: Adam Erickson Title: Managing Principal   INVESTOR:   IMPERIAL CAPITAL HOLDINGS     By: /s/ Maritza Samabria                          Name: Maritza Samabria Title: Managing Member     11

-------------------------------------------------------------------------------- Exhibit 10.19 SUMMARY OF COMPENSATION OF EXECUTIVE OFFICERS Anheuser-Busch Companies, Inc. (the “Company”) does not have employment agreements with any of its executive officers. The following is a description of executive officer compensation. On November 23, 2005, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved the annual base salaries effective January 1, 2006, of the Company’s executive officers after review of performance and competitive market data. The following table sets forth the 2006 base salary of the Company’s Named Executive Officers (which officers were determined by reference to the Proxy Statement for the Company’s 2006 Annual Meeting of Stockholders, dated March 9, 2006). The 2006 base salaries are the same as the 2005 base salaries for these executives.   Name and Position 2006 Base Salary Patrick T. Stokes President and Chief Executive Officer   $ 1,526,745                  August A. Busch III Chairman of the Board   $ 600,000                  August A. Busch IV Vice President and Group Executive   $ 950,000                  W. Randolph Baker Vice President and Chief Financial Officer   $ 615,000                    Douglas J. Muhleman Group Vice President, Brewing, Operations and Technology, Anheuser-Busch, Incorporated   $ 574,750          No bonus payments were made to the Company’s Named Executive Officers for 2005. Information regarding 2006 bonuses is contained in the Company’s Form 8-K filed with the Securities and Exchange Commission on February 22, 2006. -------------------------------------------------------------------------------- Also on November 23, 2005, the Committee approved grants of ten year incentive and non-qualified stock option awards to approximately 2,800 officers and management employees of the Company and its subsidiaries and affiliates eligible to receive such awards under the Company’s 1998 Incentive Stock Plan including the Named Executive Officers for 2005. In addition, the Committee approved performance-vesting restricted stock awards to Executive Officers of the Company including the Named Executive Officers for 2005 and service-vesting restricted stock awards to approximately 2,800 officers and management employees of the Company and its subsidiaries and affiliates eligible to receive such awards under the 1998 Incentive Stock Plan. All such awards of restricted stock were effective January 1, 2006. The 1998 Incentive Stock Plan, as amended, is attached as Appendix C to the Proxy Statement for the Company’s 2005 Annual Meeting of Stockholders, dated March 10, 2005. Information concerning the stock option awards to the Company’s Named Executive Officers is contained in Form 8-K dated November 23, 2005, and filed by the Company with the Securities & Exchange Commission on November 29, 2005. Performance-vesting restricted stock awards made to the Company’s Named Executive Officers are set forth below:   Name and Position Restricted Stock Awards Patrick T. Stokes President and Chief Executive Officer    42,915                             August A. Busch III Chairman of the Board    21,363                             August A. Busch IV Vice President and Group Executive    22,698                             W. Randolph Baker Vice President and Chief Financial Officer    9,508                             Douglas J. Muhleman Group Vice President, Brewing, Operations and Technology, Anheuser-Busch, Incorporated    8,886                   The Company has provided additional information regarding compensation awarded to Named Executive Officers in respect of and during the year ended December 31, 2005, in the Proxy Statement for the Company’s 2006 Annual Meeting of Stockholders dated March 9, 2006, which has been filed with the Securities and Exchange Commission.

Exhibit 10.1 SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE THIS AGREEMENT, made and entered into on this 18th day of October, 2006, by and between Radian Group Inc. a Delaware corporation (hereinafter “Radian” or the “Company”), and Howard Yaruss (“Executive”), reads as follows: I. BACKGROUND A. The Company currently employs Executive. The Company and Executive have mutually agreed to terminate Executive’s employment effective March 20, 2007 (the “Termination Date”). The Company and Executive agree that the “Notice” required by the Retention Agreement, as defined below, was provided to the Executive on September 20, 2006 in accordance with the Retention Agreement. The Company and Executive further agree that between September 20, 2006 and the Termination Date, Executive shall continue as an employee of the Company in accordance with the memorandum to Executive attached hereto as Appendix A. B. In appreciation for Executive’s dedicated and successful service to the Company and in exchange for all of Executive’s undertakings in this Agreement, the Company and Executive wish to enter into an agreement to (i) provide a release by Executive of the Company as to any claims that might be asserted by the Executive, as further described herein, and (ii) assuming that Executive complies with, executes, and does not revoke this Agreement and the Second Release, as defined below, provide Executive with the benefits and entitlements described in Section 2 of Article II. II. SUBSTANTIVE PROVISIONS In consideration of the mutual promises contained in this Agreement, the Company and Executive, intending to be legally bound, agree as follows: 1. Executive and the Company agree that, except as specifically provided below, the Retention Agreement previously entered into by Executive and the Company dated February 14, 2005 (the “Retention Agreement”) and the change in control agreement between Executive and the Company dated October 30, 1997 (the “CIC Agreement”) shall terminate and be of no further force or effect on the Termination Date. 2. In consideration of the performance of the obligations undertaken by Executive under Sections 4 and 7, and the releases provided by Executive pursuant to Section 6, and in lieu of any payment under the Company’s current severance pay plan for employees or executives, and assuming no payments are due to Executive under the CIC Agreement, the Company shall pay or cause to be paid or provided to Executive, subject to applicable employment and income tax withholdings and deductions, the following amounts and benefits: -------------------------------------------------------------------------------- (a) Executive shall receive salary continuation payments, at the monthly rate of base salary (prior to any deductions) in effect for Executive on the Termination Date, for the period beginning on the Termination Date and ending on the date that is twelve months after the Termination Date (referred to as the “Severance Period”). Such salary continuation payments, subject to normal withholdings, shall be made in equal monthly installments on the first day of each month during the Severance Period, beginning on the first day of the month following the Termination Date. (b) Executive shall receive a bonus payment in an amount equal to the product of (1) the Executive’s target bonus for the 2006 calendar year, multiplied by (2) a fraction, with the numerator equal to the number of days in the current calendar year preceding the Notice Date, as defined below, and the denominator equal to 365. The bonus payment shall be payable in cash when bonuses for the 2006 calendar year are otherwise paid to executives. No other bonuses shall be due to Executive. (c) Executive, his spouse and dependents shall receive (1) continued coverage under the Company’s group health plan for the twelve-month period following Executive’s Termination Date or, if earlier, until the date on which Executive is eligible for coverage under a plan maintained by a new employer (including any self-employment or partnership) or under a plan maintained by his spouse’s employer or (2) cash in lieu of such coverage, where such coverage may not be continued (or where such continuation would adversely affect the tax status of the plan pursuant to which such coverage is provided). Executive agrees and acknowledges that he is required to notify the Company of his eligibility for alternate health coverage within thirty days of becoming eligible for any such coverage. The continued coverage provided to Executive under this subsection, including cost-sharing, shall be substantially identical to the coverage provided during such period by the Company for its employees generally, as if Executive had continued in employment during such period. The COBRA health care continuation coverage period under section 4980B of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), shall run concurrently with the period of continued coverage following the Termination Date. (d) Executive shall be paid for all unused personal and vacation time which the parties agree shall be 19.5 vacation days and 1 personal day as of March 20, 2007. (e) Executive shall be reimbursed for customary and reasonable Executive outplacement services, in accordance with Company policy, for a period not to exceed twelve (12) months. (f) The Company shall reimburse Executive for all reasonable attorneys’ fees and expenses associated with the review of this Separation of Employment Agreement and General Release in an amount not to exceed $5,000. (g) Executive shall receive prior to the end of April, 2007, the value of his interest in the Radian SERP (as calculated by the Company in accordance with the SERP) as of March 20, 2007, less applicable taxes. -------------------------------------------------------------------------------- All payments and benefits due in accordance with the terms of this Section 2 shall be made to Executive (or his estate) regardless of whether he dies or becomes disabled following the date of this Agreement and prior to payment being made. No payments or benefits shall be payable pursuant to this Section 2 if any payments are due to Executive under the CIC Agreement. In addition to the foregoing, and not conditioned on the execution of this Agreement, Executive shall receive all benefits due under any employee benefit plans or programs under which Executive participated and under which Executive has accrued and become or may become entitled to benefits, other than under any Company separation or severance plan or programs, in accordance with the terms of the applicable plan or program and applicable law. 3. Executive agrees and acknowledges that the Company, on a timely basis, has paid, or agreed to pay, to Executive all other amounts due and owing based on his prior services and that the Company has no obligation, contractual or otherwise to Executive, except as provided herein, nor does it have any obligation to hire, rehire or re-employ Executive in the future. Executive acknowledges that the Company is not required to enter into this Agreement and that the provisions of Section 2 will provide Executive with benefits that are in excess of that to which Executive otherwise would have been entitled. 4. (a) Executive further agrees and acknowledges that by reason of his employment by and service to the Company, he has had access to confidential information of the Company, and, therefore, Executive hereby reaffirms his obligations under, and agrees that he shall continue to be subject to, the terms of Section 3 of the Retention Agreement notwithstanding the termination of the Retention Agreement. (b) For the purposes of this Section 4, Section 5 and Section 6, the term “Company” shall be deemed to include Radian and the subsidiaries and affiliates of Radian. 5. (a) Executive acknowledges and agrees that the restrictions contained in Section 4 are reasonable and necessary to protect and preserve the legitimate interests, properties, goodwill and business of the Company, that the Company would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company should Executive breach the provisions of that Section. Executive represents and acknowledges that (i) Executive has been advised by the Company to consult Executive’s own legal counsel in respect of this Agreement, and (ii) that Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executive’s counsel. (b) Executive further acknowledges and agrees that a breach of the restrictions in Section 4 cannot be adequately compensated by monetary damages. Executive agrees that the Company shall be entitled to (i) preliminary and permanent injunctive relief, without the necessity of proving actual damages, or posting of a bond, and (ii) an equitable accounting of all earnings, profits and other benefits arising from any violation of Section 4, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that the -------------------------------------------------------------------------------- provisions of Section 4 should ever be adjudicated to exceed the limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. (c) If Executive breaches his obligations under Section 4, he agrees that suit may be brought, and that he consents to personal jurisdiction, in the United States District Court for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia, Pennsylvania, consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and waives any objection which he may have to the laying of venue of any such suit, action or proceeding in any such court. Executive also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers. 6. (a) For and in consideration of the benefits to be paid pursuant to this Agreement, and intending to be legally bound, Executive does hereby REMISE, RELEASE, AND FOREVER DISCHARGE the Company and each of its past or present subsidiaries and affiliates, its and their past or present officers, directors, stockholders, employees and agents, their respective successors and assigns, heirs, executors and administrators, the pension and employee benefit plans of the Company, or of its past or present subsidiaries or affiliates, and the past or present trustees, administrators, agents, or employees of the pension and employee benefit plans (hereinafter collectively included within the term the “Company”), acting in any capacity whatsoever, of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now have, or hereafter may have, or which Executive’s heirs, executors or administrators hereafter may have, by reason of any matter, cause or thing whatsoever from the beginning of Executive’s employment with the Company to the date of this Agreement and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executive’s employment relationship and the termination of Executive’s employment relationship with the Company, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, including any claims under the Pennsylvania Human Relations Act, 43 PA. C.S.A. §§ 951 et seq., as amended, the Rehabilitation Act of 1973, 29 USC §§ 701 et seq., as amended, Title VII of the Civil Rights Act of 1964, 42 USC §§ 2000e et seq., as amended, the Civil Rights Act of 1991, 2 USC §§ 60 et seq., as applicable, the Age Discrimination in Employment Act of 1967, 29 USC §§ 621 et seq., as amended ( “ADEA”), the Americans with Disabilities Act, 29 USC §§ 706 et seq., and the Employee Retirement Income Security Act of 1974, 29 USC §§ 301 et seq., as amended, any contracts between the Company and Executive and any common law claims now or hereafter recognized and all claims for counsel fees and costs. As a further condition for the receipt of the benefits set forth in this Agreement, Executive also agrees to execute an additional release to the Company, as set forth in Appendix B, as of the Termination Date (the “Second Release”), and Executive agrees that the Second Release shall be executed within twenty-one (21) days after the Termination Date. -------------------------------------------------------------------------------- (b) Notwithstanding anything in this Agreement to the contrary, Executive does not waive any entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued and become or may become entitled to benefits (other that under any Company separation or severance plan or programs). (c) Executive expressly waives all rights afforded by any statute that expressly limits the effect of a release with respect to unknown claims. Executive acknowledges the significance of this release of unknown claims and the waiver of statutory protection against a release of unknown claims which provides that a general release does not extend to claims that the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by it must have materially affected its settlement with the debtor. (d) In consideration for Executive’s agreement as set forth herein, the Company agrees to pay and provide Executive with the amounts and benefits described in Section 2. Executive agrees that he is not entitled to any payments, benefits, severance payments or other compensation beyond that expressly provided herein or expressly provided in the Company’s benefit plans and programs. 7. (a) Executive and the Company further agree, covenant and promise that neither of them will in any way communicate the terms of this Agreement to any person other than Executive’s immediate family and his attorney and financial consultant, or to the Company’s officers, directors or employees, or when necessary to enforce this Agreement or to advise a third party of Executive’s obligations under this Agreement unless this Agreement becomes a public document by reason of its disclosure by the Company. Executive also agrees that for a period of one year following the Termination Date, Executive will provide, and that at all times after the date hereof the Company may similarly provide, a copy of Section 4 to any business or enterprise (i) which Executive may directly or indirectly own, manage, operate, finance, join, control or of which he may participate in the ownership, management, operation, financing, or control, or (ii) with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Executive may use or permit to be used Executive’s name. (b) The Company and Executive agree not to disparage the name, business reputation or business practices of Executive by the Company or of the Company or its subsidiaries or affiliates, or of its or their officers, employees and directors or agents, by Executive. 8. Nothing in this Agreement shall prohibit or restrict Executive from (a) making any disclosure of information required by law, (b) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory -------------------------------------------------------------------------------- organization, or the Company’s designated legal, compliance or human resource officers, or (c) filing, testifying, participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud, or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. 9. The parties agree and acknowledge that the agreements by the Company described herein, and the settlement and termination of any asserted or unasserted claims against the Company, are not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation, or of any duty owned by the Company to Executive. 10. Executive hereby certifies that he has read the terms of this Agreement, including the release set forth in Section 6, that he has had the opportunity to discuss it with his attorney, and that he understands its terms and effects. Executive acknowledges, further, that he is executing this Agreement of his own volition with a full understanding of its terms and effects and with the intention of releasing all claims recited herein in exchange for the consideration described above, which he acknowledges is adequate and satisfactory to him. None of the parties named in Section 6, nor their agents, representatives, or attorneys have made any representations to Executive concerning the terms or effects of this Agreement other than those contained herein. 11. Executive hereby acknowledges that he has had the right to consider this Agreement for a period of 21 days prior to execution. Executive also understands that he has the right to revoke this Agreement, and the release set forth in Section 6, for a period of seven days following execution by giving written notice to the Company at 1601 Market Street, 12th Floor, Philadelphia, PA 19103, Attention: Chief Executive Officer, in which event the provisions of this Agreement shall be null and void (except as provided in Section 12 below), and the parties shall have the rights, duties, obligations and remedies afforded by applicable law. 12. Executive acknowledges and agrees that if he revokes this Agreement and the release set forth in Section 6 or revokes the Second Release, (i) Executive’s employment with the Company will terminate as of the Termination Date, (ii) Executive will not receive any payments under this Agreement, (iii) Executive will receive only any amounts due for services performed through the Termination Date, and (iv) Executive will continue to be subject to the requirements of Section 3 of the Retention Agreement as described therein. Executive acknowledges and agrees that this Agreement satisfies the 180-day advance notice requirement for termination of employment under the Retention Agreement. 13. This Agreement may be assigned to any subsidiary, affiliate or successor of the Company and shall inure to the benefit of and be binding upon the Company and Executive and the successors and assigns of each; provided, however, that any assignment by the Company shall not relieve it of its obligation to ensure the satisfaction of its obligations to Executive as required by Section 2. Executive may not assign any of his personal undertakings hereunder. -------------------------------------------------------------------------------- 14. This Agreement supersedes all prior agreements including the Retention Agreement and CIC Agreement previously entered into by Executive and the Company, except as specifically set forth in this Agreement, and sets forth the entire understanding among the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved and executed by Executive and a member of the Board on behalf of the Company. 15. In no event shall 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 such amounts shall not be reduced, regardless of whether Executive obtains other employment. 16. This Agreement shall be interpreted and enforced under the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.   Radian Group Inc. By:   /s/ Robert E. Croner   Senior Vice President, Human Resources          /s/ Howard S. Yaruss Witness      Executive -------------------------------------------------------------------------------- APPENDIX A Memorandum   TO:    Howard Yaruss FROM:    Robert Croner DATE:    September 20, 2006 SUBJECT:    Transition Period and Termination of Employment Consistent with the notice given to you on September 20, 2006 (the “Notice Date”) of the termination of your employment with Radian Group Inc. and its affiliates (together, the “Company”) to be effective March 20, 2007 (“Date of Termination”), this memorandum confirms your status for the period up to the Date of Termination.     1. Your employment with the Company will cease on the Date of Termination.     2. Until the Date of Termination, you will remain an employee of the Company and will only render such transition services as specifically and reasonably requested. Transition services include consulting and cooperating with your successor and the Company’s Chief Executive Officer, as requested. You are no longer required to be at work in your office and you shall perform you duties from another location and be reasonably available by telephone and email.     3. Until the Date of Termination, the Company will continue to pay your salary at the monthly rate of your base salary in effect on the Notice Date and you and your dependents will continue to receive benefits under the Company’s employee benefit plans and programs.     4. Notwithstanding anything herein to the contrary, your employment with the Company will be subject to termination for Cause (as defined in your Change in Control Protection Agreement) at any time until the Date of Termination. All severance arrangements shall be governed by the Agreement to which this memorandum is attached, subject to your fulfilling all of your duties thereunder, including executing, and not revoking, the Second Release. -------------------------------------------------------------------------------- APPENDIX B SECOND RELEASE TO THE COMPANY In further consideration of compensation and benefits provided to Howard Yaruss (“Executive”) pursuant to the Agreement between Executive and the Company entered into as of September 20, 2006 (the “Agreement”), Executive hereby executes this Second Release To The Company (herein the “Second Release”) and does hereby REMISE, RELEASE, AND FOREVER DISCHARGE the Company and each of its past or present subsidiaries and affiliates, its and their past or present officers, directors, stockholders, employees and agents, their respective successors and assigns, heirs, executors and administrators, the pension and employee benefit plans of the Company, or of its past or present subsidiaries or affiliates, and the past or present trustees, administrators, agents, or employees of the pension and employee benefit plans (hereinafter collectively included within the term the “Company”), acting in any capacity whatsoever, of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now have, or hereafter may have, or which Executive’s heirs, executors or administrators hereafter may have, by reason of any matter, cause or thing whatsoever from the beginning of Executive’s employment with the Company to the date of this Second Release and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executive’s employment relationship and the termination of Executive’s employment relationship with the Company, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, including any claims under the Pennsylvania Human Relations Act, 43 PA. C.S.A. §§ 951 et seq., as amended, the Rehabilitation Act of 1973, 29 USC §§ 701 et seq., as amended, Title VII of the Civil Rights Act of 1964, 42 USC §§ 2000e et seq., as amended, the Civil Rights Act of 1991, 2 USC §§ 60 et seq., as applicable, the Age Discrimination in Employment Act of 1967, 29 USC §§ 621 et seq., as amended ( “ADEA”), the Americans with Disabilities Act, 29 USC §§ 706 et seq., and the Employee Retirement Income Security Act of 1974, 29 USC §§ 301 et seq., as amended, any contracts between the Company and Executive and any common law claims now or hereafter recognized and all claims for counsel fees and costs. Notwithstanding anything in this Agreement to the contrary, Executive does not waive any entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued and become or may become entitled to benefits (other that under any Company separation or severance plan or programs). Executive shall have twenty-one (21) days to execute this Second Release following his Termination Date, and the provisions of Sections 5(a), 10, 11 and 12, as set forth in the Agreement, are hereby incorporated herein. -------------------------------------------------------------------------------- I hereby execute this Second Release as of                     , 2007.   Howard Yaruss   Witness

COUNTRYWIDE HOME LOANS, INC., as Seller and BANC OF AMERICA MORTGAGE CAPITAL CORPORATION, as Purchaser ---------- MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT dated as of April 1, 2003 ---------- Conventional Residential Mortgage Loans (SERVICING RETAINED) ARTICLE I. DEFINITIONS ARTICLE II. PRE-CLOSING AND CLOSING PROCEDURES Section 2.01 Due Diligence by the Purchaser.............................. 10 Section 2.02 Identification of Mortgage Loan Package..................... 11 Section 2.03 Post-Closing Due Diligence.................................. 11 Section 2.04 Credit Document Deficiencies Identified During Due Diligence..................................... 11 Section 2.05 Delivery of Collateral Files................................ 11 Section 2.06 Purchase Confirmation....................................... 12 Section 2.07 Closing..................................................... 12 Section 2.08 Payment of the Purchase Proceeds............................ 13 Section 2.09 Entitlement to Payments on the Mortgage Loans............... 13 Section 2.10 Payment of Costs and Expenses............................... 13 Section 2.11 MERS Mortgage Loans and the MERS System..................... 13 ARTICLE III. REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH Section 3.01 Representations and Warranties Respecting Countrywide....... 14 Section 3.02 Representations and Warranties Regarding Individual Mortgage Loans................................ 15 Section 3.03 Remedies for Breach of Representations and Warranties....... 22 Section 3.04 Repurchase of Convertible Mortgage Loans.................... 23 Section 3.05 Representations and Warranties Respecting the Purchaser..... 24 Section 3.06 Indemnification by the Purchaser............................ 25 ARTICLE IV. ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 4.01 Countrywide to Act as Servicer.............................. 25 Section 4.02 Collection of Mortgage Loan Payments........................ 26 Section 4.03 Realization Upon Defaulted Mortgage Loans................... 27 Section 4.04 Establishment of Custodial Accounts; Deposits in Custodial Accounts.................................... 28 Section 4.05 Permitted Withdrawals From the Custodial Account............ 29 Section 4.06 Establishment of Escrow Accounts; Deposits in Escrow Accounts.......................................... 30 Section 4.07 Permitted Withdrawals From Escrow Account................... 30 Section 4.08 Transfer of Accounts........................................ 31 Section 4.09 Payment of Taxes, Insurance and Other Charges; Maintenance of PMI Policies; Collections Thereunder...... 31 Section 4.10 Maintenance of Hazard Insurance............................. 32 Section 4.11 Business Continuity Plan/Disaster Recovery.................. 32 Section 4.12 Fidelity Bond; Errors and Omissions Insurance............... 33 Section 4.13 Title, Management and Disposition of REO Property........... 33 Section 4.14 Notification of Adjustments................................. 34 Section 4.15 Notification of Maturity Date............................... 34 Section 4.16 Assumption Agreements....................................... 35 Section 4.17 Satisfaction of Mortgages and Release of Collateral Files... 35 Section 4.18 Servicing Compensation...................................... 36 i ARTICLE V. PROVISIONS OF PAYMENTS AND REPORTS TO PURCHASER Section 5.01 Distributions............................................... 37 Section 5.02 Periodic Reports to the Purchaser........................... 38 Section 5.03 Monthly Advances by Countrywide............................. 38 Section 5.04 Annual Statement as to Compliance........................... 39 Section 5.05 Annual Independent Certified Public Accountants' Servicing Report......................................... 39 Section 5.06 Purchaser's Access to Countrywide's Records................. 39 Section 5.07 Compliance with REMIC Provisions............................ 40 ARTICLE VI. COVENANTS BY COUNTRYWIDE Section 6.01 Indemnification by Countrywide.............................. 40 Section 6.02 Third Party Claims.......................................... 40 Section 6.03 Merger or Consolidation of Countrywide...................... 40 Section 6.04 Limitation on Liability of Countrywide and Others........... 41 Section 6.05 No Transfer of Servicing.................................... 42 Section 6.06 Provision of Information.................................... 42 ARTICLE VII. TERMINATION OF COUNTRYWIDE AS SERVICER Section 7.01 Termination Due to an Event of Default...................... 42 Section 7.02 Termination without Cause................................... 44 Section 7.03 Termination by Other Means.................................. 44 ARTICLE VIII. MISCELLANEOUS Section 8.01 Notices..................................................... 45 Section 8.02 Sale Treatment.............................................. 45 Section 8.03 Exhibits.................................................... 45 Section 8.04 General Interpretive Principles............................. 45 Section 8.05 Reproduction of Documents................................... 46 Section 8.06 Further Agreements.......................................... 46 Section 8.07 Assignment of Mortgage Loans by the Purchaser; Whole Loan Transfer; Pass-Through Transfers.............. 46 Section 8.08 Conflicts between Transaction Documents..................... 48 Section 8.09 Governing Law............................................... 48 Section 8.10 Severability Clause......................................... 48 Section 8.11 Successors and Assigns...................................... 49 Section 8.12 Confidentiality............................................. 49 Section 8.13 Solicitation of Mortgagors.................................. 49 Section 8.14 Relationship of the Parties................................. 50 Section 8.15 Entire Agreement............................................ 51 Exhibit A Schedule of Collateral Documents............................ A-1 ii Exhibit B Form of Purchase Confirmation............................... B-1 Exhibit C Form of Custodial Agreement................................. C-1 Exhibit D Form of Trade Confirmation.................................. D-1 iii MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT This Master Mortgage Loan Purchase and Servicing Agreement is made and entered into as of April 1, 2003 (the "Agreement"), between Countrywide Home Loans, Inc., having an address at 4500 Park Granada, Calabasas, California 91302 ("Countrywide"), and Banc of America Mortgage Capital Corporation, having an address at 214 N. Tryon Street, 21st Floor, Charlotte, North Carolina 28255 (the "Purchaser"). RECITALS The Purchaser has agreed to purchase from Countrywide and Countrywide has agreed to sell from time to time to the Purchaser all of Countrywide's right, title and interest, excluding servicing rights, in and to those certain mortgage loans identified in a Purchase Confirmation (as defined below) executed by Countrywide and the Purchaser. This Agreement is intended to set forth the terms and conditions by which Countrywide shall transfer and the Purchaser shall acquire such mortgage loans. In consideration of the promises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Countrywide and the Purchaser agree as follows: ARTICLE I. DEFINITIONS Unless the context requires otherwise, all capitalized terms used herein shall have the meanings assigned to such terms in this Article I unless defined elsewhere herein. Any capitalized term used or defined in a Purchase Confirmation that conflicts with the corresponding definition set forth herein shall supersede such term. Accepted Servicing Practices: With respect to any Mortgage Loan, procedures (including collection procedures) that comply with applicable federal, state and local law and that Countrywide customarily employs and exercises in servicing and administering mortgage loans for its own account and that are in accordance with accepted mortgage servicing practices of prudent mortgage lending institutions which service mortgage loans of the same type as the Mortgage Loans in the jurisdiction where the related Mortgaged Property is located. Adjustable Rate Mortgage Loan: Any Mortgage Loan in which the related Mortgage Note contains a provision whereby the Mortgage Interest Rate is adjusted from time to time in accordance with the terms of such Mortgage Note. Agency: Either Fannie Mae or Freddie Mac. Agreement: This Master Mortgage Loan Purchase and Servicing Agreement, including all exhibits and supplements hereto, and all amendments hereof. Appraised Value: The value of the related Mortgaged Property as set forth in an appraisal made in connection with the origination of a Mortgage Loan or the sale price of the related Mortgaged Property if the proceeds of such Mortgage Loan were used to purchase such Mortgaged Property, whichever is less. Assignment of Mortgage: 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 the sale of the Mortgage to the Purchaser. Balloon Mortgage Loan: Any Mortgage Loan wherein the Mortgage Note matures prior to full amortization and requires a final and accelerated payment of principal. Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking and savings and loan institutions in either the State of California or the State of Texas are authorized or obligated by law or executive order to be closed. Cash Liquidation: Recovery of all cash proceeds by Countrywide with respect to the termination of any defaulted Mortgage Loan other than a Mortgage Loan which became an REO Property, including all PMI Proceeds, Government Insurance Proceeds, Other Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds and other payments or recoveries whether made at one time or over a period of time which Countrywide deems to be finally recoverable, in connection with the sale or assignment of such Mortgage Loan, trustee's sale, foreclosure sale or otherwise. Closing: The consummation of the sale and purchase of each Mortgage Loan Package. Closing Date: The date on which the purchase and sale of the Mortgage Loans constituting a Mortgage Loan Package is consummated, as set forth in the Trade Confirmation or Purchase Confirmation. Code: The Internal Revenue Code of 1986, as it may be amended from time to time or any successor statute thereto, and applicable U.S. Department of the Treasury regulations issued pursuant thereto. Collateral Documents: The collateral documents pertaining to each Mortgage Loan as set forth in Exhibit A hereto. Collateral File: With respect to each Mortgage Loan, a file containing each of the Collateral Documents. Condemnation Proceeds: All awards or settlements in respect of a taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation. Conventional Mortgage Loan: A Mortgage Loan that is not insured by the FHA or guaranteed by the VA. Convertible Mortgage Loan: Any Adjustable Rate Mortgage Loan that contains a provision whereby the Mortgagor is permitted to convert the Mortgage Loan to a fixed-rate mortgage loan in accordance with the terms of the related Mortgage Note. Co-op Shares: Shares issued by private non-profit housing corporations. Countrywide: Countrywide Home Loans, Inc., or any successor or assign to Countrywide under this Agreement as provided herein. 2 Credit File: The file retained by Countrywide that includes the mortgage loan documents pertaining to a Mortgage Loan including copies of the Collateral Documents together with the credit documentation relating to the origination of such Mortgage Loan, which Credit File may be maintained by Countrywide on microfilm or any other comparable medium. Custodial Account: The account or accounts created and maintained pursuant to Section 4.04, each of which shall be an Eligible Account. Custodial Agreement: The agreement, substantially in the form of Exhibit C, that governs the retention of the Collateral Files by the Custodian with respect to a Closing Date. Custodian: Treasury Bank, National Association, its successor in interest or assign, or such other custodian that may be designated in the Custodial Agreement from time to time. Cut-off Date: The first day of the month in which the related Closing Date occurs or such other date as may be set forth in the related Trade Confirmation or Purchase Confirmation. Cut-off Date Balance: The aggregate scheduled unpaid principal balance of the Mortgage Loans in a Mortgage Loan Package as of the Cut-off Date, after application of (i) scheduled payments of principal due on such Mortgage Loans on or before such Cut-off Date, whether or not collected, and (ii) any Principal Prepayments received from the Mortgagor prior to the Cut-off Date. Determination Date: The fifteenth calendar day of each month (or if such fifteenth day is not a Business Day, the first Business Day immediately following). Due Date: The day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace. Due Period: With respect to each Remittance Date, the period commencing on the second day of the month preceding the month of the Remittance Date and ending on the first day of the month of the Remittance Date. Eligible Account: An account or accounts (i) maintained with a depository institution the short term debt obligations of which are rated by a nationally recognized statistical rating agency in one of its two (2) highest rating categories at the time of any deposit therein, (ii) the deposits of which are insured up to the maximum permitted by the FDIC, or (iii) maintained with an institution and in a manner acceptable to an Agency. Escrow Account: The separate trust account or accounts created and maintained pursuant to Section 4.06, each of which shall be an Eligible Account. Escrow Payments: The amounts constituting ground rents, taxes, assessments, water rates, mortgage insurance premiums, fire and hazard insurance premiums and other payments required to be escrowed by the Mortgagor with the Mortgagee pursuant to any Mortgage Loan. Event of Default: Any one of the conditions or circumstances enumerated in Section 7.01. FDIC: The Federal Deposit Insurance Corporation, or any successor thereto. 3 FHA: The Federal Housing Administration. Fannie Mae: The Federal National Mortgage Association or any successor organization. Fidelity Bond: A fidelity bond to be maintained by Countrywide pursuant to Section 4.12. Fixed Rate Mortgage Loan: Any Mortgage Loan wherein the Mortgage Interest Rate set forth in the Mortgage Note is fixed for the term of such Mortgage Loan. Freddie Mac: The Federal Home Loan Mortgage Corporation or any successor organization. Funding Deadline: With respect to each Closing Date, one o'clock (1:00) p.m. New York time. GNMA: The Government National Mortgage Association or any successor organization. Government Insurance Proceeds: With respect to each Government Mortgage Loan, payments made pursuant to a MIC or LGC. Government Mortgage Loan: A Mortgage Loan insured by the FHA or guaranteed by the VA. Gross Margin: With respect to each Adjustable Rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note, which amount is added to the index in accordance with the terms of the related Mortgage Note to determine on each Interest Adjustment Date, the Mortgage Interest Rate for such Mortgage Loan. HUD: The Department of Housing and Urban Development or any federal agency or official thereof which may from time to time succeed to the functions thereof. Index: With respect to each Adjustable Rate Mortgage Loan, the index set forth in the related Mortgage Note for the purpose of calculating the interest rate thereon. Interest Adjustment Date: With respect to an Adjustable Rate Mortgage Loan, the date on which an adjustment to the Mortgage Interest Rate on a Mortgage Note becomes effective. LGC: A loan guarantee certificate issued by the VA. LTV: With respect to any Mortgage Loan, the ratio (expressed as a percentage) of the Stated Principal Balance (or the original principal balance, if so indicated) of such Mortgage Loan as of the date of determination to the Appraised Value of the related Mortgaged Property. Late Collections: With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Liquidation Proceeds, Condemnation Proceeds, PMI Proceeds, Government Insurance Proceeds, Other Insurance Proceeds, proceeds of any REO Disposition or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered. 4 Lifetime Rate Cap: With respect to each Adjustable Rate Mortgage Loan, the absolute maximum Mortgage Interest Rate payable, above which the Mortgage Interest Rate shall not be adjusted, as set forth in the related Mortgage Note and Mortgage Loan Schedule. Liquidation Proceeds: Amounts, other than PMI Proceeds, Government Insurance Proceeds, Condemnation Proceeds and Other Insurance Proceeds, received by Countrywide in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than amounts received following the acquisition of an REO Property pursuant to Section 4.13. LPMI Fee: The portion of the Mortgage Interest Rate relating to an LPMI Loan, which is set forth on the related Mortgage Loan Schedule, to be retained by Countrywide to pay the premium due on the PMI Policy with respect to such LPMI Loan. LPMI Loan: Any Mortgage Loan with respect to which Countrywide is responsible for paying the premium due on the related PMI Policy with the proceeds generated by the LPMI Fee relating to such Mortgage Loan, as set forth on the related Mortgage Loan Schedule. MERS: Mortgage Electronic Registration Systems, Inc. or any successor or assign thereto. MERS Mortgage Loan: Any Mortgage Loan registered with MERS on the MERS System. MERS System: The electronic system of recording transfers of mortgages maintained by MERS. MIC: A mortgage insurance certificate issued by HUD. Missing Credit Documents: As defined in Section 2.04 hereof. Monthly Advance: The advances made or required to be made by Countrywide on any Remittance Date pursuant to Section 5.03. Monthly Payment: The scheduled monthly payment of principal and interest on a Mortgage Loan. Mortgage: The mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first lien on an unsubordinated estate in fee simple in real property securing the Mortgage Note. Mortgage Interest Rate: The annual rate at which interest accrues on any Mortgage Loan and, with respect to an Adjustable Rate Mortgage Loan, as adjusted from time to time in accordance with the provisions of the related Mortgage Note. Mortgage Loan: Any mortgage loan that is sold pursuant to this Agreement, as evidenced by such mortgage loan's inclusion on the related Mortgage Loan Schedule, which mortgage loan includes the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, PMI Proceeds (if applicable), Government Insurance Proceeds (if applicable), Other Insurance Proceeds, REO Disposition proceeds, and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan, excluding the 5 servicing rights relating thereto. Unless the context requires otherwise, any reference to the Mortgage Loans in this Agreement shall refer to the Mortgage Loans constituting a Mortgage Loan Package. Mortgage Loan Package: The Mortgage Loans sold to the Purchaser pursuant to a Purchase Confirmation. Mortgage Loan Remittance Rate: With respect to each Mortgage Loan, the interest rate payable to the Purchaser on each Remittance Date which shall equal the Mortgage Interest Rate less the Servicing Fee and the LPMI Fee, if applicable. Mortgage Loan Schedule: With respect to each Mortgage Loan Package, the schedule of Mortgage Loans, in the form attached hereto as Exhibit E, included therein and made a part of the related Purchase Confirmation, which schedule shall include, the following information with respect to each Mortgage Loan: (i) information sufficient to uniquely identify such Mortgage Loan; (ii) the Mortgage Interest Rate as of the Cut-off Date; (iii) with respect to any Adjustable Rate Mortgage Loan, the Gross Margin, the Periodic Rate Cap, the Lifetime Rate Cap, the next Interest Adjustment Date and whether such Adjustable Rate Mortgage Loan is a Convertible Mortgage Loan, (iv) with respect to a LPMI Loan, the LPMI Fee, (v) the LTV at origination; (vi) the remaining term as of the Cut-off Date and the original term of such Mortgage Loan, and (vii) any other information pertaining to such Mortgage Loan as may be reasonably requested by the Purchaser. The information set forth in the Mortgage Loan Schedule relating to the Mortgage Interest Rate, with respect to any LPMI Loan shall have a separate field for Mortgage Interest Rate, exclusive of the LPMI Fee. Mortgage Note: The note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage. Mortgaged Property: The real property securing repayment of the debt evidenced by a Mortgage Note. Mortgagee: The mortgagee or beneficiary named in the Mortgage and the successors and assigns of such mortgagee or beneficiary. Mortgagor: The obligor on a Mortgage Note. OCC: The Office of the Comptroller of the Currency. Officer's Certificate: A certificate signed by the Chairman of the Board or the Vice Chairman of the Board or the President or a Vice President or an Assistant Vice President and by the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries of Countrywide, and delivered to the Purchaser as required by this Agreement. Opinion of Counsel: A written opinion of counsel, who may be an employee of the party on behalf of whom the opinion is being given. Other Insurance Proceeds: Proceeds of any title policy, hazard policy, pool policy or other insurance policy covering a Mortgage Loan, other than the PMI Policy, if any, to the extent such proceeds are not to be applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that Countrywide would follow in servicing mortgage loans held for its own account. 6 Pass-Through Transfer: The sale or transfer of some or all of the Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly issued or privately placed mortgage-backed securities transaction. Payment Adjustment Date: As to any Adjustable Rate Mortgage Loan, the date on which an adjustment to the Monthly Payment on a Mortgage Note becomes effective. Periodic Rate Cap: With respect to each Adjustable Rate Mortgage Loan, the provision of each Mortgage Note which provides for an absolute maximum amount by which the Mortgage Interest Rate therein may increase or decrease on an Adjustment Date above or below the Mortgage Interest Rate previously in effect, equal to the rate set forth on the Mortgage Loan Schedule per adjustment. Person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. PMI Policy: A policy of private mortgage guaranty insurance relating to a Mortgage Loan and issued by a Qualified Insurer. PMI Proceeds: Proceeds of any PMI Policy. Preliminary Mortgage Loan Package: The mortgage loans identified or described in a Trade Confirmation, which, subject to the Purchaser's due diligence as contemplated in Section 2.01, are intended to be sold under this Agreement as a Mortgage Loan Package. Preliminary Mortgage Loans: The mortgage loans constituting a Preliminary Mortgage Loan Package. Prepayment Interest Shortfall Amount: With respect to any Remittance Date and Mortgage Loan that was subject to a Principal Prepayment in full or in part during the related Principal Prepayment Period, which Principal Prepayment was applied to such Mortgage Loan prior to such Mortgage Loan's Due Date in such calendar month, the amount of interest (at the Mortgage Loan Remittance Rate) that would have accrued on the amount of such Principal Prepayment during the period commencing on the date as of which such Principal Prepayment was applied to such Mortgage Loan and ending on the day immediately preceding such Due Date, inclusive. Principal Prepayment: Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, excluding any prepayment penalty or premium thereon (unless the Purchase Confirmation provides otherwise), which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment. Principal Prepayment Period: As to any Remittance Date, the calendar month preceding the month of distribution. Purchase Confirmation: A letter agreement, substantially in the form of Exhibit B hereto, executed by Countrywide and the Purchaser in connection with the purchase and sale of each Mortgage Loan Package, which sets forth the terms relating thereto including a description of the 7 related Mortgage Loans (including the Mortgage Loan Schedule), the purchase price for such Mortgage Loans, the Closing Date and the Servicing Fee Rate. Purchase Proceeds: The amount paid on the related Closing Date by the Purchaser to Countrywide in exchange for the Mortgage Loan Package purchased on such Closing Date as set forth in the applicable Purchase Confirmation. Purchaser: The Person identified as the "Purchaser" in the preamble to this Agreement or its successor in interest or any successor or assign to the Purchaser under this Agreement as herein provided. Any reference to "Purchaser" as used herein shall be deemed to include any designee of the Purchaser, so long as such designation was made in accordance with the limitations set forth in Section 8.07. Qualified Insurer: An insurance company duly qualified as such under the laws of the states in which the Mortgaged Properties are located, duly authorized and licensed in such states to transact the applicable insurance business and to write the insurance provided, which insurer is approved in such capacity by an Agency. Qualified Substitute Mortgage Loan: A mortgage loan that must, on the date of such substitution, (i) have an unpaid principal balance, after deduction of all scheduled payments due in the month of substitution (or if more than one (1) mortgage loan is being substituted, an aggregate principal balance), not in excess of the unpaid principal balance of the repurchased Mortgage Loan (the amount of any shortfall will be deposited in the Custodial Account by Countrywide in the month of substitution); (ii) have a Mortgage Interest Rate not less than, and not more than 1% greater than, the Mortgage Interest Rate of the repurchased Mortgage Loan; (iii) have a remaining term to maturity not greater than, and not more than one year less than, the maturity date of the repurchased Mortgage Loan; (iv) comply with each representation and warranty (respecting individual Mortgage Loans) set forth in Section 3.02 hereof; (v) shall be the same type as the Mortgage Loan (i.e., a Convertible Mortgage Loan or a Fixed Rate Mortgage Loan). Reconstitution Date: The date on which any or all of the Mortgage Loans serviced under this Agreement shall be removed from this Agreement and reconstituted as part of a Whole Loan Transfer or a Pass-Through Transfer pursuant to Section 8.07 hereof. The Reconstitution Date shall be such date which the Purchaser shall designate. On such date, the Mortgage Loans transferred shall cease to be covered by this Agreement and Countrywide's servicing responsibilities shall cease under this Agreement with respect to the related transferred Mortgage Loans. REMIC: A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. REMIC Provisions: Provisions of the federal income tax law relating to a REMIC, which appear at Section 860A through 860G of Subchapter M of Chapter 1, Subtitle A of the Code, and related provisions, and regulations, rulings or pronouncements promulgated thereunder, as the foregoing may be in effect from time to time. Remittance Date: The eighteenth (18th) day of any month, beginning with the month next following the month in which the related Cut-off Date occurs, or if such eighteenth (18th) day is not a Business Day, the first Business Day immediately following. 8 REO Disposition: The final sale by Countrywide of any REO Property or the transfer of the management of such REO Property to the Purchaser as set forth in Section 4.13. REO Property: A Mortgaged Property acquired by Countrywide on behalf of the Purchaser as described in Section 4.13. Repurchase Price: With respect to any Mortgage Loan, a price equal to (i) the Stated Principal Balance of the Mortgage Loan plus (ii) interest on such Stated Principal Balance at the Mortgage Loan Remittance Rate from the last date through which interest has been paid and distributed to the Purchaser to the date of repurchase, less amounts received or advanced in respect of such repurchased Mortgage Loan which such amounts are being held in the Custodial Account for distribution in the month of repurchase, plus (iii) any cost and damages incurred by the trust in connection with any violation by such Mortgage Loan of any predatory or abusive lending law. Securities Act of 1933 or the 1933 Act: The Securities Act of 1933, as amended. Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in the performance by Countrywide of its servicing obligations, including the cost of (i) the preservation, restoration and protection of the Mortgaged Property, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management and liquidation of the REO Property, (iv) with respect to Government Mortgage Loans, amounts advanced to the Purchaser for which Countrywide may be entitled to receive reimbursement from a government agency and (v) compliance with the obligations under this Agreement including Section 4.09. Servicing Fee: With respect to each Mortgage Loan, the amount of the annual fee the Purchaser shall pay to Countrywide, which shall, for a period of one full month, be equal to one-twelfth of the product of (i) the Servicing Fee Rate and (ii) the Stated Principal Balance of such Mortgage Loan. Such fee shall be payable monthly, computed on the basis of the same principal amount and period respecting which any related interest payment on a Mortgage Loan is computed. The obligation of the Purchaser to pay the Servicing Fee is limited to, and the Servicing Fee is payable solely from, the interest portion of such Monthly Payment collected by Countrywide, or as otherwise provided herein. Subject to the foregoing, and with respect to each Mortgage Loan, Countrywide shall be entitled to receive its Servicing Fee through the disposition of any related REO Property and the Servicing Fee payable with respect to any REO Property shall be based on the Stated Principal Balance of the related Mortgage Loan at the time of foreclosure. Servicing Fee Rate: With respect to any Mortgage Loan, the rate per annum set forth in the applicable Trade Confirmation or Purchase Confirmation. Servicing LP: Countrywide Home Loans Servicing LP, a Texas limited partnership, and its successors and assigns, in its capacity as servicer hereunder. Servicing Officer: Any officer of Countrywide involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name appears on a list of servicing officers furnished by Countrywide to Purchaser upon request, as such list may from time to time be amended. 9 Stated Principal Balance: With respect to each Mortgage Loan as of any date of determination: (i) the unpaid principal balance of the Mortgage Loan at the related Cut-off Date after giving effect to payments of principal due on or before such date, whether or not received, minus (ii) all amounts previously distributed to the Purchaser with respect to the related Mortgage Loan representing payments or recoveries of principal or advances in lieu thereof. Trade Confirmation: A letter agreement substantially in the form of Exhibit D hereto executed by Countrywide and the Purchaser prior to the applicable Closing Date confirming the terms of a prospective purchase and sale of a Mortgage Loan Package. Transaction Documents: With respect to any Mortgage Loan, the related Trade Confirmation, the related Purchase Confirmation and this Agreement. Underwriting Guidelines: As defined in the respective Trade Confirmation. Updated LTV: With respect to any Mortgage Loan, the outstanding principal balance of such Mortgage Loan as of the date of determination divided by the value of the related Mortgaged Property as determined by a recent appraisal of the Mortgaged Property. VA: The Department of Veterans Affairs. Whole Loan Transfer: Any sale or transfer of some or all of the Mortgage Loans by the Purchaser to a third party which sale or transfer is not a Pass-Through Transfer. ARTICLE II. PRE-CLOSING AND CLOSING PROCEDURES SECTION 2.01 DUE DILIGENCE BY THE PURCHASER. (a) Review of Credit File. Prior to the Closing Date, Countrywide shall make available to the Purchaser the Credit File for each Preliminary Mortgage Loan in the related Preliminary Mortgage Loan Package. The Purchaser shall have the right to review the Credit File for each such Preliminary Mortgage Loan, at Countrywide's offices or such other location agreed upon by the Purchaser and Countrywide, for the purpose of determining whether each Preliminary Mortgage Loan conforms in all material respects to the applicable terms contained in the Transaction Documents, which determination shall be made in the Purchaser's reasonable and good faith discretion. In the event that the Purchaser rejects any Preliminary Mortgage Loan based on such review, Countrywide shall have the right, in its sole discretion, to substitute replacement Preliminary Mortgage Loans satisfying the requirements set forth above, and the Purchaser shall have the right to review any such replacement Preliminary Mortgage Loan(s) in the manner contemplated above. The Purchaser shall use its reasonable best efforts to conduct its due diligence, and to convey the results thereof to Countrywide, within the time and in the manner necessary to permit Countrywide to rebut or cure any Preliminary Mortgage Loan or to substitute replacement Preliminary Mortgage Loans as permitted herein. (b) Rejection of Preliminary Mortgage Loans. Without limiting the generality of the foregoing, in the event that the Purchaser rejects Preliminary Mortgage Loans (i) comprising more than fifteen percent (15%) of the related Preliminary Mortgage Loan Package (as measured by unpaid principal balance), or (ii) for reasons other than as permitted under this Agreement or the Trade Confirmation, Countrywide may, in its reasonable and good faith discretion, rescind its 10 offer to sell any of the Preliminary Mortgage Loans relating thereto to the Purchaser and Countrywide shall have no liability therefor. SECTION 2.02 IDENTIFICATION OF MORTGAGE LOAN PACKAGE. At least three (3) Business Days prior to the Closing Date, the Purchaser shall identify those Preliminary Mortgage Loans that the Purchaser intends to be included in the Mortgage Loan Package. SECTION 2.03 POST-CLOSING DUE DILIGENCE. In the event that the Purchaser fails to complete its due diligence, as contemplated in Section 2.01, with respect to any Preliminary Mortgage Loan, the Purchaser and Countrywide may nonetheless mutually agree to the purchase and sale of such Mortgage Loan as contemplated hereunder, and upon such mutual agreement, if the Purchaser provides notice to Countrywide of such Mortgage Loan and such Mortgage Loan is identified as such in the Purchase Confirmation (as used therein, the "Pending Mortgage Loans"), the Purchaser shall have the right to review the related Credit File for such Mortgage Loan within ten (10) Business Days after the Closing Date and, based on such review and within such ten (10) Business Days period, request that Countrywide repurchase any Pending Mortgage Loan that the Purchaser reasonably and in good faith contends does not conform in all material respects to the applicable terms of the Transaction Documents. Countrywide shall have ten (10) Business Days from the date of its receipt of such request to either (a) repurchase such Mortgage Loan at the purchase price for such Mortgage Loan (as calculated under the related Transaction Documents, as applicable) plus accrued and unpaid interest, or (b) provide evidence reasonably satisfactory to the Purchaser that such Mortgage Loan does in fact conform to the terms of the Transaction Documents, as applicable. In the event that Countrywide must repurchase any Mortgage Loan in accordance with this Section 2.03 or pursuant to any other applicable term contained in the Transaction Documents, Countrywide may, at its option, substitute replacement Mortgage Loans conforming in all material respects to the applicable terms contained in the related Transaction Documents. The rights and remedies set forth in this Section 2.03 are in addition to those set forth in Section 3.03. SECTION 2.04 CREDIT DOCUMENT DEFICIENCIES IDENTIFIED DURING DUE DILIGENCE. If, with respect to a Mortgage Loan Package, the related Purchase Confirmation identifies any Mortgage Loan for which the related Credit File is missing material documentation (as used therein, the "Missing Credit Documents"), Countrywide agrees to use its best efforts to procure each such Missing Credit Document within thirty (30) days following a written notice of such deficiency. In the event of a default by a Mortgagor or any material impairment of the Mortgaged Property, in either case directly arising from a breach of Countrywide's obligation to deliver the Missing Credit Document within the time specified above, Countrywide shall repurchase such Mortgage Loan at the Repurchase Price. SECTION 2.05 DELIVERY OF COLLATERAL FILES. (a) Custodial Agreement. Countrywide shall, on or before three (3) Business Days prior to the related Closing Date, deliver and release to the Custodian the Collateral File for each Mortgage Loan in the Mortgage Loan Package and shall execute, and cause the Custodian to execute, the Custodial Agreement. Countrywide shall pay all fees and expenses of the Custodian 11 prior to the related Closing Date; however, it is understood that after the related Closing Date, the Purchaser shall be solely responsible for fees and expenses of the Custodian. (b) Missing Collateral Documents. In the event that any of the original Collateral Documents set forth in clauses (3) through (7) of Exhibit A hereto are not delivered to the Custodian on or before the Closing Date (each, a "Missing Collateral Document"), then Countrywide shall have (i) with respect to any Missing Collateral Document sent for recording, nine (9) months from the related Closing Date, or (ii) with respect to all other Missing Collateral Documents, one-hundred twenty (120) days from the Closing Date, to deliver to the Purchaser such Missing Collateral Documents; provided, however, that with respect to any Government Mortgage Loan, Countrywide agrees to procure each such Missing Collateral Document within sixty (60) days following the FHA's or the VA's, as applicable, deadline for procuring such documents. In the event the public recording office is delayed in returning any original document, Countrywide shall deliver to the Custodian within one hundred eighty (180) days of its submission for recordation, a copy of such document and an Officer's Certificate, which shall (i) identify the recorded document; (ii) state that the recorded document has not been delivered to the Custodian due solely a delay by the public recording office, and (iii) state the amount of time generally required by the applicable recording office to record and return a document submitted for recordation. Notwithstanding the foregoing, Countrywide shall not be deemed to be in breach of this Agreement if its failure to deliver to the Purchaser any Missing Collateral Document within the time specified above is due solely to (i) the failure of the applicable recorder's office to return a Missing Collateral Document that was sent for recording or (ii) the failure of the title insurer to issue and deliver the original mortgagee title policy, except where such refusal to issue the policy is based on a claim that the title insurer is under no obligation to issue such policy. However, if Countrywide cannot deliver such original or clerk-certified copy of any document submitted for recordation to the appropriate public recording office within the specified time for any reason, within thirty (30) days after receipt of written notification of such failure from the Purchaser, Countrywide shall repurchase the related Mortgage Loan at the price and in the manner specified in Section 3.03. (c) Other Documents. Countrywide shall forward to the Purchaser in a timely manner any original documents evidencing an assumption, modification, consolidation or extension of any Mortgage Loan entered into in accordance with this Agreement upon execution and, if applicable, recordation thereof. SECTION 2.06 PURCHASE CONFIRMATION. Upon confirmation with the Purchaser of a Mortgage Loan Package, Countrywide shall prepare and deliver to the Purchaser for execution the related Purchase Confirmation, executed by an authorized signatory of Countrywide. SECTION 2.07 CLOSING. The Closing of each Mortgage Loan Package shall take place on the related Closing Date and shall be subject to the satisfaction of each of the following conditions, unless otherwise waived by the prejudiced party(ies): (a) All of the representations and warranties of Countrywide under this Agreement shall be true and correct in all material respects as of the related Closing Date and no event shall 12 have occurred that, with notice or the passage of time, would constitute a default under this Agreement; (b) All of the representations and warranties of the Purchaser under this Agreement shall be true and correct in all material respects as of the related Closing Date and no event shall have occurred that, with notice or the passage of time, would constitute a default under this Agreement; and (c) Both parties shall have executed the related Purchase Confirmation and Custodial Agreement. SECTION 2.08 PAYMENT OF THE PURCHASE PROCEEDS. Subject to the conditions set forth in Section 2.07, and in consideration for the Mortgage Loan Package to be purchased by the Purchaser on the related Closing Date, the Purchaser shall pay to Countrywide on such Closing Date the Purchase Proceeds by wire transfer of immediately available funds to the account designated by Countrywide on or before the Funding Deadline. SECTION 2.09 ENTITLEMENT TO PAYMENTS ON THE MORTGAGE LOANS. With respect to any Mortgage Loan purchased hereunder, the Purchaser shall be entitled to (a) all scheduled principal due after the related Cut-off Date; (b) all other recoveries of principal collected after the related Cut-off Date, except for (i) recoveries of principal collected after the Cut-off Date and prior to the Closing Date that are reflected in the Mortgage Loan Schedule, and (ii) all scheduled payments of principal due on or before the related Cut-off Date; and (c) all payments of interest on such Mortgage Loan net of interest at the Servicing Fee Rate and the LPMI Fee, if applicable (minus that portion of any such payment that is allocable to the period prior to the related Cut-off Date). SECTION 2.10 PAYMENT OF COSTS AND EXPENSES. The Purchaser and Countrywide shall each bear its own costs and expenses in connection with the purchase and sale of the Mortgage Loans including any commissions due its sales personnel, the legal fees and expenses of its attorneys and any due diligence expenses. Without limiting the generality of the foregoing, any costs and expenses incurred in connection with recording the Assignment of Mortgage or any subsequent assignment thereof shall be paid for by the Purchaser. SECTION 2.11 MERS MORTGAGE LOANS AND THE MERS SYSTEM. (a) Notwithstanding anything contained in this Agreement to the contrary, with respect to any MERS Mortgage Loan sold to the Purchaser by Countrywide pursuant to this Agreement, Countrywide shall cause the registration of such MERS Mortgage Loan to be changed on the MERS System to reflect the Purchaser as the beneficial owner of such MERS Mortgage Loan. The foregoing obligation of Countrywide shall be in lieu of Countrywide delivering to the Purchaser an Assignment of Mortgage for such MERS Mortgage Loan. With respect to the Mortgage and intervening assignments related to any MERS Mortgage Loan, Countrywide shall, in accordance with Section 2.05, provide the Purchaser with the original Mortgage with evidence of registration with MERS and, as applicable, the originals of all 13 intervening assignments of the Mortgage with evidence of recording thereon prior to the registration of the Mortgage Loan with the MERS System. (b) In connection with the MERS System, Countrywide is hereby authorized and empowered, in its own name, to register, or change the registration of any MERS Mortgage Loan to effectuate such registration. Further, Countrywide is authorized to cause the removal of any MERS Mortgage Loan from such registration, and to execute and deliver on behalf of itself and the Purchaser, any and all instruments of assignment and comparable instruments with respect to any registration and/or removal of such MERS Mortgage Loan on or from the MERS System. ARTICLE III. REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH SECTION 3.01. REPRESENTATIONS AND WARRANTIES RESPECTING COUNTRYWIDE. Countrywide represents, warrants and covenants to the Purchaser that, as of each Closing Date: (a) Organization and Standing. Countrywide is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and is qualified and licensed to transact business in and is in good standing under the laws of each state where each Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan and the servicing of the Mortgage Loan in accordance with the terms of this Agreement; (b) Due Authority. Countrywide has the full power and authority to (i) perform and enter into and consummate all transactions contemplated by this Agreement and (ii) to sell each Mortgage Loan; the execution, delivery and performance of this Agreement (including all instruments of transfer to be delivered pursuant to this Agreement) by Countrywide and the consummation of the transactions contemplated hereby have been duly and validly authorized; this Agreement evidences the valid, binding and enforceable obligation of Countrywide; and all requisite corporate action has been taken by Countrywide to make this Agreement valid and binding upon Countrywide in accordance with its terms; (c) No Conflict. Neither the acquisition or origination of the Mortgage Loans by Countrywide, the sale of the Mortgage Loans to the Purchaser, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement, will conflict with or result in a breach of any of the terms, conditions or provisions of Countrywide's certificate of incorporation or by-laws or result in a material breach of any legal restriction or any material agreement or instrument to which Countrywide is now a party or by which it is bound, or constitute a material default or result in an acceleration under any of the foregoing, or result in the violation of any material law, rule, regulation, order, judgment or decree to which Countrywide or its property is subject; (d) Approved Seller. Countrywide is an approved seller/servicer for each Agency in good standing and is a mortgagee approved by the Secretary of HUD. No event has occurred, including a change in insurance coverage, which would make Countrywide unable to comply with Fannie Mae, Freddie Mac or HUD eligibility requirements; 14 (e) No Pending Litigation. There is no action, suit, proceeding, investigation or litigation pending or, to Countrywide's knowledge, threatened, which either in any one instance or in the aggregate, if determined adversely to Countrywide would materially and adversely affect the sale of the Mortgage Loans to the Purchaser, the ability of Countrywide to service the Mortgage Loans hereunder in accordance with the terms hereof, or Countrywide's ability to perform its obligations under this Agreement; and (f) No Consent Required. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by Countrywide, of or compliance by Countrywide with, this Agreement or the consummation of the transactions contemplated by this Agreement, or if required, such consent, approval, authorization or order has been obtained prior to the related Closing Date. SECTION 3.02. REPRESENTATIONS AND WARRANTIES REGARDING INDIVIDUAL MORTGAGE LOANS. With respect to each Mortgage Loan (unless otherwise specified below), Countrywide represents and warrants to the Purchaser as of the related Closing Date that: (a) Mortgage Loan Schedule. The information contained in the Mortgage Loan Schedule and the related electronic data file provided on or one (1) Business Day prior to the related Closing Date is complete, true and correct in all material respects; (b) No Delinquencies or Advances. All payments required to be made prior to the related Cut-off Date for such Mortgage Loan under the terms of the Mortgage Note have been made; Countrywide has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the owner of the Mortgaged Property subject to the Mortgage, directly or indirectly, for the payment of any amount required by the Mortgage Loan; and there has been no delinquency of more than thirty (30) days in any payment by the Mortgagor thereunder during the last twelve (12) months; (c) Taxes, Assessments, Insurance Premiums and Other Charges. There are no delinquent taxes, assessments, ground rents, insurance premiums, leasehold payments, and to the best of Countrywide's knowledge, water charges, sewer rents or other outstanding charges affecting the related Mortgaged Property; (d) No Modifications. The terms of the Mortgage Note and the Mortgage have not been impaired, waived, altered or modified in any respect, except by written instruments that have been or will be recorded, if necessary to protect the interests of the Purchaser, and that have been or will be delivered to the Purchaser, all in accordance with this Agreement. The substance of any such waiver, alteration or modification has been approved by the primary mortgage guaranty insurer, if any, and by the title insurer, to the extent required by the related policy and its terms are reflected on the Mortgage Loan Schedule. No Mortgagor has been released, in whole or in part, except in connection with an assumption agreement approved by the primary mortgage insurer, if any, and the title insurer, to the extent required by the policy, and which assumption agreement is part of the Collateral File and the terms of which are reflected in the Mortgage Loan Schedule if executed prior to the Closing Date; (e) No Defenses. The Mortgage Note and the Mortgage are not subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, nor will the 15 operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the Mortgage unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto; (f) Hazard and Flood Insurance. All buildings upon the Mortgaged Property are insured by an insurer acceptable to an Agency against loss by fire, hazards of extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located, and such insurer is licensed to do business in the state where the Mortgaged Property is located. All such insurance policies contain a standard mortgagee clause naming Countrywide, its successors and assigns as mortgagee, and all premiums thereon have been paid. If, upon the origination of the Mortgage Loan, the Mortgaged Property was, or was subsequently deemed to be, in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards (and such flood insurance has been made available), a flood insurance policy that meets the requirements of the current guidelines of the Federal Insurance Administration (or any successor thereto) and conforms to the requirements of an Agency is in effect. The Mortgage obligates the Mortgagor thereunder to maintain all such insurance at the Mortgagor's expense and, upon the failure of the Mortgagor to do so, the holder of the Mortgage is authorized to maintain such insurance at the Mortgagor's expense and to seek reimbursement therefor from the Mortgagor; (g) Compliance with Applicable Law. Each Mortgage Loan at the time of origination complied in all material respects with applicable local, state and federal laws including, without limitation, usury, predatory and abusive lending, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity and disclosure laws applicable to the Mortgage Loan; (h) No Release of Mortgage. The Mortgage has not been satisfied, canceled, subordinated, or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination or rescission; (i) Enforceability of Mortgage Documents. The Mortgage Note and the related Mortgage are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws; (j) Valid First Lien. Each related Mortgage is a valid, subsisting and enforceable first lien on the related Mortgaged Property, including all improvements on the Mortgaged Property. The lien of the Mortgage is subject only to: (i) the lien of current real property taxes and assessments not yet due and payable; (ii) if the Mortgaged Property consists of Co-op Shares, any lien for amounts due to the cooperative housing corporation for unpaid assessments, or charges or any lien of any assignment of rents or maintenance expenses secured by the real property owned by the cooperative housing corporation; (iii) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording that are acceptable to mortgage 16 lending institutions generally and specifically referred to in the lender's title insurance policy delivered to the originator of the Mortgage Loan and that do not adversely affect the Appraised Value (as evidenced by an appraisal referred to in such definition) of the Mortgaged Property set forth in such appraisal; and (iv) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property; and (k) Disbursements of Proceeds. The proceeds of the Mortgage Loan have been fully disbursed, and there is no requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing the Mortgage Loan and recording the Mortgage were paid, and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage; (l) Sole Owner. Countrywide is the sole owner and holder of the Mortgage Loan. The Mortgage Loan is not assigned or pledged, and Countrywide has good and marketable title thereto, and is transferring and selling the Mortgage Loan to the Purchaser free and clear of any encumbrance, equity, lien, pledge, charge, claim or security interest not specifically set forth in the related Mortgage Loan Schedule and has full right and authority subject to no interest or participation of, or agreement with, any other party, to sell and assign each Mortgage Loan pursuant to the terms of this Agreement; (m) Title Insurance. Each Mortgage Loan is covered by a lender's title insurance policy acceptable to an Agency, issued by a title insurer acceptable to an Agency and qualified to do business in the jurisdiction where the related Mortgaged Property is located, insuring (subject to the exceptions contained in Section 3.02(j)(i), (ii) and (iii) above) Countrywide, its successors and assigns as to the first priority lien of the Mortgage. Additionally, such lender's title insurance policy affirmatively insures ingress and egress, and against encroachments by or upon the Mortgaged Property or any interest therein. Countrywide is the sole insured of such lender's title insurance policy, and such lender's title insurance policy is in full force and effect and will be in full force and effect upon the consummation of the transactions contemplated by this Agreement. No claims have been made under such lender's title insurance policy, and no prior holder of the related Mortgage, including Countrywide, has done, by act or omission, anything which would impair the coverage of such lender's title insurance policy; (n) No Default. There is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and Countrywide has not waived any default, breach, violation or event of acceleration; (o) No Mechanics' Liens. There are no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under law could give rise to such lien) affecting the related Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the related Mortgage; 17 (p) Origination and Collection Practices. The origination, servicing, and collection practices used by Countrywide with respect to each Mortgage Note and Mortgage have been in all respects legal, proper, prudent and customary in the mortgage origination and servicing business. With respect to escrow deposits and Escrow Payments, if any, all such payments are in the possession of, or under the control of, Countrywide and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. No escrow deposits or Escrow Payments or other charges or payments due Countrywide have been capitalized under any Mortgage or the related Mortgage Note. With respect to Adjustable Rate Mortgage Loans, the terms of the related Mortgage Notes pertaining to interest adjustments, payment adjustments and adjustments of the outstanding principal balance, if any, are enforceable, and all Mortgage Interest Rate adjustments have been made in strict compliance with state and federal law and the terms of the related Mortgage Note. Any interest required to be paid pursuant to state and local law has been properly paid and credited; (q) No Condemnation or Damage. The Mortgaged Property is free of material damage and waste and there is no proceeding pending for the total or partial condemnation thereof; (r) Customary and Enforceable Provisions. The Mortgage contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby including (a) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by judicial foreclosure; there is no homestead or other exemption (other than under the Soldiers' and Sailors' Civil Relief Act of 1940, as amended) available to a Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage; (s) Collateral. The Mortgage Note is not and has not been secured by any collateral except the lien of the corresponding Mortgage; (t) Appraisal. Unless the Mortgage Loan was underwritten pursuant to one of Countrywide's streamline documentation programs, the Credit File contains an appraisal of the related Mortgaged Property signed prior to the approval of the Mortgage Loan application by an appraiser who meets the minimum requisite qualifications of an Agency for appraisers, duly appointed by the originator, that had no interest, direct or indirect in the Mortgaged Property, and whose compensation is not affected by the approval or disapproval of the Mortgage Loan; the appraisal is in a form acceptable to an Agency, with such riders as are acceptable to such Agency; (u) Trustee for Deed of Trust. In the event the Mortgage constitutes a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (v) Private Mortgage Insurance, FHA Insurance and VA Guarantees. No Mortgage Loan has an LTV greater than ninety-five percent (95%). Each Conventional Mortgage Loan with an LTV at origination in excess of eighty percent (80%) is and will be subject to a PMI Policy, which insures that portion of the Mortgage Loan over seventy-five percent (75%) of the Appraised Value of the related Mortgaged Property. All provisions of such PMI Policy have 18 been and are being complied with, such policy is in full force and effect, and all premiums due thereunder have been paid. Any Mortgage subject to any such PMI Policy obligates the Mortgagor thereunder to maintain such insurance and to pay all premiums and charges in connection therewith or, in the case of a lender paid mortgage insurance policy, the premiums and charges are included in the Mortgage Interest Rate for the Mortgage Loan. Each Government Mortgage Loan either has, or will have in due course, a valid and enforceable MIC or LGC, as applicable and, in each case, all premiums due thereunder have been paid; (w) Lawfully Occupied. To the best of Countrywide's knowledge, the Mortgaged Property is lawfully occupied under applicable law. To the best of Countrywide's knowledge, all inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same including certificates of occupancy, have been made or obtained from the appropriate authorities; (x) Assignment of Mortgage. Except for the absence of recording information, the Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located; (y) Consolidation of Future Advances. Any future advances made to the Mortgagor prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (z) Form of Mortgage Note and Mortgage. The Mortgage Note and Mortgage are on forms acceptable to an Agency; (aa) Section 32 Loans. No Mortgage Loan is subject to the Home Ownership and Equity Protection Act of 1994 or any similar state or local statutes or regulations related to "high cost" mortgage loans or "predatory" or "abusive" lending (as such terms are defined in the applicable statute or regulation); (bb) Security Agreements. Any security agreement, chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, subsisting and enforceable first lien and first priority security interest on the property described therein; (cc) Location of Improvements; No Encroachments. All improvements which were considered in determining the Appraised Value of the Mortgaged Property lay wholly within the boundaries and building restriction lines of the Mortgaged Property and no improvements on adjoining properties encroach upon the Mortgaged Property. No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning law or regulation; (dd) Payment Terms. Payments commenced no more than sixty (60) days after the funds were disbursed to the Mortgagor in connection with the Mortgage Loan. The Mortgage Loans have an original term to maturity of not more than thirty (30) years, with interest payable in arrears each month. As to each Adjustable Rate Mortgage Loan on each applicable Interest Adjustment Date, the Mortgage Interest Rate adjusts in accordance with the terms of the related Mortgage Note. As to each Adjustable Rate Mortgage Loan, each Mortgage Note requires a monthly payment which is sufficient, during the period prior to the first adjustment to the 19 Mortgage Interest Rate, to fully amortize the outstanding principal balance as of the first day of such period over the then remaining term of such Mortgage Note and to pay interest at the related Mortgage Interest Rate. No Mortgage Loan contains terms or provisions which would result in negative amortization; (ee) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not notified Countrywide, and Countrywide has no knowledge, of any relief requested by or provided to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, or any similar state law; (ff) Balloon Payments, Graduated Payments or Contingent Interests. With respect to any Mortgage Loan which is identified on the Mortgage Loan Schedule as a Balloon Mortgage Loan, the Mortgage Note is payable in Monthly Payments based on a thirty (30) year amortization schedule with a final Monthly Payment substantially greater than the preceding Monthly Payment which is sufficient to amortize the remaining principal balance of the Balloon Mortgage Loan and such final Monthly Payment shall not be due prior to one hundred eighty (180) months following the origination of the Balloon Mortgage Loan. The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature; (gg) No Bankruptcy. No Mortgagor was a debtor in any state or federal bankruptcy or insolvency proceeding at the time the Mortgage Loan was originated and, to the best of Countrywide's knowledge, following the date of origination of the Mortgage Loan, the Mortgagor with respect to the Mortgage Loan was not a debtor in any state or federal bankruptcy or insolvency proceeding; (hh) No Violation of Environmental Laws. To the best of Countrywide's knowledge, there is no pending action or proceeding directly involving the Mortgaged Property in which compliance with any environmental law, rule or regulation is an issue; and to the best of Countrywide's knowledge, nothing further remains to be done to satisfy in full all requirements of each such law, rule or regulation constituting a prerequisite to use and enjoyment of said property; (ii) Texas Refinance Mortgage Loans. No Mortgage Loan was originated in the state of Texas under Article XVI, Section 50(a)(6) of the Texas Constitution (a "Texas Refinance Loan"); (jj) Georgia Fair Lending Act. No Mortgage Loan secured by property located in Georgia and originated on or after October 1, 2002 and on or prior to March 7, 2003, meets the definition of a "home loan" under the Georgia Fair Lending Act; (kk) Qualified Mortgages. Each Mortgage Loan is a "qualified mortgage" within Section 860G(a)(3) of the Code; (ll) Interest Calculation. Interest on each Mortgage Loan is calculated on the basis of a 360-day year consisting of twelve 30-day months; (mm) Due on Sale. The Mortgage contains an enforceable provision, to the extent not prohibited by federal law as of the date of such Mortgage, for the acceleration of the payment of 20 the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder; (nn) Single Premium Credit Life Insurance. None of the proceeds of the Mortgage Loan were used to finance single premium credit life insurance policies; (oo) Origination/Doing Business. The Mortgage Loan was originated by a savings and loan association, a savings bank, a commercial bank, a credit union, an insurance company, or similar institution that is supervised and examined by a federal or state authority or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act. All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) (1) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (2) either (A) organized under the laws of such state, (B) qualified to do business in such state, (C) federal savings and loan associations or national banks having principal offices in such state, or (D) not doing business in such state; (pp) No Fraud. No fraud, error, omission, misrepresentation, or similar occurrence with respect to a Mortgage Loan has taken place on the part of Countrywide or to the best of Countrywide's knowledge, the Mortgagor, the appraiser, any builder, or any developer, or any other party involved in the origination of the Mortgage Loan or in the application of any insurance in relation to such Mortgage Loan; (qq) Location and Type of Mortgaged Property. The Mortgaged Property consists of a contiguous parcel of real property with a detached single family residence erected thereon, or a two- to four-family dwelling, or an individual condominium unit in a condominium project, or an individual unit in a planned unit development, or in the case of Mortgage Loans secured by Co-op Shares, leases or occupancy agreements, provided, however, that any condominium project or planned unit development shall conform with the applicable requirements of an Agency regarding such dwellings, and no residence or dwelling is a mobile home or a manufactured dwelling. As of the respective appraisal date for each Mortgaged Property, no portion of the Mortgaged Property was being used for commercial purposes. If the Mortgaged Property is a condominium unit or a planned unit development (other than a de minimus planned unit development) such condominium or planned unit development project meets eligibility requirements of an Agency or is located in a condominium or planned unit development project which has received project approval of an Agency; (rr) Underwriting. Each Mortgage Loan was generally underwritten in accordance with the Underwriting Guidelines; (ss) Buy-down Mortgage Loans. The Mortgage Loan is not subject to a buy-down agreement; (tt) Prepayment Penalties. If the Mortgage Loan is a Mortgage Loan subject to a prepayment premium, enforcing the Mortgagor's obligation to pay the prepayment premium in connection with the Principal Prepayment will not violate any applicable state or local statute, regulation, or rule; 21 (uu) The Mortgagor. The Mortgagor is one or more natural persons and/or trustees for an Illinois land trust or a trustee under a "living trust" and such "living trust" is in compliance with Fannie Mae or Freddie Mac guidelines. In the event the Mortgagor is a trustee, the borrower is a natural person; and (vv) Leaseholds. The Mortgage Loan is not secured by a leasehold interest in the Mortgaged Property. SECTION 3.03 REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES. (a) Notice of Breach. The representations and warranties set forth in Sections 3.01 and 3.02 shall survive the sale of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the examination or failure to examine any Collateral Documents or Credit File. Upon discovery by either Countrywide or the Purchaser of a breach of any of the foregoing representations and warranties that materially and adversely affects the value of one or more of the related Mortgage Loans, the party discovering such breach shall give prompt written notice to the other. Any such breach or missing Collateral Document that causes a Mortgage Loan not to be a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code shall be deemed to materially and adversely affect the value of such Mortgage Loan. (b) Cure or Repurchase. Within ninety (90) days from the earlier of either discovery by or notice to Countrywide of a breach of a representation or warranty that materially and adversely affects the value of a Mortgage Loan or the Mortgage Loans, Countrywide shall use its best efforts to cure such breach in all material respects, and, if such breach cannot be cured, Countrywide shall, at the Purchaser's option, repurchase such Mortgage Loan at the Repurchase Price. In the event that a breach shall involve any representation or warranty set forth in Section 3.01 and such breach cannot be cured within ninety (90) days of the earlier of either discovery by or notice to Countrywide of such breach, all of the Mortgage Loans shall, at the Purchaser's option, be repurchased by Countrywide at the Repurchase Price. (c) Substitution or Repurchase. If the breach shall involve a representation or warranty set forth in Section 3.02, Countrywide may, rather than repurchase the Mortgage Loan as provided above, remove such Mortgage Loan and substitute in its place a Qualified Substitute Mortgage Loan or Loans. If Countrywide has no Qualified Substitute Mortgage Loan, it shall repurchase the deficient Mortgage Loan. Notwithstanding any of the foregoing, if a 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 repurchase or substitution must occur within sixty (60) days from the date the breach was discovered unless such breach is cured during such period. Any repurchase of a Mortgage Loan(s) pursuant to the provisions of this Section 3.03 shall be accomplished by deposit in the Custodial Account of the amount of the Repurchase Price for distribution to the Purchaser on the next scheduled Remittance Date, after deducting therefrom any amount received in respect of such repurchased Mortgage Loan or Loans and being held in the Custodial Account for future distribution. At the time of repurchase or substitution, the Purchaser and Countrywide shall arrange for the reassignment of such Mortgage Loan and release of the related Collateral File to Countrywide and the delivery to Countrywide of any documents held by the Purchaser or its designee relating to such Mortgage Loan. In the event Countrywide determines to substitute a Qualified Substitute Mortgage Loan for a repurchased Mortgage Loan, Countrywide shall, simultaneously with such reassignment, give written notice 22 to the Purchaser that substitution has taken place and identify the Qualified Substitute Mortgage Loan(s). In connection with any such substitution, Countrywide shall be deemed to have made as to such Qualified Substitute Mortgage Loan(s) the representations and warranties except that all such representations and warranties set forth in this Agreement shall be deemed made as of the date of such substitution. Countrywide shall effect such substitution by delivering to the Purchaser the Collateral Documents for such Qualified Substitute Mortgage Loan(s). Countrywide shall deposit in the Custodial Account the Monthly Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan(s) in the month following the date of such substitution. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall be retained by Countrywide. For the month of substitution, distributions to the Purchaser shall include the Monthly Payment due on any substituted Mortgage Loan in the month of substitution, and Countrywide shall thereafter be entitled to retain all amounts subsequently received by Countrywide in respect of such substituted Mortgage Loan. For any month in which Countrywide substitutes a Qualified Substitute Mortgage Loan for a repurchased Mortgage Loan, Countrywide shall determine the amount (if any) by which the aggregate principal balance of all Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all substituted Mortgage Loans (after application of scheduled principal payments due in the month of substitution). The amount of such shortfall shall be distributed by Countrywide in the month of substitution pursuant to Section 5.01. Accordingly, on the date of such substitution, Countrywide shall deposit from its own funds into the Custodial Account an amount equal to the amount of such shortfall. (d) Indemnification. In addition to such repurchase or substitution obligation, Countrywide shall indemnify the Purchaser and hold it harmless against any losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and other costs and expenses resulting from any claim, demand, defense or assertion based on or grounded upon, or resulting from, a material breach of the representations and warranties of Countrywide contained in Sections 3.01 and 3.02. (e) Sole Remedy. With respect to the breach of a representation and warranty set forth in Section 3.02 with respect to a Mortgage Loan, the obligation under this Section 3.03 of Countrywide to cure, repurchase or replace such Mortgage Loan and to indemnify the Purchaser shall constitute the sole remedies against Countrywide respecting such breach available to the Purchaser. (f) Accrual of Cause of Action. Any cause of action against Countrywide relating to or arising out of the breach of any representations and warranties made in Sections 3.01 or 3.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by Countrywide to the Purchaser, (ii) failure by Countrywide to cure such breach or repurchase such Mortgage Loan as specified above, and (iii) demand upon Countrywide by the Purchaser for compliance with the relevant provisions of this Agreement. SECTION 3.04 REPURCHASE OF CONVERTIBLE MORTGAGE LOANS. In the event a Mortgagor exercises the option to convert a Convertible Mortgage Loan to a Fixed Rate Mortgage Loan in accordance with the terms of the related Mortgage Note, Countrywide shall repurchase such Convertible Mortgage Loan within thirty (30) days of such conversion taking effect at a price equal to on hundred percent (100%) of the unpaid principal 23 balance of such Convertible Mortgage Loan at the time of such conversion plus accrued interest thereon through the last day of the month of repurchase at the Mortgage Loan Remittance Rate; provided, however, no interest shall be due and payable if a Convertible Mortgage Loan is repurchased on the first day of a month. Any repurchase of a Convertible Mortgage Loan(s) pursuant to the foregoing provisions of this Section 3.04 shall be accomplished by deposit in the Custodial Account of the amount of said repurchase price for distribution to the Purchaser on the next scheduled Remittance Date. SECTION 3.05 REPRESENTATIONS AND WARRANTIES RESPECTING THE PURCHASER. The Purchaser represents, warrants and covenants to Countrywide that, as of each Closing Date: (a) Organization and Standing. The Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and is qualified to transact business in and is in good standing under the laws of each state in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such qualification; (b) Due Authority. The Purchaser has the full power and authority to perform, and to enter into and consummate, all transactions contemplated by this Agreement; the Purchaser has the full power and authority to purchase and hold each Mortgage Loan; (c) No Conflict. Neither the acquisition of the Mortgage Loans by the Purchaser pursuant to this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement, will conflict with or result in a breach of any of the terms, conditions or provisions of the Purchaser's charter or by-laws or result in a material breach of any legal restriction or any material agreement or instrument to which the Purchaser is now a party or by which it is bound, or constitute a material default or result in an acceleration under any of the foregoing, or result in the violation of any material law, rule, regulation, order, judgment or decree to which the Purchaser or its property is subject; (d) No Pending Litigation. There is no action, suit, proceeding, investigation or litigation pending or, to the Purchaser's knowledge, threatened, which either in any one instance or in the aggregate, if determined adversely to the Purchaser would adversely affect the purchase of the Mortgage Loans by the Purchaser hereunder, or the Purchaser's ability to perform its obligations under this Agreement; and (e) No Consent Required. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Purchaser of or compliance by the Purchaser with this Agreement or the consummation of the transactions contemplated by this Agreement (including, but not limited to, any approval from HUD), or if required, such consent, approval, authorization or order has been obtained prior to the related Closing Date. (f) Securities. Without conceding that the Mortgage Loans are securities, the Purchaser hereby makes the following representations, warranties and agreements, which shall have been deemed to have been made as of each Closing Date: 24 (i) the Purchaser understands that the Mortgage Loans have not been registered under the 1933 Act or the securities laws of any state; (ii) the Purchaser is acquiring the Mortgage Loans for its own account without a view towards a public distribution; (iii) 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; (iv) the Purchaser has been furnished with all information regarding the Mortgage Loans which it has requested from Countrywide; and (v) 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 1933 Act or which would render the disposition of any Mortgage Loan 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 Mortgage Loans. SECTION 3.06 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify Countrywide and hold it harmless against any losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and other costs and expenses resulting from any claim, demand, defense or assertion based on or grounded upon, or resulting from, a breach of the Purchaser's representations and warranties contained in Section 3.05 above. ARTICLE IV. ADMINISTRATION AND SERVICING OF MORTGAGE LOANS SECTION 4.01 COUNTRYWIDE TO ACT AS SERVICER. Countrywide, as independent contract servicer, shall service and administer Mortgage Loans sold pursuant to this Agreement in accordance with the Accepted Servicing Practices and the terms of this Agreement and shall have full power and authority, acting alone, to do or cause to be done any and all things, in connection with such servicing and administration, that Countrywide may deem necessary or desirable and consistent with the terms of this Agreement. In servicing and administering the Mortgage Loans, Countrywide shall employ procedures in accordance with the customary and usual standards of practice of prudent mortgage servicers. Notwithstanding anything to the contrary contained herein, in servicing and administering Government Mortgage Loans, Countrywide shall not take, or fail to take, any action that would result in the denial of coverage under any LGC or MIC, as applicable. Without limiting the generality of the foregoing, with respect to any Government Mortgage Loan, Countrywide shall 25 be permitted to deviate from the servicing practices set forth herein if such deviation would be consistent with the servicing practices employed in connection with any similar mortgage loan constituting a part of a GNMA mortgage-backed security. In accordance with the terms of this Agreement, Countrywide may 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 Countrywide's reasonable and prudent determination such waiver, modification, postponement or indulgence is not materially adverse to the Purchaser; provided, however, that Countrywide shall not permit any modification, waiver, or forbearance with respect to any Mortgage Loan that would decrease the Mortgage Interest Rate (other than by adjustments required by the terms of the Mortgage Note), result in the denial of coverage under a PMI Policy, LGC or MIC, defer or forgive the payment of any principal or interest payments, reduce the outstanding principal amount (except for actual payments of principal), make future advances or extend the final maturity date on such Mortgage Loan without the Purchaser's consent or otherwise constitute a "significant modification" within the meaning of Treasury Regulations Section 1.860G-2(b). Countrywide may permit forbearance or allow for suspension of Monthly Payments for up to one hundred twenty (120) days if the Mortgagor is in default or Countrywide determines in its reasonable discretion, that default is imminent and if Countrywide determines that granting such forbearance or suspension is in the best interest of the Purchaser. If any modification, forbearance or suspension permitted hereunder allows the deferral of interest or principal payments on any Mortgage Loan, Countrywide shall include in each remittance for any month in which any such principal or interest payment has been deferred (without giving effect to such modification, forbearance or suspension) an amount equal to such month's principal and one (1) month's interest at the Mortgage Loan Remittance Rate on the then unpaid principal balance of the Mortgage Loan and shall be entitled to reimbursement for such advances only to the same extent as for Monthly Advances made pursuant to Section 5.03. Countrywide shall notify the Purchaser, in writing, of any modification, waiver, forbearance or amendment of any term of any Mortgage Loan and the date thereof, and shall deliver to the Purchaser (or, at the direction of the Purchaser, the Custodian) for deposit in the related Mortgage File, an original counterpart of the agreement relating to such modification, waiver, forbearance or amendment, promptly (and in any event within thirty (30) days) following the execution thereof; provided, however, that if any such modification, waiver, forbearance or amendment is required by applicable law to be recorded, Countrywide (i) shall deliver to the Purchaser a copy thereof and (ii) shall deliver to the Purchaser such document, with evidence of recordation upon receipt thereof from the public recording office. Without limiting the generality of the foregoing, Countrywide shall continue, and is hereby authorized and empowered to execute and deliver on behalf of itself and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Property. If reasonably required by Countrywide, the Purchaser shall furnish Countrywide with any powers of attorney and other documents necessary or appropriate to enable Countrywide to carry out its servicing and administrative duties under this Agreement. SECTION 4.02 COLLECTION OF MORTGAGE LOAN PAYMENTS. Countrywide shall make reasonable efforts, in accordance with the Accepted Servicing Practices and this Agreement, to collect all payments due under each Mortgage Loan and shall 26 exercise reasonable care in ascertaining and estimating Escrow Payments and all other charges that will become due and payable with respect to the Mortgage Loan and Mortgaged Property. SECTION 4.03 REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) Foreclosure. In accordance with Accepted Servicing Practices, Countrywide shall use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments. Countrywide shall use reasonable efforts to realize upon defaulted Mortgage Loans, in such manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, Countrywide shall not be required to expend its own funds toward the restoration of such property unless it shall determine in its discretion (i) that such restoration will increase the proceeds of liquidation of the related Mortgage Loan to the Purchaser after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable by Countrywide through PMI Proceeds, Government Insurance Proceeds, Other Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property. Countrywide shall notify the Purchaser in writing of the commencement of foreclosure proceedings. Such notice may be contained in the reports prepared by Countrywide and delivered to the Purchaser pursuant to the terms and conditions of this Agreement. Countrywide shall be responsible for all costs and expenses incurred by it in any foreclosure proceedings; provided, however, that it shall be entitled to reimbursement thereof from proceeds from the related Mortgaged Property. Notwithstanding anything to the contrary contained herein, in connection with a foreclosure or acceptance of a deed in lieu of foreclosure, in the event Countrywide has reasonable cause to believe that a Mortgaged Property is contaminated by hazardous or toxic substances or wastes, or if the Purchaser otherwise requests an environmental inspection or review of such Mortgaged Property, such an inspection or review is to be conducted by a qualified inspector. The cost for such inspection or review shall be borne by the Purchaser. Upon completion of the inspection or review, Countrywide shall promptly provide the Purchaser with a written report of the environmental inspection. After reviewing the environmental inspection report, the Purchaser shall determine how Countrywide shall proceed with respect to the Mortgaged Property. In the event (a) the environmental inspection report indicates that the Mortgaged Property is contaminated by hazardous or toxic substances or wastes and (b) the Purchaser directs Countrywide to proceed with foreclosure or acceptance of a deed in lieu of foreclosure, Countrywide shall be reimbursed for all reasonable costs associated with such foreclosure or acceptance of a deed in lieu of foreclosure and any related environmental clean up costs, as applicable, from the related Liquidation Proceeds, or if the Liquidation Proceeds are insufficient to fully reimburse Countrywide, Countrywide shall be entitled to be reimbursed from amounts in the Custodial Account pursuant to Section 4.05 hereof. In the event the Purchaser directs Countrywide not to proceed with foreclosure or acceptance of a deed in lieu of foreclosure, Countrywide shall be reimbursed for all Servicing Advances made with respect to the related Mortgaged Property from the Custodial Account pursuant to Section 4.05 hereof. 27 SECTION 4.04 ESTABLISHMENT OF CUSTODIAL ACCOUNTS; DEPOSITS IN CUSTODIAL ACCOUNTS. Countrywide shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets and shall establish and maintain one (1) or more Custodial Accounts, in the form of time deposit or demand accounts, titled "[Countrywide], in trust for Banc of America Mortgage Capital Corporation and/or subsequent purchasers of Mortgage Loans - P&I." Countrywide shall provide the Purchaser with written evidence of the creation of such Custodial Account(s) upon the request of the Purchaser. Countrywide shall deposit in the Custodial Account within two (2) Business Days, and retain therein, the following payments and collections received or made by it subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a period subsequent thereto, other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date: (a) all payments on account of principal, including Principal Prepayments, on the Mortgage Loans; (b) all payments on account of interest on the Mortgage Loans, adjusted to the Mortgage Loan Remittance Rate; (c) all proceeds from a Cash Liquidation; (d) all PMI Proceeds, Government Insurance Proceeds and Other Insurance Proceeds, including amounts required to be deposited pursuant to Sections 4.08 and 4.10, other than proceeds to be applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with the Accepted Servicing Practices, the loan documents or applicable law; (e) all Condemnation Proceeds affecting any Mortgaged Property that are not released to the Mortgagor in accordance with the Accepted Servicing Practices, the loan documents or applicable law; (f) all Monthly Advances; (g) all proceeds of any Mortgage Loan repurchased in accordance with Section 3.03 or 3.04, and any amount required to be deposited by Countrywide in connection with any shortfall in principal amount of the Qualified Substitute Mortgage Loans and the repurchased Mortgage Loans as required pursuant to Section 3.03; (h) any amounts required to be deposited by Countrywide pursuant to Section 4.10 in connection with the deductible clause in any blanket hazard insurance policy (such deposit shall be made from Countrywide's own funds, without reimbursement therefor); (i) the Prepayment Interest Shortfall Amount, if any, for the month of distribution (such deposit shall be made from Countrywide's own funds, without reimbursement therefor up to a maximum amount per month equal to the lesser of (a) one-twelfth of the product of (i) the Servicing Fee Rate and (ii) the Stated Principal Balance of such Mortgage Loans, or (b) the aggregate Servicing Fee actually received for such month for the Mortgage Loans); and 28 (j) any amounts required to be deposited by Countrywide in connection with any REO Property pursuant to Section 4.13. The foregoing requirements for deposit in the Custodial Account are exclusive. The Purchaser understands and agrees that, without limiting the generality of the foregoing, payments in the nature of late payment charges, prepayment penalties and assumption fees (to the extent permitted by Section 4.16) need not be deposited by Countrywide in the Custodial Account. Any interest paid by the depository institution on funds deposited in the Custodial Account shall accrue to the benefit of Countrywide and Countrywide shall be entitled to retain and withdraw such interest from the Custodial Account pursuant to Section 4.05(d). All funds required to be deposited in the Custodial Account shall be held in trust for the Purchaser until withdrawn in accordance with Section 4.05. SECTION 4.05 PERMITTED WITHDRAWALS FROM THE CUSTODIAL ACCOUNT. Countrywide may, from time to time, withdraw funds from the Custodial Account for the following purposes: (a) to make payments to the Purchaser in the amounts and in the manner provided for in Sections 5.01 and 5.03; (b) to reimburse itself for Monthly Advances (Countrywide's reimbursement for Monthly Advances shall be limited to amounts received on the related Mortgage Loan (or to amounts received on the Mortgage Loans as a whole if the Monthly Advance is made due to a shortfall in a Monthly Payment made by a Mortgagor entitled to relief under the Soldiers' and Sailors' Civil Relief Act of 1940) which represent Late Collections, net of the related Servicing Fee and LPMI Fee, if applicable. Countrywide's right to reimbursement hereunder shall be prior to the rights of the Purchaser, except that, where Countrywide is required to repurchase a Mortgage Loan pursuant to Sections 3.03 or 3.04 or Countrywide is required to remit a sum pursuant to the applicable provision of Section 4.17, Countrywide's right to such reimbursement shall be subsequent to the payment to the Purchaser of the Repurchase Price and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loans. Notwithstanding the foregoing, Countrywide may reimburse itself for Monthly Advances from any funds in the Custodial Account if it has determined that such funds are nonrecoverable advances or if all funds, with respect to the related Mortgage Loan, have previously been remitted to the Purchaser); (c) to reimburse itself for unreimbursed Servicing Advances and any unpaid Servicing Fees (Countrywide's reimbursement for Servicing Advances and/or Servicing Fees hereunder with respect to any Mortgage Loan shall be limited to proceeds from Cash Liquidation, Liquidation Proceeds, Condemnation Proceeds, PMI Proceeds, Government Insurance Proceeds and Other Insurance Proceeds; provided, however, that Countrywide may reimburse itself for Servicing Advances and Servicing Fees from any funds in the Custodial Account if all funds, with respect to the related Mortgage Loan, have previously been remitted to the Purchaser. Notwithstanding the foregoing, with respect to each Government Mortgage Loan, Countrywide shall not be entitled to reimbursement of any Servicing Advances that constitute losses and expenses for which an issuer of GNMA securities would be responsible, pursuant to Chapter 4 of the GNMA Handbook 5500.2, if such Government Mortgage Loan had been included in a GNMA security); 29 (d) to pay to itself as servicing compensation (i) any interest earned on funds in the Custodial Account (all such interest to be withdrawn monthly not later than each Remittance Date), and (ii) the Servicing Fee and the LPMI Fee, if applicable, from that portion of any payment or recovery of interest on a particular Mortgage Loan; (e) to pay to itself, with respect to each Mortgage Loan that has been repurchased pursuant to Section 3.03 or 3.04, all amounts received but not distributed as of the date on which the related Repurchase Price is determined; (f) to reimburse itself for any amounts deposited in the Custodial Account in error; and (g) to clear and terminate the Custodial Account upon the termination of this Agreement. SECTION 4.06 ESTABLISHMENT OF ESCROW ACCOUNTS; DEPOSITS IN ESCROW ACCOUNTS. Countrywide shall segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one (1) or more Escrow Accounts in the form of time deposit or demand accounts, which accounts shall be Eligible Accounts, titled "[Countrywide], in trust for Banc of America Mortgage Capital Corporation and/or subsequent purchasers of Mortgage Loans and various mortgagors - T&I." Countrywide shall provide the Purchaser with written evidence of the creation of such Escrow Account(s) upon the request of the Purchaser. Countrywide shall deposit in the Escrow Account(s) within two (2) Business Days, and retain therein, (a) all Escrow Payments collected on account of the Mortgage Loans, and (b) all Other Insurance Proceeds that are to be applied to the restoration or repair of any Mortgaged Property. Countrywide shall make withdrawals therefrom only to effect such payments as are required under this Agreement, and for such other purposes in accordance with Section 4.07. Countrywide shall be entitled to retain any interest paid by the depository institution on funds deposited in the Escrow Account except interest on escrowed funds required by law to be paid to the Mortgagor. Countrywide shall pay Mortgagor interest on the escrowed funds at the rate required by law notwithstanding that the Escrow Account is non-interest bearing or the interest paid by the depository institution thereon is insufficient to pay the Mortgagor interest at the rate required by law. SECTION 4.07 PERMITTED WITHDRAWALS FROM ESCROW ACCOUNT. Countrywide may, from time to time, withdraw funds from the Escrow Account(s) for the following purposes: (a) to effect timely payments of ground rents, taxes, assessments, water rates, mortgage insurance premiums, PMI Policy premiums, if applicable, and comparable items; (b) to reimburse Countrywide for any Servicing Advance made by Countrywide with respect to a related Mortgage Loan; provided, however, that such reimbursement shall only be made from amounts received on the related Mortgage Loan that represent late payments or collections of Escrow Payments thereunder; (c) to refund to the Mortgagor any funds as may be determined to be overages; (d) for transfer to the Custodial Account in accordance with the terms of this Agreement; (e) for application to restoration or repair of the Mortgaged Property; (f) to pay to Countrywide, or to the Mortgagors to the extent required by law, any interest paid on the funds 30 deposited in the Escrow Account; (g) to reimburse itself for any amounts deposited in the Escrow Account in error; or (h) to clear and terminate the Escrow Account on the termination of this Agreement. SECTION 4.08 TRANSFER OF ACCOUNTS. Countrywide may transfer the Custodial Account or the Escrow Account to a different depository institution from time to time provided that such Custodial Account and Escrow Account shall at all times be Eligible Accounts. Countrywide shall notify the Purchaser of any such transfer within five (5) days thereafter. SECTION 4.09 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES; MAINTENANCE OF PMI POLICIES; COLLECTIONS THEREUNDER. With respect to each Mortgage Loan, Countrywide shall maintain accurate records reflecting the status of (a) ground rents, taxes, assessments, water rates and other charges that are or may become a lien upon the Mortgaged Property; (b) primary mortgage insurance premiums; (c) with respect to Mortgage Loans insured by the FHA, mortgage insurance premiums, and (d) fire and hazard insurance premiums. Countrywide shall obtain, from time to time, all bills for the payment of such charges, including renewal premiums, and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable using Escrow Payments which shall have been estimated and accumulated by Countrywide in amounts sufficient for such purposes. To the extent that the Mortgage does not provide for Escrow Payments, Countrywide shall determine that any such payments are made by the Mortgagor at the time they first become due. Countrywide assumes full responsibility for the timely payment of all such bills and shall effect timely payments of all such bills, irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments, and shall make advances from its own funds to effect such payments. Countrywide will maintain in full force and effect, a PMI Policy conforming in all respects to the description set forth in Section 3.02(v), issued by an insurer described in that Section, with respect to each Mortgage Loan for which such coverage is herein required. Such coverage will be maintained until the LTV or the Updated LTV of the related Mortgage Loan is reduced to 80% or less in the case of a Mortgage Loan having a LTV at origination in excess of 80%. Countrywide will not cancel or refuse to renew any PMI Policy in effect on the Closing Date that is required to be kept in force under this Agreement unless a replacement PMI Policy is obtained from and maintained with an insurer that is approved by an Agency. Countrywide shall not take any action that would result in non-coverage under any applicable PMI Policy of any loss that, but for the actions of Countrywide, would have been covered thereunder. In connection with any assumption or substitution agreement entered into or to be entered into pursuant to Section 4.16, Countrywide shall promptly notify the insurer under the related PMI Policy, if any, of such assumption or substitution of liability in accordance with the terms of such policy and shall take all actions that may be required by such insurer as a condition to the continuation of coverage under the PMI Policy. If such PMI Policy is terminated as a result of such assumption or substitution of liability, Countrywide shall obtain a replacement PMI Policy as provided above. Unless otherwise provided in the related Purchase Confirmation, no Mortgage Loan has in effect as of the Closing Date any mortgage pool insurance policy or other credit enhancement, except for any PMI Policy, MIC or LGC and the insurance or guarantee relating thereto, as 31 applicable (excluding such exception, the "Credit Enhancement"), and Countrywide shall not be required to take into consideration the existence of any such Credit Enhancement for the purposes of performing its servicing obligations hereunder. If the Purchaser shall at any time after the related Closing Date notify Countrywide in writing of its desire to obtain any such Credit Enhancement, the Purchaser and Countrywide shall thereafter negotiate in good faith for the procurement and servicing of such Credit Enhancement. SECTION 4.10 MAINTENANCE OF HAZARD INSURANCE. Countrywide shall cause to be maintained, for each Mortgage Loan, fire and hazard insurance with extended coverage as is customary in the area where the Mortgaged Property is located in an amount that is equal to the lesser of (a) the maximum insurable value of the improvements securing such Mortgage Loan or (b) the greater of (i) the unpaid principal balance of the Mortgage Loan, and (ii) the percentage such that the proceeds thereof shall be sufficient to prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer. In the event a hazard insurance policy shall be in danger of being terminated, or in the event the insurer shall cease to be acceptable to an Agency, Countrywide shall notify the Purchaser and the related Mortgagor, and shall use its best efforts, as permitted by applicable law, to assure that a replacement hazard insurance policy substantially and materially similar in all respects to the original policy is obtained from a qualified insurer. If the Mortgaged Property is in an area identified in the Federal Register by the Flood Emergency Management Agency as having special flood hazards and such flood insurance has been made available, Countrywide shall cause to be maintained a flood insurance policy meeting the requirements of the current guidelines of the National Flood Insurance Administration program (or any successor thereto) with a generally acceptable insurance carrier and with coverage in an amount not less than the lesser of (x) the unpaid principal balance of the Mortgage Loan; (y) full replacement value of the improvements which are a part of the Mortgaged Property; or (z) the maximum amount of insurance which is available under the National Flood Insurance Reform Act of 1994. Countrywide shall also maintain on REO Property, (1) fire and hazard insurance with extended coverage in an amount that is not less than the maximum insurable value of the improvements that are a part of such property; (2) liability insurance; and (3) to the extent required and available under the National Flood Insurance Reform Act of 1994, flood insurance in an amount as provided above. Countrywide shall deposit in the Custodial Account all amounts collected under any such policies except (A) amounts to be deposited in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or REO Property and (B) amounts to be released to the Mortgagor in accordance with the Accepted Servicing Practices. The Purchaser understands and agrees that no earthquake or other additional insurance on property acquired in respect of the Mortgage Loan shall be maintained by Countrywide or Mortgagor. All policies required hereunder shall be endorsed with standard mortgagee clauses with loss payable to Countrywide and shall provide for at least thirty (30) days prior written notice to Countrywide of any cancellation, reduction in the amount of coverage or material change in coverage. Countrywide shall not interfere with the Mortgagor's freedom of choice in selecting either the insurance carrier or agent; provided, however, that Countrywide shall only accept insurance policies from insurance companies acceptable to an Agency and licensed to do business in the state wherein the property subject to the policy is located. SECTION 4.11 BUSINESS CONTINUITY PLAN/DISASTER RECOVERY. Countrywide shall establish and maintain contingency plans, recovery plans and proper risk controls to ensure Countrywide's continued performance under this Agreement. The plans 32 must be in place within thirty (30) calendar days after the Closing Date of this Agreement and shall include, but not be limited to, testing, control functions, accountability and corrective actions to be implemented, if necessary. Countrywide agrees to make copies or summaries of the plans available to the Purchaser or its regulators upon request. SECTION 4.12 FIDELITY BOND; ERRORS AND OMISSIONS INSURANCE. Countrywide shall maintain, at its own expense, a blanket Fidelity Bond and an errors and omissions insurance policy with responsible companies, with broad coverage of all officers, employees or other persons acting in any capacity with regard to the Mortgage Loan who handle funds, money, documents or papers relating to the Mortgage Loan. The Fidelity Bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure Countrywide against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of its officers, employees and agents. Such Fidelity Bond shall also protect and insure Countrywide against losses in connection with the failure to maintain any insurance policies required pursuant to this Agreement and the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Section 4.12 shall diminish or relieve Countrywide from its duties and obligations as set forth in this Agreement. The minimum coverage under any such Fidelity Bond and errors and omissions insurance policy shall be at least equal to the corresponding amounts required by an Agency for an approved seller/servicer. SECTION 4.13 TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY. (a) Title. In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of Countrywide for the benefit of the Purchaser, or in the event the Purchaser is not authorized or permitted to hold title to real property in the state where the REO Property is located, or would be adversely affected under the "doing business" or tax laws of such state by so holding title, the deed or certificate of sale shall be taken in the name of such Person(s) as shall be consistent with an Opinion of Counsel obtained by Countrywide from an attorney duly licensed to practice law in the state where the REO Property is located. Any Person(s) holding such title other than the Purchaser shall acknowledge in writing that such title is being held as nominee for the benefit of the Purchaser. (b) Management. Countrywide shall either itself or through an agent selected by Countrywide, manage, conserve, protect and operate each REO Property in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account. Countrywide shall cause each REO Property to be inspected promptly upon the acquisition of title thereto and shall cause each REO Property to be inspected at least annually thereafter or more frequently as required by the circumstances. Countrywide shall make or cause to be made a written report of each such inspection. Such reports shall be retained in the Credit File and copies thereof shall be forwarded by Countrywide to the Purchaser within five (5) days of the Purchaser's request therefor. Countrywide shall promptly attempt to sell the REO Property (and may temporarily rent the same) on such terms and conditions as Countrywide deems to be in the best interest of the Purchaser. Countrywide shall deposit, or cause to be deposited, within two (2) Business Days of receipt, in the Custodial Account all revenues received with respect to each REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of each REO Property, including the cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the fees of any managing agent acting on 33 behalf of Countrywide. Notwithstanding anything contained in this Agreement to the contrary, upon written notice to Countrywide, the Purchaser may elect to assume the management and control of any REO Property; provided, however, that prior to giving effect to such election, the Purchaser shall reimburse Countrywide for all previously unreimbursed or unpaid Monthly Advances, Servicing Advances and Servicing Fees related to such REO Property. (c) Disposition. Subject to the following paragraph, Countrywide shall use reasonable efforts to dispose of each REO Property as soon as possible and shall sell each REO Property no later than one (1) year after title to such REO Property has been obtained, unless Countrywide determines, and gives an appropriate notice to the Purchaser, that a longer period is necessary for the orderly disposition of any REO Property. If a period longer than one (1) year is necessary to sell any REO Property, Countrywide shall, if requested by the Purchaser, report monthly to the Purchaser as to the progress being made in selling such REO Property. Each REO Disposition shall be carried out by Countrywide at such price and upon such terms and conditions as Countrywide deems to be in a manner that maximizes the net present value of the recovery to the Purchaser. If, as of the date title to any REO Property was acquired by Countrywide, there were outstanding unreimbursed Servicing Advances, Monthly Advances or Servicing Fees with respect to the REO Property or the related Mortgage Loan, Countrywide, upon an REO Disposition of such REO Property, shall be entitled to reimbursement for any related unreimbursed Servicing Advances, Monthly Advances and Servicing Fees from proceeds received in connection with such REO Disposition. The proceeds from the REO Disposition, net of any payment to Countrywide as provided above, shall be deposited in the Custodial Account and distributed to the Purchaser in accordance with Section 5.01. SECTION 4.14 NOTIFICATION OF ADJUSTMENTS. With respect to each Adjustable Rate Mortgage Loan, Countrywide shall adjust the Mortgage Interest Rate on the related Interest Adjustment Date and shall adjust the Monthly Payment on the related Payment Adjustment Date in compliance with the requirements of applicable law and the related Mortgage and Mortgage Note. If, pursuant to the terms of the Mortgage Note, another index is selected for determining the Mortgage Interest Rate because the original index is no longer available, the same index will be used with respect to each Mortgage Note which requires a new index to be selected, provided that such selection does not conflict with the terms of the related Mortgage Note. Countrywide shall execute and deliver any and all necessary notices required under applicable law and the terms of the related Mortgage Note and Mortgage regarding the Mortgage Interest Rate and the Monthly Payment adjustments. Countrywide shall promptly, upon written request therefor, deliver to the Purchaser such notifications and any additional applicable data regarding such adjustments and the methods used to calculate and implement such adjustments. Upon the discovery by Countrywide or the Purchaser that Countrywide has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, Countrywide shall immediately deposit in the Custodial Account, from its own funds, the amount of any interest loss caused the Purchaser thereby without reimbursement therefor. SECTION 4.15 NOTIFICATION OF MATURITY DATE. With respect to each Balloon Mortgage Loan, Countrywide shall execute and deliver to the Mortgagor any and all necessary notices required under applicable law and the terms of the related Mortgage Note and Mortgage regarding the maturity date and final balloon payment. 34 SECTION 4.16 ASSUMPTION AGREEMENTS. Countrywide shall, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan under any "due-on-sale" clause to the extent permitted by law; provided, however, that Countrywide shall not exercise any such right if prohibited from doing so by law or the terms of the Mortgage Note or if the exercise of such right would impair or threaten to impair any recovery under the related PMI Policy, if any. If Countrywide reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, Countrywide shall enter into an assumption agreement with the Person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to which such Person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. Where an assumption is allowed pursuant to this Section 4.16, the Purchaser authorizes Countrywide, with the prior written consent of the primary mortgage insurer, if any, to enter into a substitution of liability agreement with the Person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note. Any such substitution of liability agreement shall be in lieu of an assumption agreement. In connection with any such assumption or substitution of liability, Countrywide shall follow the underwriting practices and procedures employed by Countrywide for mortgage loans originated by Countrywide for its own account in effect at the time such assumption or substitution is made. With respect to an assumption or substitution of liability, the Mortgage Interest Rate borne by the related Mortgage Note, the term of the Mortgage Loan and the outstanding principal amount of the Mortgage Loan shall not be changed. Countrywide shall notify the Purchaser that any such substitution of liability or assumption agreement has been completed by forwarding to the Purchaser or its designee the original of any such substitution of liability or assumption agreement, which document shall be added to the related Collateral File and shall, for all purposes, be considered a part of such Collateral File to the same extent as all other documents and instruments constituting a part thereof. Notwithstanding anything to the contrary contained herein, Countrywide shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption that Countrywide may be restricted by law from preventing, for any reason whatsoever. For purposes of this Section 4.16, the term "assumption" is deemed to also include a sale of the Mortgaged Property subject to the Mortgage that is not accompanied by an assumption or substitution of liability agreement. SECTION 4.17 SATISFACTION OF MORTGAGES AND RELEASE OF COLLATERAL FILES. Upon the payment in full of any Mortgage Loan, or the receipt by Countrywide of a notification that payment in full will be escrowed in a manner customary for such purposes, Countrywide shall immediately notify the Purchaser. Such notice 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 4.04, have been or will be so deposited and shall request delivery to it of the portion of the Collateral File held by the 35 Purchaser or the Custodian. Upon receipt of such notice and request, the Purchaser, or its designee, shall within five (5) Business Days release or cause to be released to Countrywide the related Collateral Documents and Countrywide shall prepare and process any satisfaction or release. In the event that the Purchaser fails to release or cause to be released to Countrywide the related Collateral Documents within five (5) Business Days of Countrywide's request therefor, the Purchaser shall be liable to Countrywide for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by Countrywide resulting from such failure. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account. In the event Countrywide satisfies or releases a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage or should it otherwise prejudice any right the Purchaser may have under the mortgage instruments, Countrywide, upon written demand, shall remit to the Purchaser the then unpaid principal balance of the related Mortgage Loan by deposit thereof in the Custodial Account. Countrywide shall maintain the Fidelity Bond insuring Countrywide against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. From time to time and as appropriate for the service or foreclosure of a Mortgage Loan, including for the purpose of collection under any PMI Policy, the Purchaser, its designee, or the Custodian shall, within five (5) Business Days of Countrywide's request and delivery to the Purchaser, its designee, or the Custodian of a servicing receipt signed by a Servicing Officer, release or cause to be released to Countrywide the portion of the Collateral File held by the Purchaser, its designee, or the Custodian. Pursuant to the servicing receipt, Countrywide shall be obligated to return to the Purchaser, its designee, or the Custodian the related Collateral File when Countrywide no longer needs such file, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or the Collateral File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially. In the event that the Purchaser fails to release or cause to be released to Countrywide the portion of the Collateral File held by the Purchaser or its designee within five (5) Business Days of Countrywide's request therefor, the Purchaser shall be liable to Countrywide for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by Countrywide resulting from such failure. Upon receipt of notice from Countrywide stating that such Mortgage Loan was liquidated, the Purchaser shall release Countrywide from its obligations under the related servicing receipt. SECTION 4.18 SERVICING COMPENSATION. As compensation for its services hereunder, Countrywide shall be entitled to withdraw from the Custodial Account, or to retain from interest payments on the Mortgage Loans, the amounts provided for as Servicing Fees. Except as otherwise provided hereunder, the obligation of the Purchaser to pay the Servicing Fee is limited to, and payable solely from, the interest portion of the Monthly Payments. Notwithstanding the foregoing, with respect to the payment of the Servicing Fee for any month, the aggregate Servicing Fee shall be reduced (but not less than zero) by an amount equal to the Prepayment Interest Shortfall for the related Due Period. Additional servicing compensation in the form of assumption fees (as provided in Section 4.16), late payment charges, prepayment penalties or otherwise shall be retained by Countrywide to the extent not required to be deposited in the Custodial Account. Countrywide shall be required to 36 pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor except as specifically provided herein. ARTICLE V. PROVISIONS OF PAYMENTS AND REPORTS TO PURCHASER SECTION 5.01 DISTRIBUTIONS. On each Remittance Date, Countrywide shall distribute to the Purchaser (a) all amounts credited to the Custodial Account as of the close of business on the preceding Determination Date, net of charges against or withdrawals from the Custodial Account pursuant to Section 4.05; plus (b) all Monthly Advances, if any, that Countrywide is obligated to distribute pursuant to Section 5.03; minus (c) any amounts attributable to Principal Prepayments received after the related Principal Prepayment Period; minus (d) any amounts attributable to Monthly Payments collected but due on a Due Date or Dates subsequent to the preceding Determination Date. It is understood that, by operation of Section 4.04, the remittance on the first Remittance Date is to include principal collected after the Cut-off Date through the preceding Determination Date plus interest, adjusted to the Mortgage Loan Remittance Rate, collected through such Determination Date exclusive of any portion thereof allocable to the period prior to the Cut-off Date, with the adjustments specified in (b), (c) and (d) above. 37 SECTION 5.02 PERIODIC REPORTS TO THE PURCHASER. (a) Monthly Reports. Not later than the fifth (5th) Business Day following the Principal Prepayment Period, Countrywide shall furnish to the Purchaser via any electronic medium a monthly report in a form reasonably acceptable to the Purchaser, which report shall include with respect to each Mortgage Loan the following loan-level information: (i) the scheduled balance as of the last day of the related Due Period, (ii) all Principal Prepayments applied to the Mortgagor's account during the related Principal Prepayment Period, (iii) the delinquency and bankruptcy status of the Mortgage Loan, if applicable, (iv) actual unpaid principal balance, (v) the date through which Monthly Payments have been made; (vi) the current Mortgage Interest Rate, (vii) Mortgage Interest Rate net of the Servicing Fee and the LPMI fee and (viii) the amount being remitted. (b) Miscellaneous Reports. Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure, Countrywide shall submit to the Purchaser a liquidation report with respect to such Mortgaged Property, which report may be included with any other reports prepared by Countrywide and delivered to the Purchaser pursuant to the terms and conditions of this Agreement. With respect to any REO Property, and upon the request of the Purchaser, Countrywide shall furnish to the Purchaser a statement describing Countrywide's efforts during the previous month in connection with the sale of such REO Property, including any rental of such REO Property incidental to the sale thereof and an operating statement. Countrywide shall also provide the Purchaser with such information concerning the Mortgage Loans as is necessary for the Purchaser to prepare its federal income tax return and as the Purchaser may reasonably request from time to time. The Purchaser agrees to pay for all reasonable out-of-pocket expenses incurred by Countrywide in connection with complying with any request made by the Purchaser hereunder if such information is not customarily provided by Countrywide in the ordinary course of servicing mortgage loans similar to the Mortgage Loans. SECTION 5.03 MONTHLY ADVANCES BY COUNTRYWIDE. Not later than the close of business on the Determination Date preceding each Remittance Date, Countrywide shall deposit in the Custodial Account an amount equal to all payments not previously advanced by Countrywide, whether or not deferred pursuant to Section 5.01, of principal (due after the Cut-off Date) and interest not allocable to the period prior to the Cut-off Date, adjusted to the Mortgage Loan Remittance Rate, which were due on a Mortgage Loan and delinquent as of the close of business on the Business Day prior to the related Determination Date. Notwithstanding anything to the contrary herein, Countrywide may use amounts on deposit in the Custodial Account for future distribution to the Purchaser to satisfy its obligation, if any, to deposit delinquent amounts pursuant to the preceding sentence. To the extent Countrywide uses any funds being held for future distribution to the Purchaser to satisfy its obligations under this Section 5.03, Countrywide shall deposit in the Custodial Account an amount equal to such used funds no later than the Determination Date prior to the following Remittance Date to the extent that funds in the Custodial Account on such Remittance Date are less than the amounts to be remitted to the Purchaser pursuant to Section 5.01. Countrywide's obligation to make such advances as to any Mortgage Loan will continue through the earliest of: (a) the last Monthly Payment due prior to the payment in full of the Mortgage Loan; (b) the Remittance Date prior to the Remittance Date for the distribution of any Liquidation Proceeds, Other Insurance Proceeds or Condemnation Proceeds which, in the case 38 of Other Insurance Proceeds and Condemnation Proceeds, satisfy in full the indebtedness of such Mortgage Loan; or (c) the Remittance Date prior to the date the Mortgage Loan is converted to REO Property; provided, however, with respect to any Government Mortgage Loan that is converted to REO Property, Countrywide's obligation to make such advances will continue in accordance with the applicable governmental agency's guidelines. In no event shall Countrywide be obligated to make an advance under this Section 5.03 if at the time of such advance it reasonably determines that such advance will be unrecoverable. SECTION 5.04 ANNUAL STATEMENT AS TO COMPLIANCE. Countrywide shall deliver to the Purchaser on or before March 15th of each year, beginning in the year following the Closing Date, an Officers' Certificate stating, as to each signatory thereof, that (a) a review of the activities of Countrywide during the preceding calendar year and of performance under this Agreement has been made under such officers' supervision, and (b) to the best of such officers' knowledge, based on such review, Countrywide has fulfilled all of its obligations under this Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officers and the nature and status thereof. Countrywide shall provide the Purchaser with copies of such statements upon request. SECTION 5.05 ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' SERVICING REPORT. On or before March 15th of each year, beginning in the year following the Closing Date, Countrywide at its expense shall cause a firm of independent public accountants, which is a member of the American Institute of Certified Public Accountants, to furnish a statement to the Purchaser to the effect that such firm has examined certain documents and records relating to Countrywide's servicing of mortgage loans of the same type as the Mortgage Loans, pursuant to this Agreement or servicing agreements substantially similar to this Agreement, and that, on the basis of such examination, conducted substantially in accordance with the Uniform Single Audit Program for Mortgage Bankers, such firm is of the opinion that Countrywide's servicing has been conducted in compliance with this Agreement or such servicing agreements examined pursuant to this Section 5.05 except for (a) such exceptions as such firm shall believe to be immaterial, and (b) such other exceptions as shall be set forth in such statement. Countrywide shall provide the Purchaser with copies of such statements upon request. SECTION 5.06 PURCHASER'S ACCESS TO COUNTRYWIDE'S RECORDS. The Purchaser shall have access upon reasonable notice to Countrywide, during regular business hours or at such other times as might be reasonable under applicable circumstances, to any and all of the books and records of Countrywide that relate to the performance or observance by Countrywide of the terms, covenants or conditions of this Agreement. Further, Countrywide hereby authorizes the Purchaser, in connection with a sale of the Mortgage Loans, to make available to prospective purchasers a Consolidated Statement of Operations of Countrywide, or its parent company, prepared by or at the request of Countrywide for the most recently completed three (3) fiscal years for which such a statement is available as well as a Consolidated Statement of Condition at the end of the last two (2) fiscal years covered by such Consolidated Statement of Operations. Countrywide also agrees to make available to any prospective purchaser, upon reasonable notice and during normal business hours, a knowledgeable financial or accounting officer for the purpose of answering questions respecting Countrywide's ability to 39 perform under this Agreement. The Purchaser agrees to reimburse Countrywide for any out-of-pocket costs incurred by Countrywide in connection with its obligations under this Section 5.06. SECTION 5.07 COMPLIANCE WITH REMIC PROVISIONS. If a REMIC election has been made with respect to the arrangement under which the Mortgage Loans and REO Property are held, Countrywide shall not take any action, cause the REMIC to take any action, or fail to take (or fail to cause to be taken) any action that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of the REMIC as a REMIC or (ii) result in the imposition of a tax upon the REMIC (including but not limited to the tax on "prohibited transactions" as defined in Section 860 (a) (2) of the Code and the tax on "contributions" to a REMIC set forth in Section 860(d) of the Code) unless Countrywide has received an Opinion of Counsel (at the expense of the party seeking to take such action) to the effect that the contemplated action will not endanger such REMIC status or result in the imposition of any such tax. ARTICLE VI. COVENANTS BY COUNTRYWIDE SECTION 6.01 INDEMNIFICATION BY COUNTRYWIDE. Countrywide shall indemnify the Purchaser and hold it harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary attorneys' fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of Countrywide to perform its obligations hereunder including its obligations to service and administer the Mortgage Loans in compliance with the terms of this Agreement. Notwithstanding the foregoing, the Purchaser shall indemnify Countrywide and hold it harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and any other costs, fees and expenses that Countrywide may sustain in any way related to (a) actions or inactions of Countrywide which were taken or omitted upon the instruction or direction of the Purchaser, or (b) the failure of the Purchaser to perform its obligations hereunder, including subsections (i) and (ii) in Section 6.04. SECTION 6.02 THIRD PARTY CLAIMS. Countrywide and the Purchaser shall immediately notify the other if a claim is made upon such party by a third party with respect to this Agreement or the Mortgage Loans. Upon the prior written consent of the Purchaser, which consent shall not be unreasonably withheld, Countrywide shall assume the defense of any such claim and pay all expenses in connection therewith, including attorneys' fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against it or the Purchaser in respect of such claim. The Purchaser shall promptly reimburse Countrywide for all amounts advanced by it pursuant to the preceding sentence except when as a result of such claim Countrywide is otherwise required to indemnify the Purchaser pursuant to Section 6.01 hereof. SECTION 6.03 MERGER OR CONSOLIDATION OF COUNTRYWIDE. Countrywide shall keep in full effect its existence, rights and franchises as a corporation under the laws of the United States or under the laws of one of the states thereof, and will obtain 40 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, or any of the Mortgage Loans, and to perform its duties under this Agreement. Notwithstanding anything to the contrary contained herein, any Person into which Countrywide may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which Countrywide shall be a party, or any Person succeeding to the business of Countrywide, shall be the successor of Countrywide hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that the successor or surviving Person shall be an institution whose deposits are insured by FDIC or a company whose business is the origination and servicing of mortgage loans, unless otherwise consented to by the Purchaser, which consent shall not be unreasonably withheld, and shall be qualified to service mortgage loans on behalf of an Agency. SECTION 6.04 LIMITATION ON LIABILITY OF COUNTRYWIDE AND OTHERS. Neither Countrywide nor any of the officers, employees or agents of Countrywide shall be under any liability to the Purchaser for any action taken, or for refraining from taking any action, in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect Countrywide or any such person against any breach of warranties or representations made herein, or the failure to perform its obligations in compliance with any standard of care set forth in this Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of this Agreement. Countrywide and any officer, employee or agent of Countrywide 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. Notwithstanding anything to the contrary contained in this Agreement, unless one or more Event of Default by Countrywide shall occur and shall not have been remedied within the time limits set forth in Section 7.01(a) of this Agreement, the Purchaser shall not record or cause to be recorded an Assignment of Mortgage with the recording office. To the extent the Purchaser records with the recording office as permitted herein an Assignment of Mortgage which designates the Purchaser as the holder of record of the Mortgage, the Purchaser agrees that it shall (i) provide Countrywide with immediate notice of any action with respect to the Mortgage or the related Mortgaged Property and ensure that the proper department or person at Countrywide receives such notice; and (ii) immediately complete, sign and return to Countrywide any document reasonably requested by Countrywide to comply with its servicing obligations, including without limitation, any instrument required to release the Mortgage upon payment in full of the obligation or take any other action reasonably required by Countrywide. The Purchaser further agrees that Countrywide shall have no liability for the Purchaser's failure to comply with the subsections (i) or (ii) in the foregoing sentence. Countrywide shall have no liability to the Purchaser and shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to service the Mortgage Loans in accordance with this Agreement and which in its opinion may involve it in any expenses or liability; provided, however, that Countrywide may, with the consent of the Purchaser, undertake any such action which it may deem necessary or desirable to protect the Purchaser's interests in the Mortgage Loans. In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities for which the Purchaser will be liable, and Countrywide shall be entitled to be reimbursed therefor from the Purchaser upon written demand except when such expenses, costs and liabilities are subject to Countrywide's indemnification under Section 6.01. 41 SECTION 6.05 NO TRANSFER OF SERVICING. Countrywide acknowledges that the Purchaser acts in reliance upon Countrywide's independent status, the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing and the continuance thereof. Without in any way limiting the generality of this Section, Countrywide shall not assign this Agreement or the servicing rights hereunder, without the prior written approval of the Purchaser, which consent may not be unreasonably withheld; provided, however, that nothing in this Agreement shall limit the right of Countrywide to assign the servicing rights hereunder to Servicing LP. SECTION 6.06 PROVISION OF INFORMATION. During the term of this Agreement, Countrywide shall furnish to the Purchaser such periodic, special, or other reports or information, and copies or originals of any documents contained in the Credit File for each Mortgage Loan provided for herein. All such reports, documents or information shall be provided by and in accordance with all reasonable instructions and directions which the Purchaser shall give in writing. In addition, during the term of this Agreement, Countrywide shall provide to the OCC and to comparable regulatory authorities supervising the Purchaser or any of Purchaser's assigns (including beneficial owners of securities issued in Pass-Through Transfers backed by the Mortgage Loans) and the examiners and supervisory agents of the OCC and such other authorities, access to the documentation required by applicable regulations of the OCC and other comparable regulatory authorities supervising the Purchaser or any of its assigns with respect to the Mortgage Loans. Such access shall be upon reasonable and prior written request and during normal business hours at the offices designated by Countrywide. To the extent the Purchaser, any of Purchaser's assigns, or the examiners and supervisory agents of the OCC request reports, documents, information, or other cooperation not generally provided by Countrywide to its other investors or readily available to Countrywide, the Purchaser shall be liable for and shall pay all reasonable out-of-pocket costs and expenses incurred by Countrywide in providing such additional reports, documents, information, or other cooperation. ARTICLE VII. TERMINATION OF COUNTRYWIDE AS SERVICER SECTION 7.01 TERMINATION DUE TO AN EVENT OF DEFAULT. (a) Each of the following shall be an Event of Default by Countrywide if it shall occur and, if applicable, be continuing for the period of time set forth therein: (i) any failure by Countrywide to remit to the Purchaser any payment required to be made under the terms of this Agreement which such failure continues unremedied for a period of three (3) Business Days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to Countrywide by the Purchaser; or (ii) any failure on the part of Countrywide to duly observe or perform in any material respect any of the covenants or agreements on the part of Countrywide set forth in this Agreement, including but not limited to breach by Countrywide of any one or more of the representations, warranties, and covenants of Countrywide as set forth in Section 3.01 of this Agreement, or in the Custodial Agreement, if any, which continues 42 unremedied for a period of thirty (30) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to Countrywide by the Purchaser; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against Countrywide and such decree or order shall have remained in force undischarged or unstayed for a period of sixty (60) days; or (iv) Countrywide shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to Countrywide or of or relating to all or substantially all of its property; or (v) Countrywide shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations, or completely ceases its business operations for a period of five (5) consecutive Business Days; or (vi) failure by Countrywide to maintain its license to do business in any jurisdiction where the Mortgaged Property is located if such license is required; or (vii) Countrywide ceases to meet the servicer eligibility qualifications of both Agencies; or (viii) Countrywide attempts to assign this Agreement or all of its servicing responsibilities or duties hereunder or any portion thereof in violation of Section 6.05. If Countrywide obtains knowledge of an Event of Default, it shall promptly notify the Purchaser. In case one or more Events of Default by Countrywide shall occur and shall not have been remedied, the Purchaser, by notice in writing to Countrywide may, in addition to whatever rights the Purchaser may have at law or equity to damages, including injunctive relief and specific performance, terminate all the rights and obligations of Countrywide under this Agreement and in and to the Mortgage Loans and the proceeds thereof. On or after the receipt by Countrywide of such written notice, all authority and power of Countrywide under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the Purchaser. Upon written request from the Purchaser, Countrywide shall prepare, execute and deliver, any and all documents and other instruments and 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, at Countrywide's sole expense. Countrywide agrees to cooperate with the Purchaser in effecting the termination of Countrywide's responsibilities and rights hereunder, including the transfer to the Purchaser, for administration by it, of all cash amounts which shall at the time be credited by Countrywide to the Custodial Account or Escrow Account or thereafter received with respect to the Mortgage Loans. 43 (b) Waiver of Event of Default. Upon written notice, the Purchaser may waive any default by Countrywide in the performance of Countrywide's obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any Events of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto except to the extent expressly so waived. SECTION 7.02 TERMINATION WITHOUT CAUSE. The Purchaser may terminate, any servicing rights Countrywide may have hereunder with respect to any Mortgage Loan Package, without cause as provided in this Section 7.02. Any such notice of termination shall be in writing and delivered to Countrywide by registered mail as provided in Section 8.01 at least sixty (60) days prior to such termination date. In the event the servicing rights with respect to a Mortgage Loan Package are terminated pursuant to this Section 7.02, Countrywide shall be entitled to receive, as liquidated damages, upon the transfer of the servicing rights, an amount equal to the sum of (i) the greater of (A) two and one-half percent (2 1/2%) of the aggregate outstanding principal amount of the Mortgage Loans, or (B) the fair market value of the servicing rights, each as of the termination date, plus (ii) all reasonable costs and expenses incurred by Countrywide in managing the transfer of the servicing. The fair market value of the servicing rights shall be determined based on the average of three (3) bids made by experienced evaluators unaffiliated to the Purchaser or Countrywide and chosen as follows: (X) one by the Purchaser, (Y) one by Countrywide, and (Z) one by mutual agreement of the evaluators chosen by the Purchaser and Countrywide, pursuant to (X) and (Y) above. SECTION 7.03 TERMINATION BY OTHER MEANS. The respective obligations and responsibilities of Countrywide shall terminate with respect to any Mortgage Loan Package upon the first to occur of: (a) the later of the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan or the disposition of all REO Property in such Mortgage Loan Package and the remittance of all funds due hereunder; (b) by mutual consent of Countrywide and the Purchaser in writing; (c) the repurchase by Countrywide of all outstanding Mortgage Loans and REO Property in a Mortgage Loan Package at a price equal to (i) in the case of a Mortgage Loan, 100% of the Stated Principal Balance of each Mortgage Loan on the date of such repurchase plus accrued interest thereon through the last day of the month of repurchase, and (ii) in the case of REO Property, the lesser of (1) 100% of the Stated Principal Balance of the Mortgage Loan encumbering the Mortgaged Property at the time such Mortgaged Property was acquired and became REO Property or (2) the fair market value of such REO Property at the time of repurchase; or (d) the Pass-Through Transfer of the last Mortgage Loan in such Mortgage Loan Package. The right of Countrywide to repurchase all outstanding Mortgage Loans in a Mortgage Loan Package pursuant to (c) above shall be conditional upon (i) the outstanding Stated Principal Balances of such Mortgage Loans at the time of any such repurchase aggregating less than five percent (5%) of the aggregate Stated Principal Balances of the Mortgage Loans on the related Cut-off Date, and (ii) the determination by Countrywide that the reasonable costs and expenses incurred by Countrywide in the performance of its servicing obligations hereunder with respect to such Mortgage Loans exceed the benefits accruing to Countrywide therefrom. 44 ARTICLE VIII. MISCELLANEOUS SECTION 8.01 NOTICES. All demands, notices and communications required to be provided hereunder shall be in writing and shall be deemed to have been duly given if mailed, by registered or certified mail, postage prepaid, and return receipt requested, or, if by other means, when received by the other party at the address as follows: (i) to Countrywide: Countrywide Home Loans, Inc. 4500 Park Granada Calabasas, California 91302 Attn: Celia Coulter, Executive Vice President With copy to: General Counsel (ii) the Purchaser: To the address and contact set forth in the related Purchase Confirmation or such other address as may hereafter be furnished to the other party by like notice. Any such demand, notice or 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 8.02 SALE TREATMENT. It is the express intention of the parties that the transactions contemplated by this Agreement be, and be construed as, a sale of the Mortgage Loans by Countrywide and not a pledge of the Mortgage Loans by Countrywide to the Purchaser to secure a debt or other obligation of Countrywide. Consequently, the sale of each Mortgage Loan shall be reflected as a sale on Countrywide's business records, tax returns and financial statements. Accordingly, Countrywide and the Purchaser shall each treat the transaction for federal income tax purposes as a sale by Countrywide, and a purchase by the Purchaser, of the Mortgage Loans. SECTION 8.03 EXHIBITS. The Exhibits to this Agreement and each Trade Confirmation and Purchase Confirmation executed by Countrywide and the Purchaser are hereby incorporated and made a part hereof and are an integral part of this Agreement. SECTION 8.04 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; 45 (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) 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; (f) the term "include" or "including" shall mean without limitation by reason of enumeration; and (g) reference to the Transaction Documents or any other document referenced herein shall include all exhibits, schedules or other supplements thereto. SECTION 8.05 REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including (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 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. SECTION 8.06 FURTHER AGREEMENTS. Countrywide shall execute and deliver to the Purchaser and the Purchaser shall be required to execute and deliver to Countrywide such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Agreement. SECTION 8.07 ASSIGNMENT OF MORTGAGE LOANS BY THE PURCHASER; WHOLE LOAN TRANSFER; PASS-THROUGH TRANSFERS. (a) The Purchaser may, subject to the terms of this Agreement, sell and transfer one or more of the Mortgage Loans; provided, however, that the transferee will not be deemed to be the Purchaser hereunder unless such transferee shall agree in writing to be bound by the terms of this Agreement and an original counterpart of the document evidencing such agreement shall have been executed by the Purchaser and the transferee and delivered to Countrywide. Notwithstanding the foregoing, no transfer shall be effective if such transfer would result in there being more than four (4) "Purchasers" outstanding hereunder with respect to any Mortgage Loan Package. Any trust to which Mortgage Loans may be transferred pursuant to Section 8.07(b) hereunder shall constitute a single Purchaser for the purposes of the preceding sentence. 46 (b) The Purchaser and Countrywide agree that with respect to some or all of the Mortgage Loans, the Purchaser, at its sole option, but subject to the limitations set forth in Section 8.07(a) hereof, may effect Pass-Through Transfers, retaining Countrywide as the servicer thereof or subservicer if a master servicer is employed, or as applicable the "seller/servicer." On the related Reconstitution Date, the Mortgage Loans transferred shall cease to be covered by this Agreement; provided, however, that, in the event that any Mortgage Loan transferred pursuant to this Section 8.07 is rejected by the related transferee, Countrywide shall continue to service such rejected Mortgage Loan on behalf of the Purchaser in accordance with the terms and provisions of this Agreement. Countrywide shall cooperate with the Purchaser in connection with each Whole Loan Transfer or Pass-Through Transfer in accordance with this Section 8.07. In connection therewith Countrywide shall: (i) negotiate in good faith and execute any assignment, assumption and recognition agreement or seller/servicer agreement reasonably required to effectuate the Whole Loan Transfer or Pass-Through Transfer, provided such agreement creates no greater obligation or cost on the part of Countrywide than otherwise set forth in this Agreement, and provided further that Countrywide shall be entitled to a servicing fee under that agreement at a rate per annum no less than the Servicing Fee Rate; and (ii) provide as applicable: (A) information pertaining to Countrywide of the type and scope customarily included in offering documents for residential mortgage-backed securities transactions involving multiple loan originators; and (B) such opinions of counsel, letters from auditors, and certificates of public officials or officers of Countrywide as are reasonably believed necessary by the trustee, any rating agency or the Purchaser, as the case may be, in connection with such Whole Loan Transfer or Pass-Through Transfer. The Purchaser or another party to such Whole Loan Transfer or Pass-Through Transfer shall pay all third party costs associated with the preparation of the information described in clause (ii)(A) above and the delivery of any opinions, letters or certificates described in this clause (ii)(B). Countrywide shall not be required to execute any seller/servicer agreement unless a draft of the agreement is provided to Countrywide at least 10 days before the Reconstitution Date, or such longer period as may reasonably be required for Countrywide and its counsel to review and comment on the agreement. (c) In connection with any Whole Loan Transfer or Pass-Through Transfer, Countrywide shall not be required to "bring down" any of the representations and warranties in Section 3.02 (i.e., the representations and warranties only speak as of the applicable date set forth in this Agreement), or, except as provided in the following sentence, to make any other representations or warranties whatsoever. Upon request, Countrywide will bring down the representations and warranties in Section 3.01 to a date no later than the related Reconstitution Date, or make new representations and warranties comparable in all material respects to those in Section 3.01 or make representations and warranties (1) that Countrywide has serviced the Mortgage Loans in accordance with the terms of this Agreement and provided accurate statements to the Purchaser pursuant to Section 5.02 of this Agreement, and (2) that Countrywide has taken no action nor omitted to take any required action the omission of which would have the effect of impairing any mortgage insurance or guarantee on the Mortgage Loans, and (3) 47 regarding the accuracy of the information provided to the Purchaser by Countrywide on or before the closing date of the applicable Whole Loan Transfer or Pass-Through Transfer. (d) All Mortgage Loans not sold or transferred pursuant to Pass-Through Transfers shall remain subject to this Agreement and shall continue to be serviced in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect. (e) With respect to any Mortgage Loans that are subject to a Pass-Through Transfer or other securitization transaction, to the extent that either of the Purchaser, any master servicer which is master servicing loans in connection with such transaction (a "Master Servicer"), or any related depositor (a "Depositor") is required under the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") to prepare and file a certification pursuant to Section 302 of the Sarbanes-Oxley Act, on or before March 15, 2004, and March 1 of each year thereafter, an officer of Countrywide shall, prior to the deadline for such certification, execute and deliver an Officer's Certificate, in the form attached hereto as Exhibit F, to such Purchaser, Master Servicer, or Depositor, as the case may be, for the benefit of such entity. (f) Countrywide shall indemnify and hold harmless such Purchaser, Master Servicer, or Depositor, as the case may be (any such party, an "Indemnified Party") from and against any losses, damages, penalties, fines, forfeitures, reasonable legal fees and related costs, judgments and other costs and expenses arising out of or based upon a breach by Countrywide or any of its officers, directors, or agents of its obligations under Section 8.07(e); provided, however, that Countrywide shall not be obligated to indemnify or hold harmless any Indemnified Party from or against any losses, damages, penalties, fines, forfeitures, reasonable legal fees and related costs, judgments and other costs and expenses arising out of or based upon the negligence, bad faith or willful misconduct of such Indemnified Party. SECTION 8.08 CONFLICTS BETWEEN TRANSACTION DOCUMENTS. In the event of any conflict, inconsistency or ambiguity between the terms and conditions of this Agreement and either the related Trade Confirmation or the related Purchase Confirmation, the terms of the related Purchase Confirmation shall control. In the event of any conflict, inconsistency or ambiguity between the terms and conditions of the Trade Confirmation and the Purchase Confirmation, the terms of the Purchase Confirmation shall control. SECTION 8.09 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements entered into and wholly performed within that state. SECTION 8.10 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 48 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 an amendment to this Agreement which places each party in the same or as economic position as each party would have been in except for such invalidity. SECTION 8.11 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of and be enforceable by Countrywide and the Purchaser and the respective permitted successors and assigns of Countrywide and the Purchaser. Except as specifically set forth in Section 8.07 above, the Purchaser may not assign this Agreement to any Person without Countrywide's prior written consent, which consent shall not be unreasonably withheld. SECTION 8.12 CONFIDENTIALITY. Countrywide and the Purchaser acknowledge and agree that the terms of the Transaction Documents shall be kept confidential and their contents will not be divulged to any party without the other party's consent, except to the extent that it is appropriate for Countrywide and the Purchaser to do so in working with legal counsel, auditors, taxing authorities, or other governmental agencies. The Purchaser and Countrywide shall comply with any and all federal and state laws, rules, and regulations governing or relating to the confidentiality and security of "nonpublic personal information" (as such term is defined in the Gramm-Leach-Bliley Act ("GLBA")), including, without limitation, the GLBA. The Purchaser and Countrywide shall implement such physical and other security measures as shall be necessary to (a) ensure the security and confidentiality of any "nonpublic personal information" that is disclosed in any manner or for any purpose to either party and that pertains to any "Customers" or "consumers" (as such terms are defined in GLBA) pertaining to the Mortgage Loans, (b) protect against any threats or hazards to the security and integrity of such "nonpublic personal information," and (c) protect against any unauthorized access to or use of such "nonpublic personal information." Both parties represent and warrant that they have implemented appropriate measures to meet the objectives of Section 501(b) of the GLBA and of the applicable standards adopted pursuant thereto. Upon request, and to the extent there is no violation of applicable laws or regulations, either party shall provide information to the other party, including, without limitation, any regulatory or supervising authorities, and allow the confirmation of the party's satisfaction of its obligations as required under this Section. Without limitation, such information may include audits, summaries of test results, and other equivalent evaluations. SECTION 8.13 SOLICITATION OF MORTGAGORS. From and after the Closing Date, Countrywide hereby agrees that Countrywide will not take any action or permit or cause any action to be taken by any of their agents or affiliates, or by any independent contractors or independent mortgage brokerage companies on Countrywide's behalf, to personally, by telephone or mail, solicit the Mortgagor under any Mortgage Loan for the purpose of refinancing such Mortgage Loan; provided, that Countrywide may solicit any Mortgagor for whom Countrywide or it affiliates have received a request for verification of 49 Mortgage, a request for demand for payoff, a Mortgagor-initiated written or verbal communication indicating a desire to prepay the related Mortgage Loan, or the Mortgagor initiates a title search, provided further, it is understood and agreed that promotions undertaken by Countrywide or any of their affiliates which (i) concern optional insurance products or other additional projects or (ii) are directed to the general public at large, including, without limitation, mass mailings based on commercially acquired mailing lists, newspaper, radio and television advertisements shall not constitute solicitation nor is Countrywide prohibited from responding to unsolicited requests or inquiries made by a Mortgagor or an agent of a Mortgagor. Notwith-standing the foregoing, the following solicitations, if undertaken by Countrywide or any affiliate of Countrywide, shall not be prohibited: (i) solicitations that are directed to the general public at large, including, without limitation, mass mailings based on commercially acquired mailing lists and newspaper, radio, television and other mass media advertisements and (ii) borrower messages included on, and statement inserts provided with, the monthly statements sent to Mortgagors; provided, however, that similar messages and inserts are sent to the borrowers of other mortgage loans serviced by Countrywide or any affiliate of Countrywide. SECTION 8.14 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed or construed to create a partnership or joint venture between the parties hereto and the services of Countrywide shall be rendered as an independent contractor and not as agent for the Purchaser. [INTENTIONALLY LEFT BLANK] 50 SECTION 8.15 ENTIRE AGREEMENT. This Agreement and the related Trade Confirmation and Purchase Confirmation constitute the entire understanding between the parties hereto with respect to each Mortgage Loan Package and supersede all prior or contemporaneous oral or written communications regarding same. Countrywide and the Purchaser understand and agree that no employee, agent or other representative of Countrywide or the Purchaser has any authority to bind such party with regard to any statement, representation, warranty or other expression unless said statement, representation, warranty or other expression is specifically included within the express terms of this Agreement or the related Trade Confirmation or Purchase Confirmation. Neither this Agreement nor the related Trade Confirmation or Purchase Confirmation shall be modified, amended or in any way altered except by an instrument in writing signed by both parties. (SIGNATURE PAGE TO FOLLOW) 51 IN WITNESS WHEREOF, Countrywide 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. COUNTRYWIDE HOME LOANS, INC., Countrywide By: /s/ Celia Coulter ------------------------------------ Name: Celia Coulter Title: Executive Vice President BANC OF AMERICA MORTGAGE CAPITAL CORPORATION, the Purchaser By: /s/ Bruce W. Good ------------------------------------ Name: Bruce W. Good Title: Vice President 52 EXHIBIT A COLLATERAL DOCUMENTS (1) Mortgage Note: The original Mortgage Note (or, with respect to no more than one percent (1%) of the unpaid principal balance of the Mortgage Loans as of the related Cut-off Date, a lost note affidavit in a form acceptable to an Agency) bearing all intervening endorsements, endorsed "Pay to the order of _____________, without recourse" and signed in the name of Countrywide by an authorized officer (provided that, in the event that the Mortgage Loan was acquired by Countrywide in a merger, the signature must be in the following form: "Countrywide, successor by merger to [name of predecessor]"; and in the event that the Mortgage Loan was acquired or originated by Countrywide while doing business under another name, the signature must be in the following form: "Countrywide", formerly known as [previous name]"). (2) Assignment of Mortgage: The original Assignment of Mortgage in blank for each Mortgage Loan (except for the insertion of the name of the assignee and recording information). If the Mortgage Loan was acquired by Countrywide in a merger, the Assignment of Mortgage must be made by "[Countrywide], successor by merger to [name of predecessor]." If the Mortgage Loan was acquired or originated by Countrywide while doing business under another name, the Assignment of Mortgage must be by "[Countrywide], formerly know as [previous name]." Subject to the foregoing and where permitted under the applicable laws of the jurisdiction wherein the Mortgaged property is located, such Assignments of Mortgage may be made by blanket assignments for Mortgage Loans secured by the Mortgaged Properties located in the same county. If the related Mortgage has been recorded in the name of MERS or its designee, no Assignment of Mortgage will be required to be prepared or delivered. (3) Guarantee: The original or certified true copy of any guarantee executed in connection with the Mortgage Note, if any. (4) Mortgage: The original Mortgage with evidence of recording thereon or, if such original Mortgage has not been returned to Countrywide on or prior to the Closing Date by the public recording office where such Mortgage has been delivered for recordation, a copy of such Mortgage certified by Countrywide to be a true and complete copy of the original Mortgage sent for recordation. In the case of a Mortgage where a public recording office retains the original recorded Mortgage or in the case where a Mortgage is lost after recordation in a public recording office, a copy of such Mortgage certified by such public recording office or by the title insurance company that issued the title policy to be a true and complete copy of the original recorded Mortgage. (5) Modifications: The originals or certified true copies of any documents sent for recordation of all assumption, modification, consolidation or extension agreements, with evidence of recording thereon, if any. A-1 (6) Intervening Assignments: The originals of all intervening assignments of Mortgage with evidence of recording thereon, provided that such originals have been returned to Countrywide by the public recording office where such intervening assignment of Mortgage has been delivered for recordation. Where a public recording office retains the original recorded intervening assignment or in the case where an intervening assignment is lost after recordation in a public recording office, a copy of such intervening assignment certified by such public recording office to be a true and complete copy of the original recorded intervening assignment. (7) Loan Guaranty Certificate: The original Loan Guaranty Certificate, if applicable. (8) For each Mortgage Loan secured by Co-op Shares, the originals of the following documents or instruments: (A) the stock certificate; (B) the stock power executed in blank; (C) the executed proprietary lease; (D) the executed recognition agreement; (E) the executed assignment of recognition agreement; (F) the executed UCC-1 financing statement with evidence of recording thereon; and (G) the executed UCC-3 financing statement or other appropriate UCC financing statements required by state law, evidencing a complete and unbroken line from the mortgagee to the Trustee with evidence or recording thereon (or in a form suitable for recordation). A-2 EXHIBIT B FORM OF PURCHASE CONFIRMATION [COUNTRYWIDE LETTERHEAD] [DATE] [PURCHASER] [STREET ADDRESS] [CITY, STATE AND ZIP] Attn: [CONTACT, TITLE] Re: Purchase Confirmation ($x.xmm) (Deal No. xxxx-xxx) Ladies and Gentlemen: This purchase confirmation (the "Purchase Confirmation") between Countrywide Home Loans, Inc. ("Countrywide") and [PURCHASER] ("Purchaser") sets forth our agreement pursuant to which Purchaser is purchasing, and Countrywide is selling, on a servicing-retained basis, those certain mortgage loans identified in Exhibit A hereto and more particularly described herein (the "Mortgage Loans"). The purchase, sale and servicing of the Mortgage Loans as contemplated herein shall be governed by that certain Master Mortgage Loan Purchase and Servicing Agreement dated as of [DATE], between Countrywide and Purchaser (as amended herein and otherwise, the "Agreement"). By executing this Purchase Confirmation, each of Countrywide and Purchaser again makes, with respect to itself and each Mortgage Loan, as applicable, all of the covenants, representations and warranties made by each such party in the Agreement, except as the same may be amended by this Purchase Confirmation. All exhibits hereto are incorporated herein in their entirety. In the event there exists any inconsistency between the Agreement and this Purchase Confirmation, the latter shall be controlling notwithstanding anything contained in the Agreement to the contrary. All capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Agreement. 1. Assignment and Conveyance of Mortgage Loans. Upon Purchaser's payment of the Purchase Proceeds in accordance with Section 2.08 of the Agreement, Countrywide shall sell, transfer, assign and convey to Purchaser, without recourse, but subject to the terms of the Purchase Confirmation and the Agreement, all of the right, title and interest of Countrywide in and to the Mortgage Loans, excluding the servicing rights relating thereto. Each Mortgage Loan shall be serviced by Countrywide pursuant to the terms of the Agreement. 2. Defined Terms. As used in the Agreement, the following defined terms shall have meanings set forth below with respect to the related Mortgage Loan Package. B-1 a. Closing Date: [DATE]. b. Cut-off Date: [DATE]. c. Cut-off Date Balance: [d. Index: On each Interest Adjustment Date, the applicable index rate shall be a rate per annum equal to [the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year, as published by the Board of Governors of the Federal Reserve System in Statistical Release No. H.15] [the average of interbank offered rates for six-month U.S. dollar denominated deposits in the London market (LIBOR), as published [in the Wall Street Journal] [by Fannie Mae] [the 11th District Cost of Funds as made available by the Federal Home Loan Bank] [the weekly average yield on certificates of deposit adjusted to a constant maturity of six months as published by the Board of Governors of the Federal Reserve System in Statistical Release No. H.15 or a similar publication.]] e. Missing Credit Documents: As set forth in Exhibit [C] hereto. Notwithstanding anything contained in Section 2.04 of the Agreement to the contrary, Countrywide's obligation to repurchase from the Purchaser the Mortgage Loan related to a Missing Credit Document shall occur only in the event of a default by a Mortgagor or any material impairment of the Mortgaged Property directly arising a breach of Countrywide's obligation to deliver the Missing Credit Document within the time specified in Section 2.04 of the Agreement. [f. Pending Mortgage Loans: As set forth in Exhibit [C] hereto.] g. Purchase Proceeds: With respect to [the Mortgage Loans] [each Mortgage Loan], and as set forth in Exhibit [A] and Exhibit [B] hereto, the sum of (a) the product of (i) the Cut-off Date Balance of [such Mortgage Loan] [such Mortgage Loans], and (ii) the purchase price percentage set forth in Exhibit [A] hereto for such [Mortgage Loan] [Mortgage Loans], and (b) accrued interest from the Cut-off Date through the day prior to the Closing Date, inclusive. g. Servicing Fee Rate: [0.25%] [0.375%] [With respect to the period prior to the initial Interest Adjustment Date, [0.25]% and, thereafter, [0.375]%]. 3. Description of Mortgage Loans. Each Mortgage Loan complies with the specifications set forth below in all material respects. a. Loan Type: Each Mortgage Loan is a [Conventional] [Government] Mortgage Loan and a [Adjustable Rate] [Balloon] [Convertible] [Fixed Rate] Mortgage Loan. b. Lien Position: Each Mortgage Loan is secured by a perfected [first] [second] lien Mortgage. d. Underwriting Criteria: Each Mortgage Loan [was underwritten generally in accordance with Countrywide's credit underwriting guidelines in effect at the time such Mortgage Loan was originated] [conforms to the Fannie Mae or Freddie Mac mortgage eligibility criteria (as such criteria applies to Countrywide) and is eligible for sale to, and securitization by, Fannie Mae or Freddie Mac] [conforms in all material respects to the GNMA mortgage eligibility criteria and is eligible for sale and securitization into a GNMA mortgage- B-2 backed security] [at the time of origination was underwritten to guidelines which are consistent with an institutional investor-quality mortgage loan]. B-3 Kindly acknowledge your agreement to the terms of this Purchase Confirmation by signing in the appropriate space below and returning this Purchase Confirmation to the undersigned. Telecopy signatures shall be deemed valid and binding to the same extent as the original. Sincerely, Agreed to and Accepted by: COUNTRYWIDE HOME LOANS, INC. [PURCHASER] By: By: --------------------------------- ------------------------------------ Name: Celia Coulter Name: Title: Executive Vice President Title: B-4 EXHIBIT A TO PURCHASE CONFIRMATION MORTGAGE LOAN SCHEDULE (attached) B-A-1 EXHIBIT B TO PURCHASE CONFIRMATION CALCULATION OF PURCHASE PROCEEDS (attached) B-B-1 EXHIBIT C TO PURCHASE CONFIRMATION MISSING CREDIT DOCUMENTS LOAN COUNT LOAN NUMBER DOCUMENT ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- B-C-1 EXHIBIT D TO PURCHASE CONFIRMATION PENDING MORTGAGE LOANS LOAN COUNT LOAN NUMBER DOCUMENT ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- ----------- -------- B-D-1 EXHIBIT C FORM OF CUSTODIAL AGREEMENT [CUSTODIAN'S LETTERHEAD] C-1 EXHIBIT D FORM OF TRADE CONFIRMATION [COUNTRYWIDE LETTERHEAD] [DATE] [PURCHASER] [STREET ADDRESS] [CITY, STATE AND ZIP] Attn: [CONTACT, TITLE] Re: Sale of $[AMOUNT] Million of Mortgage Loans to [PURCHASER] (Deal No. yrmm-xxx) Ladies and Gentlemen: This Trade Confirmation confirms the agreement between [PURCHASER] ("Purchaser") and Countrywide Home Loans, Inc. ("Countrywide") pursuant to which Purchaser has agreed to purchase, and Countrywide has agreed to sell, those certain mortgage loans [identified][summarized] in Exhibit A hereto (the "Mortgage Loans"), subject to the terms set forth herein. Closing Date: _________ __, [year][, provided, however, that the parties shall use their best efforts to consummate the transaction prior to [DATE]. Commitment Amount: $______________. Purchase Price: $______________. Percentage: ____%, subject to adjustment as set forth in Exhibit A. [Loan-level pricing as set forth in Exhibit A.] Product: [Jumbo]["A"][A-"]["Alt A"] [Sub-prime] [Conforming] [Conventional] [Government] [Second Lien/HELOC] [[fixed][(x/1) Index adjustable] rate mortgage loans]. (undefined terms should not be capitalized) Underwriting Criteria: Servicing Rights: RETAINED: Retained by Countrywide and serviced on a [scheduled/scheduled] [actual/actual] [scheduled][actual] basis for the servicing fee rate [equal to FEE% per annum][set forth in Exhibit A [for each Mortgage Loan]]. [ With respect to the period prior to the initial Interest Adjustment Date, 0.25% and, thereafter, 0.375%]. Prepayment Penalties: [Countrywide] [Purchaser] shall be entitled to any penalties resulting from the prepayment of any Mortgage Loans by the related mortgagor(s). D-1 Documentation: [Assignment of a [type of agreement]] [Industry standard purchase and servicing agreement.] Conditions: [Review of Mortgage Loans by Purchaser to confirm conformance with this Trade Confirmation. Countrywide may, at its option, elect to substitute comparable mortgage loans for any Mortgage Loans rejected by Purchaser pursuant to the preceding sentence.] [Countrywide's sale of the Mortgage Loans is expressly subject to (a) the review of the Mortgage Loans by Purchaser to confirm conformance with the Trade Confirmation, and (b) purchase of the Mortgage Loans by Countrywide on or before the Closing Date from the current owner of the Mortgage Loans (the "Current Owner"). If either of the foregoing conditions are not satisfied, Countrywide shall have no liability to Purchaser.] Non-Circumvent: Countrywide and Purchaser understand and agree that Countrywide may introduce the owner of the Mortgage Loans to Purchaser, that the Current Owner is a customer of Countrywide and that such relationship of Countrywide is confidential. Purchaser agrees, with respect to the Current Owner, Purchaser will not, for the purpose of purchasing other mortgage loans [for a period of one year from the Closing Date], communicate with or purchase such other mortgage loans from the Current Owner unless the Current Owner has had previous business dealings (other than any transactions involving Countrywide) with the Current Owner in a similar context. D-2 Please acknowledge your agreement to the terms and conditions of this Trade Confirmation by signing in the appropriate space below and returning a copy of the same to the undersigned. Telecopy signatures shall be deemed valid and binding to the same extent as the original. Sincerely, Agreed to and Accepted by: COUNTRYWIDE HOME LOANS, INC. [PURCHASER] By: By: --------------------------------- ------------------------------------ Name: Celia Coulter Name: Title: Executive Vice President Title: D-3 EXHIBIT A TO TRADE CONFIRMATION MORTGAGE LOAN SCHEDULE AND PRICING INFORMATION (attached) D-A-1 EXHIBIT B TO TRADE CONFIRMATION UNDERWRITING GUIDELINES (attached) D-B-1 EXHIBIT E FORM OF MORTGAGE LOAN SCHEDULE E-1 EXHIBIT F FORM OF OFFICER'S CERTIFICATE I, [identify certifying individual], certify to the [Purchaser], [Master Servicer], or [Depositor] [i.e. THE PARTY EXECUTING THE CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002] that: (i) Based on my knowledge, the information in the annual statement of compliance, the annual independent public accountant's servicing report and all servicing reports, officer's certificates and other information relating to the servicing of the Mortgage Loans conducted by Countrywide taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading as of the date of this certification; (ii) The servicing information required to be provided by Countrywide under the Agreement has been provided to the Purchaser [or the Master Servicer]; (iii) I am is responsible for reviewing the activities performed by Countrywide under the Agreement and based upon the review required by the Agreement, and except as disclosed in the annual statement of compliance or the annual independent public accountant's servicing report, Countrywide has, as of the date of this certification fulfilled its obligations under the Agreement; and (iv) Such officer has disclosed to the Purchaser [orthe Master Servicer] all significant deficiencies relating to Countrywide's compliance with the minimum servicing standards in accordance with a review conducted in compliance with the Uniform Single Attestation Program for Mortgage Bankers or similar standard as set forth in the Agreement. Dated as of: ________________________ COUNTRYWIDE HOME LOANS, INC., Countrywide By: ------------------------------------ Name: Title: F-1

  Exhibit 10.1 FIRST AMENDMENT TO SENIOR SECURED REVOLVING CREDIT AGREEMENT      THIS FIRST AMENDMENT TO SENIOR SECURED REVOLVING CREDIT AGREEMENT (this “Amendment”) made as of the 27th day of September, 2006, by and among REPUBLIC PROPERTY LIMITED PARTNERSHIP, a Delaware limited partnership (“Borrower”), REPUBLIC PROPERTY TRUST, a Maryland real estate investment trust (“Parent Guarantor”), THE OTHER ENTITIES LISTED ON THE SIGNATURE PAGES HEREOF AS GUARANTORS (the “Subsidiary Guarantors”; the Parent Guarantor and the Subsidiary Guarantors are hereinafter referred to collectively as the “Guarantors”), KEYBANK NATIONAL ASSOCIATION, a national banking association (“KeyBank”), THE OTHER LENDERS WHICH ARE SIGNATORIES HERETO (KeyBank and the other lenders which are signatories hereto, collectively, the “Lenders”), and KEYBANK NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Lenders (the “Agent”). W I T N E S S E T H:      WHEREAS, Borrower, Parent Guarantor, Agent and the Lenders entered into that certain Senior Secured Revolving Credit Agreement dated as of May 1, 2006 (the “Credit Agreement”); and      WHEREAS, Borrower has requested that the Agent and the Lenders make certain modifications to the terms of the Credit Agreement; and      WHEREAS, the Agent and the Lenders have agreed to make such modifications subject to the execution and delivery by Borrower and Guarantors of this Amendment.      NOW, THEREFORE, for and in consideration of the sum of TEN and NO/100 DOLLARS ($10.00), and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby covenant and agree as follows:      1. Definitions. All the terms used herein which are not otherwise defined herein shall have the meanings set forth in the Credit Agreement.      2. Modification of the Credit Agreement. Borrower, Parent Guarantor, the Lenders and Agent do hereby modify and amend the Credit Agreement as follows:           (a) By adding the following to the end of the definition of “Gross Asset Value” appearing in §1.1 of the Credit Agreement: “Notwithstanding the terms of clause (ii) above, the asset commonly known as Dulles Park Technology Center located at 13461 Sunrise Valley Drive, Herndon, Virginia shall be valued for the purposes of clause (ii) above at the acquisition cost of such Real Estate determined in accordance with GAAP.”; and           (b) By deleting the number “$150,000,000.00” appearing in §9.6(b) of the Credit Agreement, and inserting in lieu thereof the number “$147,000,000.00”.   --------------------------------------------------------------------------------        3. References to Credit Agreement. All references in the Loan Documents to the Credit Agreement shall be deemed a reference to the Credit Agreement, as modified and amended herein.      4. Acknowledgment of Borrower and Guarantors. Borrower and Guarantors hereby acknowledge, represent and agree that the Loan Documents, as modified and amended herein, remain in full force and effect and constitute the valid and legally binding obligation of Borrower and Guarantors, as applicable, enforceable against Borrower and Guarantors in accordance with their respective terms, and that the execution and delivery of this Amendment and any other documents in connection therewith do not constitute, and shall not be deemed to constitute, a release, waiver or satisfaction of Borrower’s or Guarantors’ obligations under the Loan Documents.      5. Representations and Warranties. Borrower and Guarantors represent and warrant to Agent and the Lenders as follows:           (a) Authorization. The execution, delivery and performance of this Amendment and the transactions contemplated hereby (i) are within the authority of Borrower and Guarantors, (ii) have been duly authorized by all necessary proceedings on the part of the Borrower and Guarantors, (iii) do not and will not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of the Guarantors is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of the Guarantors, (iv) do not and will not conflict with or constitute a default (whether with the passage of time or the giving of notice, or both) under any provision of the partnership agreement or certificate, certificate of formation, operating agreement, articles of incorporation or other charter documents or bylaws of, or any mortgage, indenture, agreement, contract or other instrument binding upon, the Borrower or any of the Guarantors or any of their respective properties or to which the Borrower or any of the Guarantors is subject, and (v) do not and will not result in or require the imposition of any lien or other encumbrance on any of the properties, assets or rights of the Borrower or any of the Guarantors, other than the liens and encumbrances created by the Loan Documents.           (b) Enforceability. The execution and delivery of this Amendment are valid and legally binding obligations of Borrower and Guarantors enforceable in accordance with the respective terms and provisions hereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and the effect of general principles of equity.           (c) Approvals. The execution, delivery and performance of this Amendment and the transactions contemplated hereby do not require the approval or consent of any Person or the authorization, consent, approval of or any license or permit issued by, or any filing or registration with, or the giving of any notice to, any court, department, board, commission or other governmental agency or authority other than those already obtained.           (d) Reaffirmation. Borrower and Guarantors reaffirm and restate as of the date hereof each and every representation and warranty made by the Borrower, the Guarantors and their respective Subsidiaries in the Loan Documents or otherwise made by or on behalf of such Persons in connection therewith except for representations or warranties that expressly relate to an earlier date. 2 --------------------------------------------------------------------------------        6. No Default. By execution hereof, the Borrower and Guarantors certify that Borrower and each of the Guarantors is and will be in compliance with all covenants under the Loan Documents after the execution and delivery of this Amendment, and that no Default or Event of Default has occurred and is continuing.      7. Waiver of Claims. Borrower and Guarantors acknowledge, represent and agree that none of such Persons has any defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever with respect to the Loan Documents, the administration or funding of the Loan or with respect to any acts or omissions of Agent or any Lender, or any past or present officers, agents or employees of Agent or any Lender, and each of such Persons does hereby expressly waive, release and relinquish any and all such defenses, setoffs, claims, counterclaims and causes of action, if any.      8. Ratification. Except as hereinabove set forth, all terms, covenants and provisions of the Credit Agreement remain unaltered and in full force and effect, and the parties hereto do hereby expressly ratify and confirm the Loan Documents as modified and amended herein. Nothing in this Amendment or any other document delivered in connection herewith shall be deemed or construed to constitute, and there has not otherwise occurred, a novation, cancellation, satisfaction, release, extinguishment or substitution of the indebtedness evidenced by the Notes or the other obligations of Borrower and Guarantors under the Loan Documents.      9. Effective Date. This Amendment shall be deemed effective and in full force and effect as of the date hereof upon the execution and delivery of this Amendment by Borrower, Guarantors, Agent and the Required Lenders. The Borrower will pay the reasonable fees and expenses of Agent in connection with this Amendment.      10. Amendment as Loan Document. This Amendment shall constitute a Loan Document.      11. Counterparts. This Amendment may be executed in any number of counterparts which shall together constitute but one and the same agreement.      12. MISCELLANEOUS. THIS AMENDMENT SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors, successors-in-title and assigns as provided in the Credit Agreement. [Remainder of Page Intentionally Left Blank] 3 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have hereto set their hands and affixed their seals as of the day and year first above written. BORROWER: REPUBLIC PROPERTY LIMITED PARTNERSHIP, a Delaware limited partnership           By:   Republic Property Trust, a Maryland real estate investment trust, its sole general partner               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer                   (SEAL)           GUARANTORS:           REPUBLIC PROPERTY TRUST, a Maryland real estate investment trust               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer           RPT PRESIDENTS PARK LLC, a Delaware limited liability company               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer           PRESIDENTS PARK I LLC, a Delaware limited liability company               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer [SIGNATURES CONTINUED ON NEXT PAGE] 4 --------------------------------------------------------------------------------             PRESIDENTS PARK II LLC, a Delaware limited liability company               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer           PRESIDENTS PARK III LLC, a Delaware limited liability company               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer           RKB DULLES TECH LLC, a Delaware limited liability company               By:   /s/ Gary R Siegel               Name: Gary R Siegel Title: Chief Operation Officer [SIGNATURES CONTINUED ON NEXT PAGE] 5 --------------------------------------------------------------------------------                 LENDERS:               KEYBANK NATIONAL ASSOCIATION, individually as a Lender and as Agent               By:   /s/ Michael Szuba               Name: Michael Szuba Title: Vice President               SUNTRUST BANK               By:   /s/ Nancy B. Richards               Name: Nancy B. Richards Title: Senior Vice President               CHARTER ONE BANK, N.A.               By:   /s/ Michele S. Jawyn               Name: Michele S. Jawyn Title: Vice President               RAYMOND JAMES BANK, FSB               By:   /s/ Steven Paley               Name:Steven Paley Title: Vice President               PNC BANK, NATIONAL ASSOCIATION       By:   /s/ Timothy P. Gleeson               Name: Timothy P. Gleeson Title: Vice President [SIGNATURES CONTINUED ON NEXT PAGE] 6 --------------------------------------------------------------------------------                 SOVEREIGN BANK:               By:                   Name:                   Title:                             WACHOVIA BANK, NATIONAL ASSOCIATION               By:   /s/Amit Khimji               Name: Amit Khimji Title: Vice President               EMIGRANT BANK               By:   /s/ Russell T. Wyman               Name: Russell T. Wyman Title: Vice President 7

  EXHIBIT 10.03+ INTUIT INC. 2005 EQUITY INCENTIVE PLAN (As Amended on July 26, 2006) (Numbers within revised to reflect 2-for-1 Stock Split Effective July 7, 2006)      1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent or Subsidiaries by offering them an opportunity to participate in the Company’s future performance through awards of Options, Restricted Stock, Stock Bonuses, Stock Appreciation Rights (SARs) and Restricted Stock Units. Capitalized terms not defined in the text are defined in Section 26.      2. SHARES SUBJECT TO THE PLAN.           2.1 Number of Shares Available. Subject to Sections 2.2 and 21, 26,000,000 Shares are available for grant and issuance under the Plan. Shares that are subject to: (a) issuance upon exercise of an Option or SAR granted under this Plan but cease to be subject to the Option or SAR for any reason other than exercise of the Option; (b) an Award granted under this Plan but are forfeited or are repurchased by the Company at the original issue price; or (c) an Award granted under this Plan that otherwise terminates without Shares being issued, will return to the pool of Shares available for grant and issuance under this Plan. In any fiscal year of the Company no more than fifty percent (50%) of the Shares subject to Awards granted in such fiscal year may have an Exercise Price or Purchase Price per Share that is less than Fair Market Value on the applicable date of grant. In order that ISOs may be granted under this Plan, no more than 26,000,000 shares shall be issued as ISOs. The Company may issue Shares which are authorized but unissued or treasury shares pursuant to the Awards granted under this Plan. At all times the Company will reserve and keep available a sufficient number of Shares to satisfy the requirements of all outstanding Options and SARs granted under the Plan and all other outstanding but unvested Awards granted under the Plan.           2.2 Adjustment of Shares. If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, extraordinary dividend of cash or stock or similar change in the capital structure of the Company, without consideration, then (a) the number of Shares reserved for issuance under the Plan and the limits that are set forth in Section 2.1; (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs; (c) the number of Shares subject to other outstanding Awards; (d) the 4,000,000 and 6,000,000 maximum number of shares that may be issued to an individual in any one calendar year set forth in Section 3; and (e) the number of Shares that are granted as Options to Non-Employee Directors as set forth in Section 10, will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee; and provided further that the Exercise Price of any Option may not be decreased to below the par value of the Shares.      3. ELIGIBILITY. ISOs may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary. All other Awards may be granted to employees (including officers and directors who are also employees), non-employee directors and consultants of the Company or any Parent or Subsidiary; provided that such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The Committee (or its designee under 4.1(c)) will from time to time determine and designate among the eligible persons who will be granted one or more Awards under the Plan. A person may be granted more than one Award under the Plan. However, no person will be eligible to receive more than 4,000,000 Shares issuable under Awards granted in any calendar year, other than new employees of the Company or of a Parent or Subsidiary (including new employees who are also officers 1 --------------------------------------------------------------------------------   and directors of the Company or any Parent or Subsidiary), who are eligible to receive up to a maximum of 6,000,000 Shares issuable under Awards granted in the calendar year in which they commence their employment.      4. ADMINISTRATION.           4.1 Committee Authority. The Plan shall be administered by the Committee or by the Board acting as the Committee. Except for automatic grants to Non-Employee Directors pursuant to Section 10 hereof, and subject to the general purposes, terms and conditions of the Plan, the Committee will have full power to implement and carry out the Plan. Without limiting the previous sentence, the Committee will have the authority to:   (a)   construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan;     (b)   prescribe, amend and rescind rules and regulations relating to the Plan or any Award, including determining the forms and agreements used in connection with the Plan; provided that the Committee may delegate to the President, the Chief Financial Officer or the officer in charge of Human Resources, in consultation with the General Counsel, the authority to approve revisions to the forms and agreements used in connection with the Plan that are designed to facilitate Plan administration, and that are not inconsistent with the Plan or with any resolutions of the Committee relating to the Plan;     (c)   select persons to receive Awards; provided that the Committee may delegate to one or more Executive Officers (who would also be considered “officers” under Delaware law) the authority to grant an Award under the Plan to Participants who are not Insiders;     (d)   determine the terms of Awards;     (e)   determine the number of Shares or other consideration subject to Awards;     (f)   determine whether Awards will be granted singly, in combination, or in tandem with, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary;     (g)   grant waivers of Plan or Award conditions;     (h)   determine the vesting, exercisability, transferability, and payment of Awards;     (i)   correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement;     (j)   determine whether an Award has been earned;     (k)   amend the Plan; or     (l)   make all other determinations necessary or advisable for the administration of the Plan.           4.2 Committee Interpretation and Discretion. Except for automatic grants to Non-Employee Directors pursuant to Section 10 hereof, any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review. The resolution of such a 2 --------------------------------------------------------------------------------   dispute by the Committee shall be final and binding on the Company and Participant. The Committee may delegate to one or more Executive Officers, the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and Participant. Notwithstanding any provision of the Plan to the contrary, administration of the Plan shall at all times be limited by the requirement that any administrative action or exercise of discretion shall be void (or suitably modified when possible) if necessary to avoid the application to any Participant of immediate taxation and/or tax penalities under Section 409A of the Code.      5. OPTIONS. The Committee may grant Options to eligible persons and will determine (a) whether the Options will be ISOs or NQSOs; (b) the number of Shares subject to the Option, (c) the Exercise Price of the Option, (d) the period during which the Option may be exercised, and (e) all other terms and conditions of the Option, subject to the provisions of this Section 5 and the Plan. Options granted to Non-Employee Directors pursuant to Section 10 hereof shall be governed by that Section.           5.1 Form of Option Grant. Each Option granted under the Plan will be evidenced by a Stock Option Agreement that will expressly identify the Option as an ISO or NQSO. Except as otherwise required by the terms of Options to Non-Employee Directors as provided in the terms of Section 10 hereof, the Stock Option Agreement will be substantially in a form and contain such provisions (which need not be the same for each Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from time to time approved, and will comply with and be subject to the terms and conditions of the Plan.           5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant the Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement, and a copy of the Plan and the current Prospectus for the Plan (plus any additional documents required to be delivered under applicable laws), will be delivered to the Participant within a reasonable time after the Option is granted. The Stock Option Agreement, Plan, the Prospectus and other documents may be delivered in any manner (including electronic distribution or posting) that meets applicable legal requirements.           5.3 Exercise Period and Expiration Date. An Option will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Stock Option Agreement governing such Option, subject to the provisions of Section 5.6, and subject to Company policies established by the Committee (or by individuals to whom the Committee has delegated responsibility) from time to time with respect to vesting during leaves of absences. The Stock Option Agreement shall set forth the last date that the Option may be exercised (the “Expiration Date”); provided that no Option will be exercisable after the expiration of seven years from the date the Option is granted; and provided further that no ISO granted to a Ten Percent Stockholder will be exercisable after the expiration of five years from the date the Option is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of Shares subject to the Option as the Committee determines.           5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and, subject to the limit of Section 2.1, may be less than Fair Market Value (but not less than the par value of the Shares); provided that (i) the Exercise Price of an ISO will not be less than the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 11 of the Plan and the Stock Option Agreement.           5.5 Procedures for Exercise. A Participant or Authorized Transferee may exercise Options by following the procedures established by the Company’s Stock Administration Department, as communicated and made available to Participants through the stock pages on the Intuit Legal Department intranet web site, and/or through the Company’s electronic mail system. 3 --------------------------------------------------------------------------------             5.6 Termination.      (a) Vesting. Any Option granted to a Participant will cease to vest on the Participant’s Termination Date, if the Participant is Terminated for any reason other than “total disability” (as defined in this Section 5.6(a)) or death. Any Option granted to a Participant who is an employee who has been actively employed by the Company or any Subsidiary for one year or more or who is a director, will vest as to 100% of the Shares subject to such Option, if the Participant is Terminated due to “total disability” or death. For purposes of this Section 5.6(a), “total disability” shall mean: (i) (A) for so long as such definition is used for purposes of the Company’s group life insurance and accidental death and dismemberment plan or group long term disability plan, that the Participant is unable to perform each of the material duties of any gainful occupation for which the Participant is or becomes reasonably fitted by training, education or experience and which total disability is in fact preventing the Participant from engaging in any employment or occupation for wage or profit; or, (B) if such definition has changed, such other definition of “total disability” as determined under the Company’s group life insurance and accidental death and dismemberment plan or group long term disability plan; and (ii) the Company shall have received from the Participant’s primary physician a certification that the Participant’s total disability is likely to be permanent. Any Option held by an employee who is Terminated by the Company, or any Subsidiary or Parent within one year following the date of a Corporate Transaction, will immediately vest as to such number of Shares as the Participant would have been vested in twelve months after the date of Termination had the Participant remained employed for that twelve month period.      (b) Post-Termination Exercise Period. Following a Participant’s Termination, the Participant’s Option may be exercised to the extent vested as set forth in Section 5.6(a):           (i) no later than 90 days after the Termination Date if a Participant is Terminated for any reason except death or Disability, unless a longer time period, not exceeding five years, is specifically set forth in the Participant’s Stock Option Agreement; provided that no Option may be exercised after the Expiration Date of the Option; or           (ii) no later than (A) twelve months after the Termination Date in the case of Termination due to Disability or (B) eighteen months after the Termination Date in the case of Termination due to death or if a Participant dies within three months of the Termination Date, unless a longer time period, not exceeding five years, is specifically set forth in the Participant’s Stock Option Agreement; provided that no Option may be exercised after the Expiration Date of the Option.           5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option; provided that the minimum number will not prevent a Participant from exercising an Option for the full number of Shares for which it is then exercisable.           5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in that calendar year will be ISOs, and the Options for the Shares with a Fair Market Value in excess of $100,000 that become exercisable in that calendar year will be NQSOs. If the Code is amended to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated into the Plan and will apply to any Options granted after the effective date of the Code’s amendment.           5.9 Notice of Disqualifying Dispositions of Shares Acquired on Exercise of an ISO. If a Participant sells or otherwise disposes of any Shares acquired pursuant to the exercise of an ISO on or before the later of (a) the date two years after the Date of Grant, and (b) the date one year after the exercise of the ISO (in either case, a “Disqualifying Disposition”), the Company may require the Participant to immediately notify the Company in writing of such Disqualifying Disposition. 4 --------------------------------------------------------------------------------             5.10 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor; provided that any such action may not, without the written consent of Participant, impair any of Participant’s rights under any Option previously granted; and provided, further that without stockholder approval, the modified, extended, renewed or new Option may not have a lower Exercise Price than the outstanding Option. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected, by a written notice to them; provided, however, that unless prior stockholder approval is secured, the Exercise Price may not be reduced below that of the outstanding Option.           5.11 No Disqualification. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs will be interpreted, amended or altered, and no discretion or authority granted under the Plan will be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.      6. RESTRICTED STOCK AWARDS.           6.1 Awards of Restricted Stock. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the following:           6.2 Restricted Stock Purchase Agreement. All purchases under a Restricted Stock Award will be evidenced by a Restricted Stock Purchase Agreement, which will be in substantially a form (which need not be the same for each Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from time to time approved, and will comply with and be subject to the terms and conditions of the Plan. A Participant accepts a Restricted Stock Award by signing and delivering to the Company a Restricted Stock Purchase Agreement with full payment of the Purchase Price, within thirty days from the date the Restricted Stock Purchase Agreement was delivered to the Participant. If the Participant does not accept the Restricted Stock Award within thirty days, then the offer of the Restricted Stock Award will terminate, unless the Committee determines otherwise.           6.3 Purchase Price. The Purchase Price for a Restricted Stock Award will be determined by the Committee and, subject to the limit of Section 2.1, may be less than Fair Market Value (but not less than the par value of the Shares) on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 11 of the Plan and the Restricted Stock Purchase Agreement, and in accordance with any procedures established by the Company’s Stock Administration Department, as communicated and made available to Participants through the stock pages on the Intuit Legal Department intranet web site, and/or through the Company’s electronic mail system.           6.4 Terms of Restricted Stock Awards. Restricted Stock Awards will be subject to such restrictions as the Committee may impose. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of the performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Restricted Stock Purchase Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment for Shares to be purchased under any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.           6.5 Termination During Performance Period. If a Participant is Terminated during a Performance Period or vesting period, for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 5 --------------------------------------------------------------------------------        7. STOCK BONUS AWARDS.           7.1 Awards of Stock Bonuses. A Stock Bonus Award is an award to an eligible person of Shares (which may consist of Restricted Stock or Restricted Stock Units) for services to be rendered or for past services already rendered to the Company or any Parent or Subsidiary. All Stock Bonus Awards shall be made pursuant to a Stock Bonus Agreement, which shall be in substantially a form (which need not be the same for each Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from time to time approved, and will comply with and be subject to the terms and conditions of the Plan. No payment will be required for Shares awarded pursuant to a Stock Bonus Award, but the number of Shares awarded is subject to the limit of Section 2.1.           7.2 Terms of Stock Bonus Awards. The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement. If the Stock Bonus Award is to be earned upon the satisfaction of performance goals, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the issuance of any Shares or other payment to a Participant pursuant to a Stock Bonus Award, the Committee will determine the extent to which the Stock Bonus Award has been earned. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to a Stock Bonus Award to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships.           7.3 Form of Payment to Participant. The Committee will determine whether the earned portion of a Stock Bonus Award will be paid to the Participant currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. To the extent permissible under law, the Committee may also permit a Participant to defer payment under a Stock Bonus Award to a date or dates after the Stock Bonus Award is earned provided that the terms of the Stock Bonus Award and any deferral satisfy the requirements of Section 409A of the Code and provided further that payout shall not be deferred beyond March 15 of the year following the year of vesting unless a deferral election in compliance with Section 409A of the Code has been made. Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, and in either a lump sum payment or in installments.           7.4 Termination of Participant. In the event of a Participant’s Termination during a Performance Period or vesting period, for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus Award only to the extent earned as of the date of Termination in accordance with the Stock Bonus Agreement, unless the Committee determines otherwise.      8. STOCK APPRECIATION RIGHTS.           8.1 Awards of SARs. A Stock Appreciation Right (“SAR”) is an award to an eligible person that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to the value determined by multiplying the difference between the Fair Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being settled. The SAR may be granted for services to be rendered or for past services already rendered to the Company, or any Parent or Subsidiary. All 6 --------------------------------------------------------------------------------   SARs shall be made pursuant to a SAR Agreement, which shall be in substantially a form (which need not be the same for each Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.           8.2 Terms of SARs. The Committee will determine the terms of a SAR including, without limitation: (a) the number of Shares deemed subject to the SAR; (b) the Exercise Price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect on each SAR of the Participant’s Termination. The Exercise Price of the SAR will be determined by the Committee when the SAR is granted and, subject to the limit of Section 2.1, may be less than Fair Market Value (but not less than the par value of the Shares. A SAR may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s individual SAR Agreement. If the SAR is being earned upon the satisfaction of performance goals, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each SAR; and (y) select from among the Performance Factors to be used to measure the performance, if any. Prior to settlement of any SAR earned upon the satisfaction of performance goals pursuant to a SAR Agreement, the Committee shall determine the extent to which such SAR has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different performance goals and other criteria. The Exercise Price of an outstanding SAR may not be reduced without stockholder approval.           8.3 Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the SAR Agreement governing such SAR. The SAR Agreement shall set forth the last date that the SAR may be exercised (the “Expiration Date”); provided that no SAR will be exercisable after the expiration of seven years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines.           8.4 Form and Timing of Settlement. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code and provided further that payout shall not be deferred beyond March 15 of the year following the year of vesting unless a deferral election in compliance with Section 409A of the Code has been made.      9.  RESTRICTED STOCK UNITS           9.1 Awards of Restricted Stock Units. A Restricted Stock Unit (“RSU”) is an award to an eligible person covering a number of Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock) for services to be rendered or for past services already rendered to the Company or any Parent or Subsidiary. The Committee may authorize the issuance of RSUs to certain eligible persons who elect to defer cash compensation. All RSUs shall be made pursuant to a RSU Agreement, which shall be in substantially a form (which need not be the same for each Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from time to time approved, and will comply with and be subject to the terms and conditions of the Plan (including the limit set forth in Section 2.1).           9.2 Terms of RSUs. The Committee will determine the terms of a RSU including, without limitation: (a) the number of Shares deemed subject to the RSU; (b) the time or times during which the RSU may be exercised; (c) the consideration to be distributed on settlement, and the effect on each RSU of the Participant’s Termination. A RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s individual RSU Agreement. If the RSU is being earned upon satisfaction of performance goals, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for the RSU; (y) select from among the Performance Factors to be used to measure the performance, if any; and (z) determine the number of Shares deemed subject to the RSU. Prior to 7 --------------------------------------------------------------------------------   settlement of any RSU earned upon the satisfaction of performance goals pursuant to a RSU Agreement, the Committee shall determine the extent to which such SAR has been earned. Performance Periods may overlap and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the RSUs to take into account changes in law and accounting and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships.           9.3 Form and Timing of Settlement. The portion of a RSU being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines. To the extent permissible under law, the Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code and provided further that payout shall not be deferred beyond March 15 of the year following the year of vesting unless a deferral election in compliance with Section 409A of the Code has been made. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee determines.      10. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.1           10.1 Eligibility. Non-Employee Directors are eligible for options granted pursuant to this Section 10.           10.2 Initial Grant. Each Non-Employee Director who first becomes a member of the Board on or after July 26, 2006, will automatically be granted an option for 67,500 Shares on the date such Non-Employee Director first becomes a member of the Board. Each Option granted pursuant to this Section 10.2 shall be called an “Initial Grant”.           10.3 Succeeding Grant. On each anniversary occuring on or after July 26, 2006, of an Initial Grant under this Plan (or under the Company’s 1996 Directors Stock Option Plan) each Non-Employee Director who has served continuously as a member of the Board during that period will automatically be granted an Option for 22,500 Shares. Each Option granted pursuant to this Section 10.3 shall be called a “Succeeding Grant”.           10.4 Audit Committee Grants. Each Non-Employee Director who is appointed Chairperson of the Audit Committee, if any, on or after July 26, 2006, will automatically be granted an Option for 10,000 Shares on the day he or she is appointed (the “Audit Committee Chairperson Grant”). On each anniversary of a Non-Employee Director’s first Audit Committee Chairperson Grant on which the Non-Employee Director continues to be the Chairperson of the Audit Committee, the Non-Employee Director will automatically be granted an Option for 10,000 Shares (also an “Audit Committee Chairperson Grant”). Each Non-Employee Director who is appointed a new non-Chairperson member of the Audit Committee on or after July 26, 2006, will automatically be granted an Option for 7,500 Shares on the day he or she is appointed. The types of option grant referenced in the preceding two sentences or granted under this Section 10.4 prior to July 26, 2006, are each hereinafter referred to as an “Audit Committee Grant”. If on each subsequent anniversary occuring on or after July 26, 2006, of a Non-Employee Director’s first Audit Committee Grant, the Non-Employee Director is a non-Chairperson member of the Audit Committee and if the Non-Employee Director has been in continuous service on the Audit Committee since such Audit Committee Grant, then the Non-Employee Director will automatically be granted an Option for 7,500 Shares (each such Option a “Succeeding Audit Committee Grant”).           10.5 Compensation and Organizational Development Committee Grants. Each Non-Employee Director who is appointed Chairperson of the Compensation and Organizational Development Committee, if any, on or after July 26, 2006, will automatically be granted an Option for 10,000 Shares on the day   1   The automatic grants referenced in this Section 10 reflect the amendment of the Plan adopted by the Board on July 26, 2006. Previously Initial Grants were for 45,000 shares, Succeeding Grants were for 15,000 shares and grants for service on a qualifying committee were for 10,000 shares. 8 --------------------------------------------------------------------------------   he or she is appointed (the “Compensation Committee Chairperson Grant”). On each anniversary of a Non-Employee Director’s first Compensation Committee Chairperson Grant on which the Non-Employee Director continues to be the Chairperson of the Compensation and Organizational Development Committee, the Non-Employee Director will automatically be granted an Option for 10,000 Shares (also a “Compensation Committee Chairperson Grant”). Each Non-Employee Director who is appointed a new non-Chairperson member of the Compensation and Organizational Development Committee on or after July 26, 2006, will automatically be granted an Option for 7,500 Shares on the day he or she is appointed. The types of option grant referenced in the preceding two sentences or granted under this Section 10.5 prior to July 26, 2006, are each hereinafter referred to as a “Compensation Committee Grant”. If on each subsequent anniversary occuring on or after July 26, 2006, of a Non-Employee Director’s first Compensation Committee Grant the Non-Employee Director is a non-Chairperson member of the Compensation and Organizational Development Committee and if the Non-Employee Director has been in continuous service on the Compensation and Organizational Development Committee since such Compensation Committee Grant, then the Non-Employee Director will automatically be granted an Option for 7,500 Shares (each such Option a “Succeeding Compensation Committee Grant”).           10.6 Nominating & Governance Committee Grants. Each Non-Employee Director who is appointed Chairperson of the Nominating & Goverance Committee, if any, on or after July 26, 2006, will automatically be granted an Option for 10,000 Shares on the day he or she is appointed (the “Nominating & Goveranance Committee Chairperson Grant”). On each anniversary of a Non-Employee Director’s first Nominating & Goverance Committee Chairperson Grant on which the Non-Employee Director continues to be the Chairperson of the Nominating & Governance Committee, the Non-Employee Director will automatically be granted an Option for 10,000 Shares (also a “Nominating & Goverance Committee Chairperson Grant”). Each Non-Employee Director who is appointed a new non-Chairperson member of the Nominating & Governance Committee on or after July 26, 2006, will automatically be granted an Option for 7,500 Shares on the day he or she is appointed. The types of option grant referenced in the preceding two sentences or granted under this Section 10.6 prior to July 26, 2006, are each hereinafter referred to as a “Nominating & Governance Committee Grant”. If on each anniversary occuring on or after July 26, 2006, of a Non-Employee Director’s first Nominating & Goverance Committee Grant the Non-Employee Director is a non-Chairperson member of the Nominating & Governance Committee and if the Non-Employee Director has been in continuous service on the Nominating & Goverance Committee since such Nominating & Goverance Committee Grant, the Non-Employee Director will automatically be granted an Option for 7,500 Shares (each such Option a “Succeeding Nominating & Goverance Committee Grant”).           10.7 Vesting and Exercisability                (a) Initial Grants shall become exercisable as they vest as to 25% of the Shares upon the first anniversary of the date such Option is granted and an additional 2.0833% of the shares each month thereafter and become fully vested on the fourth anniversary of the date of grant, so long as the Non-Employee Director continuously remains a director or a consultant of the Company.                (b) Succeeding Grants shall become exercisable as they vest as to 50% of the Shares upon the first anniversary of the date such Option is granted and an additional 4.1666% of the Shares each month thereafter and become fully vested on the second anniversary of the date of grant, so long as the Non-Employee Director continuously remains a director or a consultant of the Company.                (c) Each Audit Committee Grant, Succeeding Audit Committee Grant, Compensation Committee Grant, Succeeding Compensation Committee Grant, Nominating & Governance Committee Grant and Succeeding Nominating & Goverance Committee Grant shall become exercisable as they vest as to 8.333% of the Shares each month following the date of grant and become fully vested on the first anniversary of the date of grant, so long as the Non-Employee Director continuously remains a director or a consultant of the Company.                (d) Any Option granted to a Non-Employee Director will vest as to 100% of the Shares subject to such Option, if the Non-Employee Director ceases to be a member of the Board or a consultant of the Company due to “total disability” or death. For purposes of this Section 10.7(d), “total disability” shall mean: 9 --------------------------------------------------------------------------------   (1) (i) for so long as such definition is used for purposes of the Company’s group life insurance and accidental death and dismemberment plan or group long term disability plan, that the Non-Employee Director is unable to perform each of the material duties of any gainful occupation for which the Non-Employee Director is or becomes reasonably fitted by training, education or experience and which total disability is in fact preventing the Non-Employee Director from engaging in any employment or occupation for wage or profit or (ii) if such definition has changed, such other definition of “total disability” as determined under the Company’s group life insurance and accidental death and dismemberment plan or group long term disability plan; and (2) the Company shall have received from the Non-Employee Director’s primary physician a certification that the Non-Employee Director’s total disability is likely to be permanent.                (e) In the event of a Corporate Transaction, the vesting of all Options granted to Non-Employee Directors pursuant to this Section 10 will accelerate and such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised on or prior to the consummation of the corporate transaction, they shall terminate.           10.8 Form of Option Grant. Each Option granted under this Section 10 shall be a NQSO and shall be evidenced by a Non-Employee Director Stock Option Grant Agreement in such form as the Committee shall from time to time approve and which shall comply with and be subject to the terms and conditions of this Plan.           10.9 Exercise Price. The Exercise Price of each Option granted under this Section 10 shall be the Fair Market Value of the Share on the date the Option is granted. The Exercise Price of an outstanding Option may not be reduced without stockholder approval.           10.10 Termination of Option. Except as provided in Section 10.7(e) or this Section 10.10, each Option granted under this Section 10 shall expire seven (7) years after its date of grant. The date on which the Non-Employee Director ceases to be a member of the Board or a consultant of the Company shall be referred to as the “Non-Employee Director Termination Date” for purposes of this Section 10.10. An Option may be exercised after the Non-Employee Director Termination Date only as set forth below:                (a) Termination Generally. If the Non-Employee Director ceases to be a member of the Board or consultant of the Company for any reason except death or Disability, then each Option, to the extent then vested pursuant to Section 10.7 above, then held by such Non-Employee Director may be exercised by the Non-Employee Director within seven months after the Non-Employee Director Termination Date, but in no event later than the Expiration Date.                (b) Death or Disability. If the Non-Employee Director ceases to be a member of the Board or consultant of the Company because of his or her death or Disability, then each Option, to the extent then vested pursuant to Section 10.7 above, then held by such Non-Employee Director may be exercised by the Non-Employee Director or his or her legal representative within twelve months after the Non-Employee Director Termination Date, but in no event later than the Expiration Date.      11. PAYMENT FOR SHARE PURCHASES.           11.1 Payment. Payment for Shares purchased pursuant to the Plan may be made by any of the following methods (or any combination of such methods) that are described in the applicable Award Agreement and that are permitted by law:   (a)   in cash (by check);     (b)   in the case of exercise by the Participant, Participant’s guardian or legal representative or the authorized legal representative of Participants’ heirs or legatees after Participant’s death, by cancellation of indebtedness of the Company to the Participant;     (c)   by surrender of shares of the Company’s Common Stock; 10 --------------------------------------------------------------------------------     (d)   in the case of exercise by the Participant, Participant’s guardian or legal representative or the authorized legal representative of Participants’ heirs or legatees after Participant’s death, by waiver of compensation due or accrued to Participant for services rendered;     (e)   by tender of property; or     (f)   with respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists:   (1)   through a “same day sale” commitment from the Participant or Authorized Transferee and an NASD Dealer meeting the requirements of the Company’s “same day sale” procedures and in accordance with law; or     (2)   through a “margin” commitment from Participant or Authorized Transferee and an NASD Dealer meeting the requirements of the Company’s “margin” procedures and in accordance with law.           11.2 Issuance of Shares. Upon payment of the applicable Purchase Price or Exercise Price (or a commitment for payment from the NASD Dealer designated by the Participant or Authorized Transferee in the case of an exercise by means of a “same-day sale” or “margin” commitment), and compliance with other conditions and procedures established by the Company for the purchase of shares, the Company shall issue the Shares registered in the name of Participant or Authorized Transferee (or in the name of the NASD Dealer designated by the Participant or Authorized Transferee in the case of an exercise by means of a “same-day sale” or “margin” commitment) and shall deliver certificates representing the Shares (in physical or electronic form, as appropriate). The Shares may be subject to legends or other restrictions as described in Section 15 of the Plan.      12. WITHHOLDING TAXES.           12.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate(s) for the Shares. If a payment in satisfaction of an Award is to be made in cash, the payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.           12.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may, in its sole discretion, allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of whole Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee.      13. PRIVILEGES OF STOCK OWNERSHIP. No Participant or Authorized Transferee will have any rights as a stockholder of the Company with respect to any Shares until the Shares are issued to the Participant or Authorized Transferee. After Shares are issued to the Participant or Authorized Transferee, the Participant or Authorized Transferee will be a stockholder and have all the rights of a stockholder with respect to the Shares including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if the Shares are Restricted Stock, any new, additional or different securities the Participant or Authorized Transferee may become entitled to receive with respect to the Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided further, that the Participant or Authorized Transferee will have no right to retain such dividends or distributions with respect to Shares that are repurchased at the Participant’s original Exercise Price or Purchase Price pursuant to Section 15. 11 --------------------------------------------------------------------------------        14. TRANSFERABILITY. No Award and no interest therein, shall be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, and no Award may be made subject to execution, attachment or similar process; provided, however that with the consent of the Committee a Participant may transfer a NQSO to an Authorized Transferee. Transfers by the Participant for consideration are prohibited. Without such permission by the Committee, a NQSO shall like all other Awards under the Plan be exercisable (a) during a Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative; and (b) after Participant’s death, by the legal representative of the Participant’s heirs or legatees.      15. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase all or a portion of a Participant’s Shares that are not “Vested” (as defined in the Award Agreement), following the Participant’s Termination, at any time within ninety days after the later of (a) the Participant’s Termination Date or (b) the date the Participant purchases Shares under the Plan, for cash or cancellation of purchase money indebtedness with respect to Shares, at the Participant’s original Exercise Price or Purchase Price; provided that upon assignment of the right to repurchase, the assignee must pay the Company cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price.      16. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan (whether in physical or electronic form, as appropriate) will be subject to stock transfer orders, legends and other restrictions that the Committee deems necessary or advisable, including without limitation restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system on which the Shares may be listed.      17. ESCROW. To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other transfer instruments approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company, to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates.      18. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless the Award is in compliance with all applicable state, federal and foreign securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system on which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state, federal or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state, federal or foreign securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so.      19. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participant’s employment or other relationship at any time, with or without cause.      20. REPRICING PROHIBITED; EXCHANGE AND BUYOUT OF AWARDS. The repricing of Options or SARs is prohibited without prior stockholder approval. The Committee may, at any time or from time to time, authorize the Company, with prior stockholder approval, in the case of an Option or SAR exchange, and the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Option previously granted with 12 --------------------------------------------------------------------------------   payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant shall agree; provided, however, that in no event will an Option with an Exercise Price above the Fair Market Value at the time of such proposed buyout be repurchased.      21. CORPORATE TRANSACTIONS.           21.1 Assumption or Replacement of Awards by Successor. Except as provided for in Section 10.7(e), in the event of a Corporate Transaction any or all outstanding Awards may be assumed or replaced by the successor corporation, which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation, if any, refuses to assume or replace the Awards, as provided above, pursuant to a Corporate Transaction or if there is no successor corporation due to a dissolution or liquidation of the Company, such Awards shall immediately vest as to 100% of the Shares subject thereto at such time and on such conditions as the Board shall determine and the Awards shall expire at the closing of the transaction or at the time of dissolution or liquidation.           21.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under Section 21.1, in the event of a Corporate Transaction, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation or sale of assets.           21.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company’s award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.      22. ADOPTION AND STOCKHOLDER APPROVAL. The Plan was adopted by the Compensation and Organizational Development Committee on August 26, 2004. The Plan shall become effective upon approval by stockholders of the Company, consistent with applicable laws.      23. TERM OF PLAN. The Plan will terminate three years following the date it originally became effective upon approval by stockholders of the Company.      24. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to the Plan. Notwithstanding the foregoing, neither the Board nor the Committee shall, without the approval of the stockholders of the Company, amend the Plan in any manner that requires such stockholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act or any rule promulgated thereunder or pursuant to the listing requirements of the national securities market on which the Shares are listed. In addition, no amendment that is detrimental to a Participant may be made to any outstanding Award without the consent of the Participant.      25. NONEXCLUSIVITY OF THE PLAN; UNFUNDED PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses 13 --------------------------------------------------------------------------------   otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. The Plan shall be unfunded. Neither the Company nor the Board shall be required to segregate any assets that may at any time be represented by Awards made pursuant to the Plan. Neither the Company, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under the Plan.      26. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings:      (a) “Authorized Transferee” means the permissible recipient, as authorized by this Plan and the Committee, of an NQSO that is transferred during the Participant’s lifetime by the Participant by gift or domestic relations order. For purposes of this definition a “permissible recipient” is: (i) a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (ii) any person (other than a tenant or employee) sharing the Participant’s household; (iii) a trust in which the persons in (i) or (ii) have more than fifty percent of the beneficial interest; (iv) a foundation in which the persons in (i) or (ii) or the Participant control the management of assets; or (v) any other entity in which the person in (i) or (ii) or the Participant own more than fifty percent of the voting interest.      (b) “Award” means any award under the Plan, including any Option, Restricted Stock, Stock Bonus, Stock Appreciation Right or Restricted Stock Unit.      (c) “Award Agreement” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.      (d) “Board” means the Board of Directors of the Company.      (e) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.      (f) “Committee” means the Compensation and Organizational Development Committee of the Board or such other committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. Each member of the Committee shall be (i) a “non-employee director” for purposes of Section 16 and Rule 16b-3 of the Exchange Act, and (ii) an “outside director” for purposes of Section 162(m) of the Code, unless the Board has fewer than two such outside directors.      (g) “Company” means Intuit Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation.      (h) “Corporate Transaction” means (a) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company and the Awards granted under the Plan are assumed or replaced by the successor corporation, which assumption shall be binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, (d) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company; or (e) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company).      (i) “Disability” means a disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee.      (j) “Effective Date” means the date stockholders approve the Plan pursuant to Section 22 of the Plan. 14 --------------------------------------------------------------------------------        (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder.      (l) “Executive Officer” means a person who is an “executive officer” of the Company as defined in Rule 3b-7 promulgated under the Exchange Act.      (m) “Exercise Price” means the price at which a Participant who holds an Option or SAR may purchase the Shares issuable upon exercise of the Option or SAR.      (n) “Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:   (1)   if such Common Stock is then quoted on the NASDAQ National Market, its closing price on the NASDAQ National Market on such date or if such date is not a trading date, the closing price on the NASDAQ National Market on the last trading date that precedes such date;     (2)   if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price on such date or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading;     (3)   if such Common Stock is publicly traded but is not quoted on the NASDAQ National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or     (4)   if none of the foregoing is applicable, by the Board of Directors in good faith.      (o) “Insider” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.      (p) “ISO” means an Incentive Stock Option within the meaning of the Code.      (q) “NASD Dealer” means broker-dealer that is a member of the National Association of Securities Dealers, Inc.      (r) “NQSO” means a nonqualified stock option that does not qualify as an ISO.      (s) “Option” means an Award pursuant to Section 5 of the Plan.      (t) “Non-Employee Director” means a member of the Company’s Board of Directors who is not a current or former employee of the Company or any Parent or Subsidiary.      (u) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.      (v) “Participant” means a person who receives an Award under the Plan.      (w) “Performance Factors” means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied:   (1)   Net revenue and/or net revenue growth; 15 --------------------------------------------------------------------------------     (2)   Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth;     (3)   Operating income and/or operating income growth;     (4)   Net income and/or net income growth;     (5)   Earnings per share and/or earnings per share growth;     (6)   Total stockholder return and/or total stockholder return growth;     (7)   Return on equity;     (8)   Operating cash flow return on income;     (9)   Adjusted operating cash flow return on income;     (10)   Economic value added; and     (11)   Individual business objectives.      (x) “Performance Period” means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for the Award.      (y) “Plan” means this Intuit Inc. 2005 Equity Incentive Plan, as amended from time to time.      (z) “Prospectus” means the prospectus relating to the Plan, as amended from time to time, that is prepared by the Company and delivered or made available to Participants pursuant to the requirements of the Securities Act.      (aa) “Purchase Price” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option.      (bb) “Restricted Stock Award” means an award of Shares pursuant to Section 6 of the Plan.      (cc) “Restricted Stock Unit” means an Award granted pursuant to Section 9 of the Plan.      (dd) “RSU Agreement” means an agreement evidencing a Restricted Stock Unit Award granted pursuant to Section 9 of the Plan.      (ee) “SAR Agreement” means an agreement evidencing a Stock Appreciation Right granted pursuant to Section 8 of the Plan.      (ff) “SEC” means the Securities and Exchange Commission.      (gg) “Securities Act” means the Securities Act of 1933, as amended, and the regulations promulgated thereunder.      (hh) “Shares” means shares of the Company’s Common Stock $0.01 par value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 21, and any successor security.      (ii) “Stock Appreciation Right” means an Award granted pursuant to Section 8 of the Plan.      (jj) “Stock Bonus” means an Award granted pursuant to Section 7 of the Plan. 16 --------------------------------------------------------------------------------        (kk) “Stock Option Agreement” means the agreement which evidences a Stock Option, granted pursuant to Section 5 of the Plan.      (ll) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.      (mm) “Ten Percent Stockholder” means any person who directly or by attribution owns more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary.      (nn) “Termination” or “Terminated” means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, independent contractor or adviser, to the Company or a Parent or Subsidiary; provided that a Participant shall not be deemed to be Terminated if the Participant is on a leave of absence approved by the Committee or by an officer of the Company designated by the Committee; and provided further, that during any approved leave of absence, vesting of Awards shall be suspended or continue in accordance with guidelines established from time to time by the Committee. Subject to the foregoing, the Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”). 17

Exhibit 10.4 IMPAC MORTGAGE HOLDINGS, INC. GUARANTY This Guaranty, dated as of May 1, 2006, is executed by Impac Mortgage Holdings, Inc., a Maryland corporation (“Guarantor”), in favor of William D. Endresen (“Executive”). A.            Impac Commercial Capital Corporation, a California corporation (“Obligor”), concurrently herewith has entered into an Employment Agreement with Obligor dated even date herewith (the “Contract”). Guarantor is the parent corporation of Obligor and will receive direct and indirect benefits from the performance of the Contract. B.            Executive’s willingness to enter into the Contract is subject to receipt by it of this Guaranty duly executed by Guarantor. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby agrees with Executive as follows: 1.            Guaranty. (a)           Guarantor unconditionally guarantees and promises to pay to Executive, or order, at Executive’s address set forth in Section 4(a) hereof, on demand after the default by Obligor, in lawful money of the United States, any and all Obligations (as hereinafter defined) consisting of payments due to Executive. For purposes of this Guaranty the term “Obligations” shall mean and include all payments owed by Obligor to Executive of every kind and description, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of Section 2.3, 2.4, 3.1(a), 3.1(b), 3.1(c), or 3.2 of the Contract (as such Obligations may become due subject to the provisions of the Contract, including all notice requirements and cure provisions), including all interest, late fees, charges, expenses, attorneys’ fees and other professionals’ fees chargeable to Obligor or payable by Obligor there under and any costs of collection hereunder, including attorneys’ and other professionals’ fees. (b)           This Guaranty is absolute, unconditional, continuing and irrevocable and constitutes an independent guaranty of payment and not of collect ability (provided that it is subject to Obligor defaulting on any of the Obligations), and is in no way conditioned on or contingent upon any attempt to enforce in whole or in part any of Obligor’s Obligations to Executive, the existence or continuance of Obligor as a legal entity, the consolidation or merger of Obligor with or into any other entity, the sale, lease or disposition by Obligor of all or substantially all of its assets to any other entity, or the bankruptcy or insolvency of Obligor, the admission by Obligor of its inability to pay its debts as they mature, or the making by Obligor of a general assignment for the benefit of, or entering into a composition or arrangement with, creditors. If Obligor or any permitted assignee or successor of Obligor shall fail to pay or -------------------------------------------------------------------------------- perform any Obligations to Executive which are subject to this Guaranty as and when they are due, Guarantor shall forthwith pay to Executive all such liabilities or obligations in immediately available funds. Each failure by Obligor to pay or perform any such liabilities or obligations shall give rise to a separate cause of action, and separate suits may be brought hereunder as each cause of action arises. (c)           Executive, may (subject to the provisions of the Contract) at any time and from time to time, without the consent of or notice to Guarantor, except such notice as may be required by applicable statute which cannot be waived, without incurring responsibility to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder, (i) change the manner, place and terms of payment or change or extend the time of payment of, renew, or alter any Obligation hereby guaranteed, or in any manner modify, amend or supplement the terms of the Contract or any documents, instruments or agreements executed in connection therewith, (ii) exercise or refrain from exercising any rights against Obligor or others (including Guarantor) or otherwise act or refrain from acting, (iii) settle or compromise any Obligations hereby guaranteed and/or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any obligations and liabilities which may be due to Executive or others, (iv) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property pledged or mortgaged by anyone to secure or in any manner securing the Obligations hereby guaranteed, (v) take and hold security or additional security for any or all of the obligations or liabilities covered by this Guaranty, and (vi) assign its rights and interests under this Guaranty, in whole or in part. (d)            This is a continuing Guaranty for which Guarantor receives continuing consideration and all obligations to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon and this Guaranty is therefore irrevocable without the prior written consent of Executive. (e)             Guarantor may bring action to enforce Executive’s obligations under the Contract if (i) any proceeding is brought against Guarantor to seek enforcement of this Guaranty or (ii) Guarantor makes any payment to Executive pursuant to this Guaranty. 2.            Representations and Warranties. Guarantor represents and warrants to Executive that (a) Guarantor is a corporation duly organized, validly, existing and in good standing under the laws of its jurisdiction of incorporation or formation; (b) the execution, delivery and performance by Guarantor of this Guaranty are within the power of Guarantor and have been duly authorized by all necessary actions on the part of Guarantor; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a legal, valid and binding obligation of Guarantor, enforceable against it in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally. 2 -------------------------------------------------------------------------------- 3.            Waivers. (a)            Guarantor, to the extent permitted under applicable law, hereby waives any right to require Executive to (i) proceed against Obligor or any other guarantor of Obligor’s obligations under the Contract, (ii) proceed against or exhaust any security received from Obligor or any other guarantor of Obligor’s Obligations under the Contract, or (iii) pursue any other right or remedy in the Executive’s power whatsoever. (b) Guarantor further waives, to the extent permitted by applicable law, (i) any defense resulting from the absence, impairment or loss of any right of reimbursement, subrogation, contribution or other right or remedy of Guarantor against Obligor, any other guarantor of the Obligations or any security; (ii) any defense which results from any disability of Obligor or the lack of validity or enforceability of the Contract; (iii) any right to exoneration of sureties which would otherwise be applicable; (iv) any right of subrogation or reimbursement and, if there are any other guarantors of the Obligations, any right of contribution, and right to enforce any remedy which Executive now has or may hereafter have against Obligor, and any benefit of, and any right to participate in, any security now or hereafter received by Executive; (v) all presentments, demands for performance, notices of non-performance, notices delivered under the Contract, protests, notice of dishonor, and notices of acceptance of this Guaranty and of the existence, creation or incurring of new or additional Obligations and notices of any public or private foreclosure sale; (vi) any appraisement, valuation, stay, extension, moratorium redemption or similar law or similar rights for marshalling; and (vii) any right to be informed by Executive of the financial condition of Obligor or any other guarantor of the Obligations or any change therein or any other circumstances bearing upon the risk of nonpayment or nonperformance of the Obligations. Guarantor has the ability to and assumes the responsibility for keeping informed of the financial condition of Obligor and any other guarantors of the Obligations and of other circumstances affecting such nonpayment and nonperformance risks. 4.            Miscellaneous. (a)           Notices. All notices hereunder must be in writing and shall be sufficiently given for all purposes hereunder if properly addressed and delivered personally by documented overnight delivery service, by certified or registered mail, return receipt requested, or by facsimile or other electronic transmission service at the address or facsimile number, as the case may be, set forth below. Any notice given personally or by documented overnight delivery service is effective upon receipt. Any notice given by registered mail is effective upon receipt, to the extent such receipt is confirmed by return receipt. Any notice given by facsimile transmission is effective upon receipt, to the extent that receipt is confirmed, either verbally or in writing by the recipient. Any notice which is refused, unclaimed or undeliverable because of an act or omission of the party to be notified, if such notice was correctly addressed to the party to be notified, shall be deemed communicated as of the first date that said notice was refused, unclaimed or deemed undeliverable by the postal authorities, or overnight delivery service. 3 --------------------------------------------------------------------------------   Executive:   Guarantor:         William D. Endresen   Impac Mortgage Holdings, Inc.         1401 Dove Street         Newport Beach, California 92660       Telephone:(949)475-3600       Facsimile:(949) 475-3969       Attention: Ronald Morrison, Esq., General       Counsel       With a copy to:   With a copy to:       Richard K Zepfel, Esq.     Ernest W. Klatte, III, Esq. Payne & Fears, LLP     Rutan & Tucker, LLP 4 Park Plaza Ste 1100     611 Anton Blvd., 14th Floor Irvine, CA 92614     Costa Mesa, California 92626 Telephone: (949) 851-1100     Telephone: (714) 641-5100 Facsimile: (949) 851-1212     Facsimile: (714) 546-9035               And           Patricio T.D. Barrera, ESQ.     Marcin Barrera LLP     1901 Avenue of the Stars     Suite 1900     Los Angeles, CA 90067     Telephone: (310) 286-1050     Facsimile: (310) 286-1070   (b)            Nonwaiver. No failure or delay on Executive’s part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. (c)            Amendments and Waivers. This Guaranty may not be amended, modified, superseded, canceled, or any terms waived, except by written instrument signed by both parties, or in the case of waiver, by the party to be charged. (d)            Assignments. This Guaranty shall be binding upon and inure to the benefit of Executive and Guarantor and their respective successors and assigns; provided, however, that without the prior written consent of Executive, Guarantor may not assign its rights and obligations hereunder. (e)            Cumulative Rights, etc. The rights, powers and remedies of Executive under this Guaranty shall be in addition to all rights, powers and remedies given to Executive by virtue of any applicable law, rule or regulation, the Contract or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Executive’s rights hereunder. 4 -------------------------------------------------------------------------------- (f)             Partial Invalidity. The provisions of this Guaranty are severable and if any one or more provisions is determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. (g)            Governing Law. This Guaranty is and shall be governed and construed in accordance with the laws of the State of California, regardless of any laws on choice of law or conflicts of law of any jurisdiction. (h)            Arbitration. To the fullest extent allowed by law, any controversy, claim or dispute between Executive and Guarantor (or any of its stockholders, directors, officers, employees, affiliates, agents, successors or assigns) relating to or arising out of this Guaranty will be submitted to final and binding arbitration in Orange County, California for determination in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute. In any such arbitration, the parties may conduct discovery to the same extent as would be permitted in a court of law. The arbitrator shall issue a written decision, and shall have full authority to award all remedies which would be available in court. The arbitrator shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. Guarantor shall pay the arbitrator’s fees and any AAA administrative expenses. In the event Executive files a claim to collect unpaid payments or benefits payable under Section 2.4 of the Contract, the prevailing party shall be awarded reasonable attorneys fees and costs. Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. BY AGREEING TO THIS MUTUAL AND BINDING ARBITRATION PROVISION, BOTH EXECUTIVE AND GUARANTOR GIVE UP ALL RIGHTS TO TRIAL BY JURY. This arbitration policy is to be construed as broadly as is permissible under relevant law. EXECUTIVE AND GUARANTOR HAVE READ THIS SECTION 4(h) AND IRREVOCABLY AGREE TO ARBITRATE ANY DISPUTE IDENTIFIED ABOVE. Executive’s Initials /s/ WDE   Guarantor’s Initials /s/ RJJ     (i)            Entire Agreement. This Guaranty contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Guaranty that are not set forth otherwise herein. This Guaranty supersedes any and all prior agreements, written or oral, with Guarantor relating to guaranteeing obligations under the Contract and any other subject matter of this Guaranty. Any such prior agreements are hereby terminated and of no further effect. The parties hereto agree that in no event shall an oral modification of this Agreement be enforceable or valid. 5 -------------------------------------------------------------------------------- (j)            Counterparts, Facsimile Signatures. This Guaranty may be executed in any number of counterparts, each of which shall be deemed an original for all purposes. This Guaranty may be executed by a party’s signature transmitted by facsimile (“fax”), and copies of this Guaranty executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto may rely upon faxed signatures as if such signatures were originals. Any party executing and delivering this Guaranty by fax shall promptly thereafter deliver a counterpart signature page of this Guaranty containing said party’s original signature. All parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Guaranty as if it were an original signature page. (k)           Rules of Construction. This Guaranty has been negotiated by the parties and is to be interpreted according to its fair meaning as if the parties had prepared it together and not strictly for or against any party. References in this Guaranty to “Sections” refer to Sections of this Guaranty, unless the context expressly indicates otherwise. References to “provisions” of this Guaranty refer to the terms, conditions, restrictions and promises contained in this Guaranty. References in this Guaranty to laws and regulations refer to such laws and regulations as in effect on this date and to the corresponding provisions, if any, of any successor law or regulation. At each place in this Guaranty where the context so requires, the masculine, feminine or neuter gender includes the others and the singular or plural number includes the other. Forms of the verb “including” mean “including without limitation” unless the context expressly indicates otherwise. “Or” is inclusive and includes “and” unless the context expressly indicates otherwise. The introductory headings at the beginning of Sections of this Guaranty are solely for the convenience of the parties and do not affect any provision of this Guaranty. (1)           No Employment With Guarantor. Executive understands and agrees that he is an employee of Obligor pursuant to the Contract. Executive further understands and agrees that neither this Guaranty nor any obligations performed hereunder shall change any employee status that Executive may have with Guarantor. IN WITNESS WHEREOF, Executive and Guarantor have executed this Guaranty as of the day and year first above written. GUARANTOR       Impac Mortgage Holdings, Inc.       By: /s/ Richard J. Johnson   Name: Richard J. Johnson   Title: Executive Vice President           EXECUTIVE           By: /s/ William D. Endresen     William D. Endresen   6 --------------------------------------------------------------------------------

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  Exhibit 10.03 NON-COMPETE AGREEMENT      THIS NON-COMPETE AGREEMENT (this “Agreement”) is entered into this 19th day of July, 2006, and effective as of the Effective Time (as defined below), by and among Valero GP Holdings, LLC, a Delaware limited liability company (“Holdings”), Valero L.P., a Delaware limited partnership (the “MLP”), Riverwalk Logistics, L.P., a Delaware limited partnership and general partner of the MLP (“Riverwalk”), and Valero GP, LLC, a Delaware limited liability company and general partner of Riverwalk (“Valero GP” and together with the MLP, Riverwalk, and their respective Subsidiaries, the “Partnership Parties”). R E C I T A L      The parties hereto desire, by their execution of this Agreement, to evidence the terms and conditions pursuant to which business opportunities available to the Partnership Parties and Holdings and their respective affiliates (other than the Partnership Parties) will be addressed.      WHEREAS, Valero Energy Corporation (“Valero Energy”), Valero GP, Riverwalk, the MLP and Valero Logistics Operations, L.P. are parties to the Amended and Restated Omnibus Agreement, dated as of March 31, 2006 (the “Omnibus Agreement”), pursuant to which Holdings, as a Controlled Valero Affiliate (as defined in the Omnibus Agreement), is prohibited from engaging in a Restricted Business (as defined in the Omnibus Agreement);      WHEREAS, Valero Energy has stated its intent to reduce its ownership of Holdings, which would result in Holdings no longer being a Controlled Valero Affiliate and no longer being bound by the terms of the Omnibus Agreement;      WHEREAS, it is the intent of the parties hereto to be bound by the provisions of this Agreement effective immediately upon Holdings no longer being bound by the provisions of the Omnibus Agreement.      In consideration of the premises and the covenants, conditions, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I: Definitions      1.1 Definitions.            (a) Capitalized terms used herein but not defined herein shall have the meanings given them in the MLP Agreement.            (b) As used in this Agreement, the following terms shall have the respective meanings set forth below:            “Affiliate” shall have the meaning attributed to such term in the MLP Agreement.   --------------------------------------------------------------------------------              “Agreement” shall mean this Non-Compete Agreement, as it may be amended, modified, or supplemented from time to time.            “Conflicts Committee” means a committee of the Board of Directors of Holdings or Valero GP, as applicable, as defined in the Holdings Agreement or the MLP Agreement, respectively.            “Effective Time” means the time at which Holdings is no longer a Controlled Valero Affiliate under the terms of the Omnibus Agreement.            “Holdings” means Valero GP Holdings, LLC, a Delaware limited liability company, and any successors thereto.            “Holdings Agreement” means the Second Amended and Restated Limited Liability Company Agreement of Holdings, and any amendments thereto and restatements thereof.            “Logistics Business” means any business, asset or group of assets related the transportation, storage or terminalling of crude oil, feedstocks or refined petroleum products (including petrochemicals), in the United States or internationally that is not a Public Equity Security.            “Logistics Business Notice” shall have the meaning set forth in Section 2.1(b).            “MLP” means Valero L.P., a Delaware limited partnership, and any successors thereto.            “MLP Agreement” means the Third Amended and Restated Agreement of Limited Partnership of the MLP, and any amendments thereto and restatements thereof.            “Partnership Parties” means Valero GP, the MLP, Riverwalk and their respective Subsidiaries.            “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.            “Public Equity Securities” shall mean (i) general partner interests (or securities which have characteristics similar to general partner interests) and incentive distribution rights or similar rights in publicly traded partnerships or interests in Persons that own or control such general partner or similar interests (collectively, “GP Interests”) and securities convertible, exercisable, exchangeable or otherwise representing ownership or control of such GP Interests and (ii) incentive distribution rights and limited partner interests (or securities which have characteristics similar to incentive distribution rights or limited partner interests) in publicly traded partnerships or interests in Persons that own or control such limited partner or similar interests (collectively, “non-GP Interests”); provided that such non-GP Interests are owned by the owners of the GP Interests being acquired or their respective Affiliates. -2- --------------------------------------------------------------------------------              “Public Equity Securities Notice” shall have the meaning set forth in Section 2.1(b).            “Riverwalk” means Riverwalk Logistics, L.P., a Delaware limited partnership, and any successors thereto.            “Valero GP” means Valero GP, LLC, a Delaware limited liability company, and any successors thereto. ARTICLE II: Business Opportunities      2.1 Public Equity Securities Opportunity. (a) During the term of this Agreement, the Partnership Parties are prohibited from acquiring Public Equity Securities unless and until the opportunity to acquire such Public Equity Securities has been offered to Holdings and Holdings has declined or abandoned such opportunity as provided in Section 2.1(b).      (b) If any of the Partnership Parties becomes aware of an opportunity to acquire Public Equity Securities from a third party that it wishes to pursue, then as soon as practicable, Valero GP (on behalf of the Partnership Parties) shall notify Holdings of such opportunity (the “Public Equity Securities Notice”) and deliver to Holdings all information prepared by or on behalf of the Partnership Parties relating to the Public Equity Securities. As soon as practicable, but in any event within 30 days after receipt of such notification and information, Holdings shall notify the Partnership Parties that either (i) Holdings has elected, with the approval of a majority of the members of the Conflicts Committee, not to cause Holdings to pursue the opportunity to acquire such Public Equity Securities, or (ii) Holdings has elected to pursue the opportunity to acquire such Public Equity Securities. If at any time Holdings abandons such opportunity, as evidenced (x) in writing by Holdings, or (y) by Holdings’ failure to consummate the acquisition of the Public Equity Securities within one year of the Public Equity Securities Notice, the Partnership Parties shall have the unrestricted right to pursue such opportunity.      2.2 Logistics Business Opportunity. (a) During the term of this Agreement, Holdings is prohibited from acquiring a Logistics Business unless and until the opportunity to acquire such Logistics Business has been offered to the Partnership Parties and the Partnership Parties have declined or abandoned such opportunity as provided in Section 2.2(b).      (b) If Holdings becomes aware of an opportunity to acquire a Logistics Business from a third party that it wishes to pursue, then as soon as practicable, Holdings shall notify Valero GP (on behalf of the Partnership Parties) of such opportunity (the “Logistics Business Notice”) and deliver to Valero GP all information prepared by or on behalf of Holdings relating to the Logistics Business. As soon as practicable, but in any event within 30 days after receipt of such notification and information, Valero GP (on behalf of the Partnership Parties) shall notify Holdings that either (i) Valero GP has elected, with the approval of a majority of the members of the Conflicts Committee, not to cause the Partnership Parties to pursue the opportunity to acquire such Logistics Business, or (ii) Valero GP (on behalf of the Partnership Parties) has elected to pursue the opportunity to acquire such Logistics Business. If at any time the Partnership Parties abandon such opportunity, as evidenced (x) in writing by Valero GP (on behalf of the Partnership -3- --------------------------------------------------------------------------------   Parties), or (y) by the Partnership Parties’ failure to consummate the acquisition of the Logistics Business within one year of the Logistics Business Notice, Holdings shall have the unrestricted right to pursue such opportunity.      2.3 No Obligation to Present Business Opportunities. Other than as set forth Section 2.1 with respect to Public Equity Securities, none of the Partnership Parties shall have any obligation to present any business opportunity (including, but not limited to, Logistics Businesses) to Holdings and its Affiliates. Other than as set forth in Section 2.2 with respect to Logistics Businesses, Holdings shall have no obligation to present any business opportunity (including, but not limited to, Public Equity Securities) to the Partnership Parties and their Affiliates.      2.4 Term      This Agreement shall remain in effect for as long as Holdings or any of its Affiliates owns directly or indirectly 20% or more of Valero GP or Riverwalk or their successors. ARTICLE III: Miscellaneous      3.1 Choice of Law. This Agreement shall be subject to and governed by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer to the construction or interpretation of this Agreement to the laws of another state.      3.2 Notice. All notices or requests or consents provided for or permitted to be given pursuant to this Agreement must be in writing and must be given by depositing same in the United States mail, addressed to the Person to be notified, postpaid, and registered or certified with return receipt requested or by delivering such notice in person or by telecopier or telegram to such party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telegram or telecopier shall be effective upon actual receipt if received during the recipient’s normal business hours, or at the beginning of the recipient’s next business day after receipt if not received during the recipient’s normal business hours. All notices to be sent to a party pursuant to this Agreement shall be sent to or made at the address set forth below such party’s signature to this Agreement, or at such other address as such party may stipulate to the other parties in the manner provided in this Section 3.2.      3.3 Entire Agreement; Supersedure. This Agreement constitutes the entire agreement of the parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written, relating to the matters contained herein.      3.4 Effect of Waiver or Consent. No waiver or consent, express or implied, by any party to or of any breach or default by any Person in the performance by such Person of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such Person of the same or any other obligations of such Person hereunder. Failure on the part of a party to complain of any act of any Person or to declare any Person in default, irrespective of how long such failure continues, shall not constitute -4- --------------------------------------------------------------------------------   a waiver by such party of its rights hereunder until the applicable statute of limitations period has run.      3.5 Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement of all the parties hereto. Each such instrument shall be reduced to writing and shall be designated on its face an “Amendment” or an “Addendum” to this Agreement.      3.6 Assignment. No party shall have the right to assign its rights or obligations under this Agreement, by operation of law or otherwise, without the consent of the other parties hereto.      3.7 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signatory parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.      3.8 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.      3.9 Gender, Parts, Articles and Sections. Whenever the context requires, the gender of all words used in this Agreement shall include the masculine, feminine and neuter, and the number of all words shall include the singular and plural. All references to Article numbers and Section numbers refer to Parts, Articles and Sections of this Agreement, unless the context otherwise requires.      3.10 Further Assurances. In connection with this Agreement and all transactions contemplated by this Agreement, each signatory party hereto 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.      3.11 Withholding or Granting of Consent. Each party may, with respect to any consent or approval that it is entitled to grant pursuant to this Agreement, grant or withhold such consent or approval in its sole and uncontrolled discretion, with or without cause, and subject to such conditions as it shall deem appropriate.      3.12 Laws and Regulations. Notwithstanding any provision of this Agreement to the contrary, no party hereto shall be required to take any act, or fail to take any act, under this Agreement if the effect thereof would be to cause such party to be in violation of any applicable law, statute, rule or regulation.      3.13 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.      3.14 Negotiation of Rights of Limited Partners, Assignees, and Third Parties. The provisions of this Agreement are enforceable solely by the parties to this Agreement, and no -5- --------------------------------------------------------------------------------   limited Partner, assignee, member or other Person shall have the right to enforce any provision of this Agreement or to compel any party to this Agreement to comply with the terms of this Agreement. [SIGNATURE PAGES FOLLOW] -6- --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized officers as of the Effective Date.               VALERO GP HOLDINGS, LLC               By:   /s/ Steven A. Blank               Name:   Steven A. Blank     Title:   Senior Vice President, Chief Financial         Officer and Treasurer               Address for Notice:               One Valero Way San Antonio, Texas 78249 Facsimile No.: (210) 353-8361                             VALERO L.P.                   By:   Riverwalk Logistics, L.P.,         its general partner                       By:   Valero GP, LLC,             its general partner                             By:   /s/ Curtis V. Anastasio               Name:   Curtis V. Anastasio     Title:   Chief Executive Officer and President               Address for Notice:               One Valero Way San Antonio, Texas 78249 Facsimile No.: (210) 370-4392 -7- --------------------------------------------------------------------------------                 RIVERWALK LOGISTICS, L.P.               By:   Valero Logistics GP, LLC,         its general partner               By:   /s/ Curtis V. Anastasio               Name:   Curtis V. Anastasio     Title:   Chief Executive Officer and President               Address for Notice:               One Valero Way San Antonio, Texas 78249 Facsimile No.: (210) 370-4392               VALERO GP, LLC               By:   /s/ Curtis V. Anastasio               Name:   Curtis V. Anastasio     Title:   Chief Executive Officer and President               Address for Notice:               One Valero Way San Antonio, Texas 78249 Facsimile No.: (210) 370-4392 -8-

Exhibit 10.15 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (the “Agreement”) is entered into effective as of December 1, 2005 (the “Effective Date”) by and between Entravision Communications Corporation, a Delaware corporation (the “Company”), and John F. DeLorenzo (“Executive”). 1. Employment. a. Executive shall serve as the Company’s Executive Vice President and Chief Financial Officer (“CFO”) during the term of this Agreement. Executive will perform such duties as are customarily performed by CFOs of like organizations, including the duties as may reasonably be assigned from time to time by the Company’s Chief Executive Officer (“CEO”) that are consistent with such title and position. Executive shall report directly to the CEO. In performing his duties, Executive will abide by all applicable federal, state, and local laws, as well as the Company’s bylaws, rules, regulations and policies, as may be amended from time to time. b. Executive shall devote his entire productive time, ability and attention to the Company’s business during the term of this Agreement. Executive shall not engage in any other business duties or pursuits whatsoever, or directly or indirectly render any services of a business, commercial or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the CEO. The foregoing shall not preclude Executive from engaging in appropriate civic, charitable or religious activities or from devoting a reasonable amount of time to passive private investments or from serving on the boards of directors of other entities (provided that any director position shall require the prior written consent of the CEO), as long as such activities and/or services do not interfere or conflict with his responsibilities to the Company, and any provision of this Agreement.. Executive shall not directly or indirectly acquire, hold or retain any interest in any business competing with or similar in nature to the business of the Company, or which in any other way creates a conflict of interest, except for up to one percent (1%) ownership interests in public companies. During the term of this Agreement, Executive shall not in any way engage or participate in any business that is in competition with the Company. 2. Term. Beginning on the Effective Date, the Company agrees to employ Executive and Executive accepts employment with the Company until December 31, 2008, or until such time that Executive’s employment is terminated in accordance with the terms of this Agreement. 3. Salary and Benefits. a. Salary. Executive will receive an annual base salary of Four Hundred Eight Thousand Eight Hundred Seven Dollars ($408,807), payable in equal installments according to the Company’s regular paydays, less any applicable taxes and withholding (the “Base Annual Compensation”). The Base Annual Compensation may be increased, in the discretion of the Company’s Compensation Committee, on the first and second anniversaries of the Effective Date of this Agreement. The increase, if any, to the Base Annual Compensation made on the first and/or second anniversaries of the Effective Date of this Agreement shall be made with reference to the increase in base compensation given, in the same time period, to the Company’s employees generally. -------------------------------------------------------------------------------- b. Discretionary Bonus. Executive is eligible for a discretionary annual bonus of up to fifty percent (50%) of his then-applicable Base Annual Compensation, subject to the approval of the Company’s Compensation Committee. c. Benefit Coverage. Executive is entitled to participate in all executive benefit programs and plans established by the Company from time to time for the benefit of its executives generally and for which Executive is eligible. d. Vacation and Holidays. Executive is entitled to paid vacation time in accordance with the vacation policies established by the Company for its employees, as may be amended from time to time. Executive will also be entitled to the paid holidays as set forth in the Company’s policies. e. Car Allowance. Executive will receive Six Hundred Dollars ($600) per month as a car allowance. f. Stock Options. Executive is eligible for grants of stock options under the Entravision Communications Corporation 2004 Equity Incentive Plan. g. Miscellaneous. The Company will indemnify Executive consistent with the Company’s other executive officers and its legal obligations under California Labor Code Section 2802. 4. Termination of Employment. a. The Company or Executive may terminate this Agreement and Executive’s employment at any time, with or without Cause (as defined below). b. In the event Executive is terminated for “Cause,” Executive shall not be entitled to any severance compensation or any other compensation from the Company except for such salary and benefits as Executive may have earned prior to Executive’s termination. If terminated for “Cause,” Executive shall be ineligible for any bonus, prorated or otherwise. For purposes of this Agreement, the Company may terminate this Agreement for “Cause” for any of the following reasons: (i) Executive’s continued failure to substantially perform his job duties and responsibilities, provided that written notice is provided by the Company and the performance problem is not satisfactorily cured within sixty (60) days. (ii) Executive’s serious misconduct, dishonesty or disloyalty, which is actually or potentially harmful to the Company. (iii) Executive’s willful, reckless or grossly negligent act or omission that is materially harmful to the Company.   -2- -------------------------------------------------------------------------------- (iv) Executive’s material breach of any provision of this Agreement, provided written notice of such breach is given by the Company and Executive is given at least thirty (30) days to cure the breach. c. Should the Company terminate Executive’s employment without Cause, or should Executive voluntarily terminate his employment for Good Reason (as defined below), in addition to (i) salary and benefits Executive might have earned prior to his termination and (ii) any discretionary bonus approved by the Company’s Compensation Committee prior to his termination, the Company will pay Executive severance pay in an amount equal to Executive’s then-current Base Annual Compensation (exclusive of incentive or bonus pay, benefits and other non-cash remuneration) multiplied by one (1). Payment of severance compensation under this Section 4 shall be paid in equal payments, corresponding to the Company’s usual executive paydays. Executive’s receipt of the severance payment described in this Paragraph 4(c) is conditioned upon Executive’s executing a customary form of release whereby Executive waives all claims arising out of his employment and termination of employment. d. For purposes of this Agreement, “Good Reason” shall mean (i) a reduction in Executive’s then-current Base Annual Compensation, unless such reduction is applicable generally to similarly-situated senior executives of the Company, (ii) a Change in Control (as defined below) of the Company in which Executive is not offered continued employment as (1) the chief financial officer of the Company, (2) the chief financial officer of the surviving entity or (3) the chief financial officer of a separate division or subsidiary of the surviving entity (provided that such division or subsidiary must have assets and operations comparable to the assets and operations of the Company immediately prior to the Change in Control); or (iii) the requirement, within 120 days following a Change in Control of the Company, that Executive move his residence outside the greater Los Angeles, California metropolitan area. For purposes of this Agreement, “Change in Control” shall mean the acquisition of the Company by another entity by means of any transaction or series or related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company), where the Company’s stockholders of record as constituted immediately prior to such acquisition will, immediately after such acquisition, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity. Any termination for Good Reason shall be communicated by Executive’s delivery of written notice to the Company, in accordance with Section 6 hereof, indicating that Executive is voluntarily terminating his employment for Good Reason and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Good Reason. 5. Confidentiality. a. Executive recognizes that his employment with the Company will involve contact with information of substantial value to the Company, which is not generally known to the public and which gives the Company an advantage over its competitors who do not know or use it, including, but not limited to, techniques, designs, drawings, processes, inventions, developments, equipment, prototypes, sales and customer information, and business and financial information relating to the business, products, practices and techniques of the Company   -3- -------------------------------------------------------------------------------- (hereinafter referred to as “Confidential Information”). Confidential Information includes all information disclosed by the Company or its clients, and information learned by Executive during the course of employment with the Company. Notwithstanding the foregoing, Confidential Information shall not be information which: (i) has entered the public domain through no action or failure to act of Executive; (ii) prior to disclosure hereunder was already lawfully in Executive’s possession without any obligation of confidentiality; (iii) subsequent to disclosure hereunder is obtained by Executive on a non-confidential basis from a third party who has the right to disclose such information to Executive; or (iv) is ordered to be or otherwise required to be disclosed by Executive by a court of law or other governmental body; provided, however, that the Company is notified of such order or requirement and given a reasonable opportunity to intervene. b. At all times during and after Executive’s employment with the Company, he will keep confidential and not use or disclose to any third party any Confidential Information, except in the course of his employment with the Company. c. While employed by the Company and for one (1) year thereafter, Executive may not, either directly or through any other person or entity (i) use Confidential Information to solicit or attempt to solicit any employee, consultant, vendor or independent contractor of the Company or (ii) use Confidential Information to solicit or attempt to solicit the business of any customer, vendor or distributor of the Company which, at the time of termination or one (1) year immediately prior thereto, was listed on the Company’s customer, vendor or distributor list. 6. Notices. Notices and all other communications under this Agreement shall be in writing and shall be deemed given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested, postage prepaid, addressed to the party’s last know address. 7. Waiver of Breach. The waiver by either party, or the failure of either party to claim a breach of any provision of this Agreement, shall not operate or be construed as a waiver of any subsequent breach. 8. Assignment. The rights and obligations of the respective parties hereto under this Agreement shall inure to the benefit of and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto; provided, however, that this Agreement shall not be assignable by Executive without prior written consent of the Company. 9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect to said subject matter in any manner whatsoever. Any modification of this Agreement will be effective only if it is in writing and signed by both Executive and the CEO of the Company. 10. Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California.   -4- -------------------------------------------------------------------------------- 11. Partial Invalidity. If any provision of this Agreement is found to be invalid or unenforceable by any court, the remaining provisions hereof shall remain in effect unless such partial invalidity or unenforceability would defeat an essential business purpose of this Agreement. 12. Remedy for Breach. In the event any action at law or in equity or other proceeding is brought to interpret or enforce this Agreement, or in connection with any provision with this Agreement, the prevailing party shall be entitled to its reasonable attorneys’ fees and other costs reasonable incurred in such action or proceeding. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall together constitute one and the same instrument. To the maximum extent permitted by law or any applicable governmental authority, any document may be signed and transmitted by facsimile with the same validity as if it were an ink-signed document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above.   “Company”     Entravision Communications Corporation, a Delaware corporation     By:   /s/ Walter F. Ulloa       Walter F. Ulloa       Chairman and Chief Executive Officer “Executive”             /s/ John F. DeLorenzo       John F. DeLorenzo [Signature Page to Executive Employment Agreement]   -5-

Exhibit 10.23 EMPLOYMENT AGREEMENT This Employment Agreement (“Agreement”) is made and entered into effective as of the Agreement Date, between Lawson Software, Inc., a Delaware corporation, having its principal place of business in St. Paul, Minnesota (the “Company” or “Lawson”) and Robert A. Schriesheim (“Employee”), for the purpose of setting forth the terms and conditions of Employee’s employment by the Company Recitals WHEREAS, the Company desires to employ Employee as described in this Agreement, and Employee desires to accept and serve in that capacity; and WHEREAS, Employee understands that such employment is expressly conditioned on execution of this Agreement; and WHEREAS, Company desires to employ Employee to render services for Company on the terms and conditions set forth in this Agreement, and Employee desires to be retained and employed by Company pursuant to such terms and conditions. Agreement NOW, THEREFORE, in consideration of Employee’s employment with Company and the foregoing premises, the mutual covenants set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Company and Employee agree as follows: Article I.  Definitions 1.1           “Agreement” means this Employment Agreement, as from time to time amended. 1.2           “Agreement Date” means October 5, 2006, which is the date on which Employee started as a full time employee of the Company or any Subsidiary. 1.3           “Base Salary” means the total annual cash compensation payable on a regular periodic basis, without regard to taxes and other items withheld, and excluding all types of incentive pay, all forms of stock or equity based compensation, fringe benefits, special pay or awards, commissions and bonuses.  Base Salary shall include amounts contributed by Employee to a qualified retirement plan, nonqualified deferred compensation plan or similar plan sponsored by the Company, but it shall not include earnings on those amounts. 1.4           “Board” means the Board of Directors of Company. 1.5           “Cause” means:  (1) material breach by Employee of this Agreement or the Invention and Non-Disclosure Agreement; (2) any material violation by Employee of the Company’s policies, rules or regulations that has a material adverse effect on the Company (as reasonably determined by the Company); (3) commission of any act of fraud, embezzlement or dishonesty by Employee that is materially injurious to the Company (as reasonably determined by the Company); (4) any other intentional misconduct by Employee adversely affecting the business or affairs of the Company or any Subsidiary in any material manner (as reasonably determined by the Company); or (5) intentional or 1 -------------------------------------------------------------------------------- willful failure of the Employee to materially perform Employee’s responsibilities hereunder, other than as a result of permitted leave of absence, vacation, injury or illness. 1.6           “Change of Control” means:  (1) the closing of a tender offer or exchange offer for the ownership of 50% or more of the outstanding voting securities of the Company; (2) the Company shall have entered into a definitive agreement with respect to a tender offer, exchange offer or merger, consolidation or other business combination with another corporation and as a result of such tender offer, exchange offer, merger, consolidation or combination 50% or fewer of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the former stockholders of the Company, other than affiliates (within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of any party to such merger or consolidation, as the same shall have existed immediately prior to such merger or consolidation; (3) the Company shall have entered into a definitive agreement to sell substantially all of its assets to another corporation which is not a direct or indirect wholly owned Subsidiary of the Company; (4) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date of this Agreement) of the Exchange Act, shall acquire 50%  or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record) (for purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the date of this Agreement) pursuant to the Exchange Act; (5) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or (6) individuals who constitute the Company’s Board of Directors on the date of this Agreement (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least 50% of the directors comprising the Incumbent Board shall be, for purposes of this clause (6), considered as though such person were a member of the Incumbent Board.  Notwithstanding the foregoing, the Lawson/Intentia Transaction is not a Change of Control of the Company. 1.7           “Disability” means Employee’s permanent disability as defined under any long term disability plan of the Company, or in the absence of such plan, the inability of Employee, due to illness or injury, to substantially perform his duties hereunder (after taking into account any reasonable accommodation required by the Americans with Disabilities Act) for a period of at least 180 consecutive days.  The determination of a Disability shall be based on competent medical opinion. 1.8           “Good Reason” means:  (1) Company effects a material diminution of Employee’s duties or reporting responsibilities or a diminution of Employee’s title of Chief Financial Officer of the Company; (2) the failure by Company, or its successor, if any, to pay compensation or provide benefits to Employee as and when required by the terms of this Agreement; or (3) any material breach by Company of this Agreement that is not timely cured by Company after notice from Employee. 1.9           “Invention and Non-Disclosure Agreement” means the Lawson Software, Inc. Employee Invention and Non-Disclosure Agreement entered into between the Company and Employee. 1.10         “Plan” means any bonus or incentive compensation agreement, plan, program, policy or arrangement sponsored, maintained or contributed to by Company, to which Company is a party or under which employees of Company are covered, including, without limitation, any stock option, restricted stock or any other equity based compensation plan, and any employee benefit plan, such as a thrift, pension, profit sharing, deferred compensation, medical, dental, disability, accident, life insurance, automobile allowance, perquisite, fringe benefit, vacation, sick or parental leave, severance or relocation 2 -------------------------------------------------------------------------------- plan or policy or any other agreement, plan, program, policy or arrangement intended to benefit employees or executive officers of Company. 1.11         “Subsidiary” means any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by the Company and/or one (1) or more Subsidiaries. 1.12         “Release/Restrictive Covenant” means the form of General Release and Restrictive Covenants attached as Exhibit A. 1.13         “Term” means the period during which this Agreement is in effect. Article II.  Employment, Term, and Duties 2.1           Employment.  Company hereby employs Employee as executive vice president and as an executive officer of the Company as of the Agreement Date.  Commencing October 11, 2006 and continuing for the balance of the Term, Employee shall serve as the Company’s Chief Financial Officer and Principal Financial Officer, pursuant to the Company’s Bylaws.  Employee accepts such employment and agrees to perform services for Company for the period and upon the other terms and conditions set forth in this Agreement. 2.2           Term.  The Term shall commence on the Agreement Date and continue in effect until terminated in accordance with Article IV of this Agreement. 2.3           Position and Duties. (a)           Service with Company.  During the Term, Employee shall report to the Chief Executive Officer and agrees to perform such duties and responsibilities (a) as are set forth for that position in the By-laws of the Company; (b) as the Chief Executive Officer or the Board shall assign to the Employee from time to time consistent with Employee’s position; and (c) that the Employee undertakes or accepts consistent with Employee’s position.  Employee acknowledges and agrees that, from time to time, Employee will be required to perform duties with respect to one or more of the Company’s Subsidiary or affiliate companies and that Employee will not be entitled to any additional compensation for performing those duties.  Employee also agrees to serve, for any period for which Employee is elected, as an director of Company; provided, however, that Employee shall not be entitled to any additional compensation for serving as a director after the Agreement Date.  Upon termination of Employee’s employment, for whatever reason, Employee will be deemed to have resigned as an officer and director of the Company. (b)           Performance of Duties.  Commencing as of the Agreement Date, Employee agrees to devote Employee’s full business time, attention and efforts to the business and affairs of Company (exclusive of any period of vacation, sick, disability or other leave to which Employee is entitled).  Employee may participate in charitable and civic activities so long as Employee remains available to provide Employee’s full time services to the Company.  Employee will review and agree to comply with the Company’s then current Code of Conduct to the same extent required for other United States-based employees of the Company.  Employee will perform all of Employee’s responsibilities in compliance with all applicable laws.  Employee acknowledges that in Employee’s capacity as principal executive officer of the Company, Employee will be expected to execute certain documents on behalf of the Company under the federal securities laws, which may include documents covering periods prior to the Agreement Date. 3 -------------------------------------------------------------------------------- 2.4           Location.  Employee shall be located in the Company’s St. Paul, Minnesota office and in the Company’s Schaumburg, Illinois office. 2.5           Outside Directorships.  It is recognized that as of the Agreement Date, Employee has existing commitments on two public boards including Dobson Communications (Nasdaq: DCEL) and Skyworks Solutions (Nasdaq: SWKS), neither of which compete in any business with the Company.  One of those companies is currently a customer of Lawson, and the approximate $250,000 in annual payments to Lawson from that company are less than five percent (5%) of either that company’s or Lawson’s respective annual revenue.  Lawson acknowledges that Employee has committed to become a stockholder and director of Alyst Acquisitions, Inc., a telecommunications firm known as a specified purpose acquisition company (“SPAC”).  Any time Employee devotes to outside director positions will be Employee’s personal or vacation days.  Employee will accept no additional non-Lawson roles or directorships without approval from Lawson’s Chief Executive Officers and Board of Directors.  Employee acknowledges that Lawson will be Employee’s full time position and employee will manage any conflicts accordingly to Lawson’s favor. Article III.  Compensation, Benefits and Expenses 3.1           Base Salary.  Subject to the provisions of Article IV of this Agreement, during the Term Company shall pay Employee a Base Salary at an annual rate that is not less than Four Hundred Thousand dollars ($400,000.00) or such higher annual rate as may from time to time be approved by the Board, such Base Salary to be paid in substantially equal regular periodic payments, less deductions and withholdings, in accordance with Company’s regular payroll procedures, policies and practices as such may be modified from time to time.  Employee shall be eligible, at Company’s sole discretion, for annual salary increases consistent with such procedures, policies and practices and if Employee’s Base Salary is increased from time to time during the Term, the increased amount shall become the Base Salary for the remainder of the Term and for as long thereafter as required pursuant to Article IV, subject to any subsequent increases.  Employee’s Base Salary may not be decreased during the Term. 3.2           Incentive Compensation.  Employee will participate in the Company’s Executive Leadership Results Plan (“ELRP”) in accordance with which Employee may earn an annual incentive bonus.  The terms of the annual incentive bonus plan, including the criteria upon which Employee can earn the maximum bonus, will be determined annually by the Board.  Employee’s annualized target incentive compensation under the ELRP for the fiscal year ending May 31, 2007 (“FY07”) shall be Four Hundred Thousand dollars ($400,000); provided, however that any incentive compensation awarded under the ELRP for the Company’s second fiscal quarter ending November 30, 2006 and the fiscal year ending shall be adjusted on a pro-rata basis by the number of calendar days that Employee is a full time employee during the applicable performance period in FY07.  For years after FY07, Employee’s annual target incentive compensation shall be an amount equal to his annual Base Salary as of the beginning of the applicable performance period.  Under the ELRP, a participant must be employed by the Company on the last day of a fiscal year to be eligible to receive annual incentive compensation that is payable for that fiscal year. 3.3           Stock Options.  As of the Agreement Date, the Company will approve the grant to Employee of an option to purchase 1,000,000 shares of the Company’s common stock (the “Stock Option”) in accordance with the terms of the Company’s 1996 Stock Incentive Plan, as the same may be amended from time to time (“1996 Plan”), and a nonqualified stock option agreement will be entered into by the Employee and the Company (the “Option Agreement”).  The Stock Option will be subject to vesting and other requirements described in the Option Agreement and 1996 Plan. 4 -------------------------------------------------------------------------------- 3.4           Participation in Benefits.  During the Term of Employee’s employment by Company, Employee shall be entitled to participate in the employee benefits offered generally by Company to its employees, to the extent that Employee’s position, tenure, salary, health and other qualifications make Employee eligible to participate.  Employee’s participation in such benefits shall be subject to the terms of the applicable plans, as the same may be amended from time to time.  Company does not guarantee the adoption or continuance of any particular employee benefit during Employee’s employment, and nothing in this Agreement is intended to, or shall in any way restrict the right of Company, to amend, modify or terminate any of its benefits during the Term. 3.5           Expenses.  In accordance with Company’s normal policies for expense reimbursement, Company will reimburse Employee for all reasonable and necessary expenses incurred by Employee in the performance of Employee’s duties under this Agreement, subject to the presentment of receipts or other documentation acceptable to Company. 3.6           Travel and Living Expenses.  During the first three years of the Term, the Company will pay Employee’s airfare expenses between Chicago, Illinois and St. Paul, Minnesota under the Company’s travel policy and Employee’s living expenses in St. Paul, Minnesota up to an aggregate amount of $75,000 during that three-year period for such airfare and living expenses, with an annual limit of $25,000 for such airfare and living expenses (collectively, the “Travel and Living Expenses”).  In addition, the Company will pay Employee the amount of federal and state personal income taxes payable by Employee on the reimbursed Travel and Living Expenses, plus the amount of federal and state personal income taxes payable on the tax reimbursements under this Section 3.6 (the “Tax Gross-Up”).  The Tax Gross-Up and Travel and Living Expenses may together exceed the $75,000 three-year limitation or the $25,000 annual limitation referred to above, but the Travel and Living Expenses (before the Tax Gross-Up) must be within those respective limits. 3.7           No Prior Period Restatements.  As of the date hereof, the Company represents and warrants that the Company has complied with all financial reporting requirements under the federal securities laws in all material respects, and no facts, events or circumstances exist which would require the Company to prepare an accounting restatement due to misconduct within the meaning of Section 304 of the Sarbanes-Oxley Act of 2002.  In the event that the Company prepares an accounting restatement for a fiscal period ending prior to the Agreement Date, the Company shall at its expense file a petition with the Securities and Exchange Commission under Section 304(b) of the Sarbanes-Oxley Act seeking to exempt Employee from the operation of the Section 304(a) thereof. 3.8           Tier 1 Change of Control Severance Pay Plan Is Applicable to Employee.  Employee will be considered a “Tier 1 Executive” under the then current terms of the Company’s Executive Change in Control Severance Pay Plan for Tier 1 Executives (first adopted by the Company on January 17, 2005). Article IV.  Termination and Compensation Following Termination 4.1           Termination.  Subject to the respective continuing obligations of the parties under this Agreement, the Term and Employee’s employment hereunder may be terminated under the following circumstances: (a)           Mutual Agreement.  By mutual written agreement of the parties at any time. (b)           Death.  In the event of Employee’s death. 5 -------------------------------------------------------------------------------- (c)           Employee’s Disability.  In the event Employee becomes Disabled.  During the period in which Employee is absent from work due to an injury or illness which may result in a Disability, the Company shall continue to pay to Employee the compensation, benefits and other payments and awards set forth in Article III hereof. (d)           Termination by Company for Cause.  Company may terminate this Agreement and Employee’s employment hereunder for Cause at any time after providing written notice to Employee.  Notwithstanding the foregoing, a termination for Cause, if susceptible of cure, shall not become effective unless Employee fails to cure such failure to perform within 10 days after written notice from Company, such notice to describe such failure to perform and identify what reasonable actions shall be required to cure such failure to perform. (e)           Termination By Employee For Good Reason.  Employee may terminate Employee’s employment hereunder for Good Reason.  Notwithstanding the foregoing, the Employee shall have Good Reason to terminate Employee’s employment only if (i) Employee notifies the Company in writing that Employee has determined Good Reason exists and specifies the event creating Good Reason, and (ii) following receipt of such notice, the Company fails to remedy such event within 10 days. (f)            Termination by Company Without Cause.  Company may terminate Employee’s employment hereunder at any time for any reason (including without limitation a Change in Control), or no reason and with notice. (g)           Termination by Employee Without Good Reason.  The Employee may terminate Employee’s employment hereunder at any time for any reason (including without limitation a Change in Control) or no reason, upon 10 days advance written notice. 4.2           Effect of Termination.  Notwithstanding any termination of this Agreement and/or Employee’s employment with Company, Employee, in consideration of Employee’s employment hereunder to the date of such termination, shall remain bound by the provisions of this Agreement that specifically relate to periods, activities or obligations upon or subsequent to the termination of Employee’s employment, including, but not limited to, the covenants contained in Article V and the Invention and Non-Disclosure Agreement. 4.3           Surrender of Records and Property.  Upon termination of Employee’s employment with Company, Employee shall deliver promptly to Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, computers, computer disks, computer software, computer programs (including source code, object code, on-line files, documentation, testing materials and plans and reports), designs, drawings, sketches, devices, specifications, formulae, data, tables or calculations or copies thereof, which are the property of Company or any subsidiary or affiliate or which relate in any way to the business, products, practices or techniques of Company or any Subsidiary. 4.4           Compensation Following Termination of the Term.  In the event that Employee’s employment hereunder is terminated prior to the end of the Term, Employee shall be entitled only to the following compensation and benefits upon such termination; provided, however, as a condition precedent to the payment of any severance under Section 4.4(b) of this Agreement, Employee shall have executed the General Release and Restrictive Covenants in the form attached hereto as Exhibit A (the “Release/Restrictive Covenant”) and the revocation or rescission period specified therein shall have expired: 6 -------------------------------------------------------------------------------- (a)           Termination by Company for Cause or by Employee Without Good Reason.  If the Employee’s employment is terminated by the Company for Cause or the Employee voluntarily terminates employment without Good Reason, the Company shall promptly pay to the Employee (1) any Base Salary earned but not paid through the date of Employee’s employment termination, plus (2) any bonus that is earned because Employee was employed on the last day of the fiscal year as provided in Section 3.2, and amounts that Employee is entitled to under any equity compensation, bonus, benefit or other plan of, or agreement with the Company in accordance with the terms of such plan or agreement .  The Company shall have no further obligations under this Agreement. (b)           Termination by Employee for Good Reason; Termination by the Company Without Cause; Termination by Reason of Employee’s Death or Disability.   In the event that Employee’s employment is terminated by Employee for Good Reason, by the Company without Cause (whether or not there is a Change of Control) or by reason of Employee’s death or Disability, Company shall promptly pay to Employee, Employee’s estate or Employee’s spouse, as the case may be:  (1) any amounts due to Employee for Base Salary through the date of employment termination, together with any other unpaid and pro rata amounts to which Employee is entitled as of the date of termination pursuant to Article III of this Agreement, including, without limitation, any bonus that is earned because Employee was employed on the last day of the fiscal year as provided in Section 3.2, amounts that Employee is entitled to under any equity compensation, bonus , benefit or other plan of, or agreement with, the Company in accordance with the terms of such plan or agreement, plus (2) one times Employee’s then current annual Base Salary plus (3) one times Employee’s then current annual target bonus plus (4) for fiscal years beginning on or after June 1, 2007, if Employee’s termination occurs during the second half of the Company’s fiscal year, a target annual bonus, to the extent not previously paid, pro rated based on number of days employed during such fiscal) for such fiscal year.  Except to the extent expressly described in a stock option agreement or other award, Employee will have no rights to any unvested benefits or any other compensation or payments coming due after the date of Employee’s employment termination. The Company shall have no further obligations under this Agreement. 4.5           No Mitigation Obligation.  Employee shall not be required to mitigate the amount of any payment provided to Employee under Section 4.4 of this Agreement by seeking other employment. The Company may not claim a right of offset to reduce any payment to Employee required hereunder 4.6           No Other Benefits or Compensation.  Except as may be provided under this Agreement, under the terms of any incentive compensation, employee benefit or fringe benefit plan applicable to Employee at the time of the termination of Employee’s employment, Employee shall have no right to receive any other compensation or to participate in any other plan, arrangement or benefit, with respect to any future period after such termination or resignation. 4.7           IRC Section 409A and Delay of Payment.  If any amounts payable to Employee pursuant to this Agreement are subject to Section 409A of the United States Internal Revenue Code (“Section 409A”), an exception to Section 409A does not apply, and the Company is a publicly traded corporation at the time of Employee’s termination of employment or first scheduled payment of such amount, then, notwithstanding any provision in this Agreement to the contrary:  (a) the payment of such amount will be made to Employee six months plus five business days following the date of Employee’s termination of employment (provided that at the time of actual payment Employee has met all other requirements for that payment under this Agreement), (b) no payment of such amount will be made to Employee before the date described in clause (a) above, and (c) no interest shall accrue or be payable to Employee for any 7 -------------------------------------------------------------------------------- payments that are delayed pursuant to this Section 4.7.  The Company assumes no obligation to pay or reimburse Employee for any taxes incurred under Section 409A. Article V.  Noncompetition and Nonsolicitation 5.1           Release/Restrictive Covenant.  The Release/Restrictive Covenant attached as Exhibit A includes certain noncompetition and nonsolicitation covenants of Employee that are a condition precedent to the payment of any severance under Section 4.4(b) above. 5.2           Covenant Not To Compete—Five Competitors.  Before the payment of any severance under Section 4.4(b) of this Agreement and execution of the Release/Restrictive Covenant, within five days following termination of employment, the Company shall notify Employee of the names of five competitors that will be identified as the “Five Competitors” in Section 2.1 of the Release/Restrictive Covenant. 5.3           Covenant Not To Compete—25 Clients/Prospects.  Before the payment of any severance under Section 4.4(b) of this Agreement and execution of the Release/Restrictive Covenant, within five days following termination of employment, the Coxmpany shall notify Employee of the names of 25 clients and/or prospects that will be identified as the “25 Clients/Prospects” in Section 2.2 of the Release/Restrictive Covenant. Article VI.  Tax Consideration. Notwithstanding anything herein to the contrary, in the event any payments, benefits, or distributions (or combination thereof) from the Company, any affiliates, or any trust established by the Company or any affiliate for the benefit of its employees, to the Employee or for Employee’s benefit (including, without limitation, payments hereunder or under any equity or option award, including the value of any acceleration of such award), (“Total Payments”) are determined by the Company to be subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any similar federal or state excise tax, FICA tax, or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest or penalties are hereinafter collectively referred to as the “Excise Tax”), the Company shall pay to the Employee an additional amount (the “Gross-Up Payment”) such that after the payment by the Employee of all federal, state, or local income taxes, Excise Taxes, FICA taxes, or other taxes (including any interest or penalties imposed with respect thereto) imposed upon the receipt of the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Total Payments.  Any Gross-Up Payment may be withheld by the Company from the Employee and submitted to the applicable governmental taxing authorities on Employee’s behalf. If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of employment, the Employee shall repay to the Company, at the time the reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction; provided, however, that Employee shall not be obligated to return such excess until receipt by the Employee of a refund of such amount from the applicable governmental taxing authorities. .  If the Excise Tax is determined to exceed the amount taken into account hereunder at the time of termination of employment, the Company shall make an additional Gross-Up Payment to the Employee (or to the applicable governmental taxing authorities as withholding on the Employee’s behalf) in respect of such excess at the time the amount of such excess is finally determined.  The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the 8 -------------------------------------------------------------------------------- payment by the Company of the Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The Employee shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he or she 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 Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (a)           give the Company any information reasonably requested by the Company relating to such claim; (b)           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;  (c)          cooperate with the Company in good faith in order to effectively contest such claim; and (d)           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 legal and accounting fees and additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax, FICA tax, or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions of this Article VI, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction, and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a 9 -------------------------------------------------------------------------------- Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, other issues raised by the Internal Revenue Service or any other taxing authority. If any such claim referred to in this Article VI is made by the Internal Revenue Service and the Company does not request the Employee to contest the claim within the thirty (30) day period following notice of the claim, the Company shall pay to the Employee the amount on any Gross-Up Payment owed to the Employee, but not previously paid pursuant to this Article VI, immediately upon the expiration of such thirty (30) day period.  If any such claim is made by the Internal Revenue Service and the Company requests the Employee to contest such claim, but does not advance the amount of such claim to the Employee for purposes of such contest, the Company shall pay to the Employee the amount of any Gross-Up Payment owed to the Employee, but not previously paid under the provisions of this Article VI, within five (5) business days of a Final Determination of the liability of the Employee for such Excise Tax.  For purposes of this Agreement, a “Final Determination” shall be deemed to occur with respect to a claim when (i) there is a decision, judgment, decree, or other order by any court of competent jurisdiction, which decision, judgment, decree, or other order has become final, i.e., all allowable appeals pursuant to this Article VI have been exhausted by either party to the action, (ii) there is a closing agreement made under Section 7121 of the Code, or (iii) the time for instituting a claim for refund has expired, or if a claim was filed, the time for instituting suit with respect thereto has expired. If, after the receipt by the Employee of an amount advanced by the Company pursuant to this Article VI, the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company’s complying with the requirements of this Article VI) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If after the receipt by the Employee of an amount advanced by the Company pursuant to this Article VI, a determination is made by the Internal Revenue Service that the Employee is not entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. Article VII.  Miscellaneous Provisions 7.1           Tax Consequences.  Employee acknowledges and agrees that Company has made no representations or warranties with respect to the tax consequences of any of the payments or other consideration provided by Company to Employee under the terms of this Agreement, and that Employee is solely responsible for Employee’s compliance with any and all laws applicable to such payments or other consideration. 7.2           Withholding Taxes.  Company may take such action as it deems appropriate to insure that all applicable federal, state, city and other payroll, withholding, income or other taxes arising from any compensation, benefits or any other payments made pursuant to this Agreement, or any other contract, agreement or understanding that relates, in whole or in part, to Employee’s employment with Company, are withheld or collected from Employee.  The Company may deduct applicable withholding taxes from any payments to Employee under this Agreement. 7.3           Assignment.  This Agreement shall not be assignable, in whole or in part, by any party without the written consent of the other party and any purported or attempted assignment or transfer of 10 -------------------------------------------------------------------------------- this Agreement or any of Employee’s duties, responsibilities or obligations hereunder shall be void. This Agreement is binding upon Employee, Employee’s heirs and personal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  Notwithstanding the foregoing, the Company may, without the consent of Employee, assign its rights and obligations under this Agreement to any business entity that has become the legal successor to Company in the event of a sale, merger, liquidation or similar transaction. 7.4           Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing, shall be deemed to have been duly given on the date of service if personally served on the parties to whom notice is to be given, or on the second day after mailing if mailed to the parties to whom notice is given, by registered or certified mail, return receipt requested, postage prepaid and properly addressed as follows: If to the Company, at:   Lawson Software, Inc. 380 St. Peter Street St. Paul, MN 55102 Attn: Corporate Secretary       If to Employee, at:   (Last address of Employee on record at the Company)       With a copy to:   Wayne R. Luepker Mayer, Brown, Rowe & Maw LLP 71 S. Wacker Drive Chicago, IL 60606   Any party may change the address for the purpose of this Section by giving the other written notice of the new address in the manner set forth above. 7.5           Governing Law.  The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Minnesota, without regard to conflicts of laws principles thereof. 7.6           Severability.  In the event any provision of this Agreement (or portion thereof) shall be held illegal or invalid for any reason, said illegality or invalidity shall not in any way affect the legality or validity of any other provision of this Agreement. To the extent any provision (or portion thereof) of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction, such provision (or portion thereof) shall be deemed to be deleted from this Agreement as to such jurisdiction only, and the validity and enforceability of the remainder of such provision and of this Agreement shall be unaffected. 7.7           Entire Agreement.  This Agreement and the agreements and Plans expressly referenced above is the final, complete and exclusive agreement of the parties and sets forth the entire agreement between Company and Employee with respect to Employee’s employment by Company, and there are no undertakings, covenants or commitments other than as set forth therein.  The Agreement may not be altered or amended, except by a writing executed by the party against whom such alteration or amendment is to be enforced. 11 -------------------------------------------------------------------------------- 7.8           Counterparts.  This Agreement may be simultaneously executed in any number of counterparts and by facsimile. 7.9           Survival.  The parties expressly acknowledge and agree that the provisions of this Agreement that by their express or implied terms extend beyond the expiration of this Agreement or the termination of Employee’s employment under this Agreement, shall continue in full force and effect, notwithstanding Employee’s termination of employment under this Agreement or the expiration of this Agreement. 7.10         Waivers.  No failure on the part of either party to exercise, and no delay in exercising, any right or remedy under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy under this Agreement preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 7.11         No Conflicting Obligations.  Employee represents and warrants to Company that Employee is free to enter into this Agreement and has no contract, commitment, arrangement or understanding to or with any party that restrains or is in conflict with Employee’s performance of the covenants, services and duties provided for in this Agreement. 7.12         Read and Understood.  Employee has read this Agreement carefully and understands each of its terms and conditions.  Employee has sought independent legal counsel of Employee’s choice (and at Employee’s own expense) to the extent Employee deemed such advice necessary in connection with the review and execution of this Agreement. 7.13         Indemnification. The Company shall indemnify Employee to the fullest extent permitted by the Company’s certificate of incorporation and bylaws, and any change to those documents that diminish any protection afforded as of the date hereof to officers or members of the Board thereunder shall not be applied to reduce Employee’s protection thereunder. The provisions under this Section shall continue to apply to Employee following his termination of employment. 7.14.        Arbitration. All disputes in any way relating to this Agreement or in any way relating to Employee’s employment by the Employer, will be resolved by binding arbitration in St. Paul/ Minneapolis in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. Each party shall pay its own costs and expenses (including attorneys’ fees) relating to such dispute and the arbitration, except that if the arbitrator determines that the Company did not have a good faith dispute or the Company was in intentional breach of this Agreement or of any other agreement between the Company and Employee, the Company shall be required to pay the costs and expenses (including reasonable attorneys’ fees) relating to such dispute and the arbitration. 12 -------------------------------------------------------------------------------- 7.15 Attorneys’ Fees.  The Company shall pay Employee’s attorneys’ fees in negotiating this Agreement and ancillary documents relating thereto in an amount not to exceed $10,000.00 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.   Lawson Software, Inc.           By         Harry Debes, Chief Executive Officer                 Robert A. Schriesheim 13 -------------------------------------------------------------------------------- EXHIBIT A GENERAL RELEASE AND RESTRICTIVE COVENANTS This General Release and Restrictive Covenants (“Release/Restrictive Covenant”) is made and entered into as of the           day of                             ,                 , by Robert A. Schriesheim (“Employee”). WHEREAS, Lawson Software, Inc. (the “Company”) and Employee are parties to an Employment Agreement dated October 5, 2006; WHEREAS, Employee intends to settle any and all claims that Employee has or may have against Company as a result of Employee’s employment with Company and the cessation of Employee’s employment with Company; and WHEREAS, Under the terms of the Employment Agreement, which Employee agrees are fair and reasonable, Employee agreed to enter into this Release/Restrictive Covenant as a condition precedent to the severance arrangements described in Article IV of the Employment Agreement. NOW, THEREFORE, in consideration of the provisions and the mutual covenants herein contained, the parties agree as follows: 1.             Release.  For the consideration expressed in the Employment Agreement, Employee does hereby fully and completely release and waive any and all claims, complaints, causes of action, demands, suits and damages, of any kind or character, which Employee has or may have against the Released Parties, as hereinafter defined, arising out of any acts, omissions, conduct, decisions, behavior or events, in each case directly relating to his employment by the Company, occurring up through the date of Employee’s signature on this Release/Restrictive Covenant, including Employee’s employment with Company and the cessation of that employment.  For purposes of this Release/Restrictive Covenant, “Released Parties” means collectively Company, its predecessors, successors, assigns, parents, affiliates, subsidiaries, related companies, officers, directors, shareholders, agents, servants, employees and insurers, and each and all thereof. Employee understands and accepts that Employee’s release of claims includes any and all possible discrimination claims, including, but not limited to, claims based upon:  Title VII of the Federal Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Labor Standards Act; the Employee Retirement Income Security Act; the Minnesota Human Rights Act; Minn. Stat. §181.81; the Minneapolis or St. Paul Code of Ordinances; or any other federal, state or local statute, ordinance or law.  Employee also understands that Employee is giving up all other claims, including those grounded in contract or tort theories, including, but not limited to:  wrongful discharge; violation of Minn. Stat. §176.82; breach of contract; tortious interference with contractual relations; promissory estoppel; breach of the implied covenant of good faith and fair dealing; breach of express or implied promise; breach of manuals or other policies; assault; battery; fraud; false imprisonment; invasion of privacy; intentional or negligent misrepresentation; defamation, including libel, slander, discharge defamation and self-publication defamation; discharge in violation of public policy; whistleblower; intentional or negligent infliction of emotional distress; or any other theory, whether legal or equitable. Employee further understands that, with respect to the claims he has released as provided above, Employee is releasing, and does hereby release, any claims for damages, by charge or otherwise, whether brought by Employee or on Employee’s behalf by any other party, governmental or otherwise, and agrees 14 -------------------------------------------------------------------------------- not to institute any claims for damages via administrative or legal proceedings against any of the Released Parties.  Employee also waives and releases , with respect to the claims he has released as provided above, any and all rights to money damages or other legal relief awarded by any governmental agency related to any charge or other claim against any of the Released Parties. This Section 1 does not apply to any post-termination claim that Employee may have for benefits or other payments required under the provisions of the Employment Agreement , equity compensation, bonus, employee benefit, or other plan of or agreement with Company. Employee’s release of claims shall not apply to any claims Employee might have to indemnification under Minnesota Statute §302A.521, any other applicable statute or regulation or Company’s by-laws or pursuant to the Employment Agreement. [when this document is signed at the time of termination of employment, the above provisions will be updated to include the laws of the jurisdiction applicable to Employee’s state and location of residence, if different from Minnesota] 2.             Covenants Restricting Employee.  Employee covenants and agrees as follows: 2.1         Covenant Not To Compete—Five Competitors.  Employee covenants and agrees that throughout the one year period after the date of this Release/Restrictive Covenant, Employee shall not:  (a) be employed by                   [Company will fill in names of 5 competitors of the Company]                   (or any of their respective wholly owned subsidiaries) (collectively referred to as the “Five Competitors”) or (b) directly or indirectly provide any consulting or other services to any of the Five Competitors anywhere in the world.  If one or more of the Five Competitors acquire one another, this Section 2.1 shall remain in effect through the end of the time period described above for each of the resulting successors to the Five Competitors.  If one of the Five Competitors acquires Employee’s then current employer, that acquisition will not result in a violation of this Section 2.1(e.g. Employee may continue to work for that employer or its successor).  If another company buys one of the Five Competitors, that acquisition and this Section 2.1 will not prohibit Employee from working for the combined company. 2.2         Covenant Not To Compete—25 Clients/Prospects.  Employee covenants and agrees that throughout the one year period after the date of this Release/Restrictive Covenant, Employee shall not:  (a) directly solicit any of the following clients or prospects of the Company                   [Company will fill in names of 25 clients and/or prospects of the Company]              (collectively referred to as the “25 Clients/Prospects”) with the purpose of inducing the 25 Clients/Prospects to diminish any business conducted or to be conducted with the Company or (b) directly provide any employment, consulting or other services to any of the 25 Clients/Prospects anywhere in the world.  If one or more of the 25 Clients/Prospects acquire one another, this Section 2.2 shall remain in effect through the end of the time period described above for each of the resulting successors to the 25 Clients/Prospects.  If one of the 25 Clients/Prospects acquires Employee’s then current employer, that acquisition will not result in a violation of this Section 2.2 (e.g. Employee may continue to work for that employer or its successor).  If another company buys one of the 25 Clients/Prospects, that acquisition and this Section 2.2 will not prohibit Employee from working for the combined company. 2.3         Covenant Not To Hire or Solicit The Company Employees.  Employee covenants and agrees that throughout the one year period after the date of this Release/Restrictive Covenant, Employee shall not directly or indirectly, hire or solicit any the Company employees for the purpose of hiring them or inducing them to leave employment at the Company. 15 -------------------------------------------------------------------------------- 2.4         Remedies.  Employee acknowledges that the violation of this Section 2 will cause irreparable harm to the Company and agrees that, in addition to any other relief afforded by law, an injunction against any violation of this Section 2 may issue against Employee.  Both damages and injunction shall be proper modes of relief and are not alternative remedies for Employee’s violation of this Section 2.  If the Company commences any action in equity to specifically enforce any of its rights under this Section 2, Employee waives and agrees not to assert the defense that The Company has an adequate remedy at law. 3.             Rescission.  Employee has been informed of Employee’s right to rescind this Release/Restrictive Covenant by written notice to Company within fifteen (15) calendar days after the execution of this Release/Restrictive Covenant.  Employee has been informed and understands that any such rescission must be in writing and delivered to Company (to the attention of the Corporate Secretary) by hand or sent by mail within the 15-day time period.  If delivered by mail, the rescission must be:  (1) postmarked within the applicable period and (2) sent by certified mail, return receipt requested. Employee understands that Company will have no obligations under the Employment Agreement in the event a notice of rescission by Employee is timely delivered, and, in the event Employee rescinds this Release/Restrictive Covenant, Employee agrees to repay to Company any payments made to Employee or benefits conferred upon him pursuant to Article IV of the Employment Agreement prior to the date of rescission. 4.             Acceptance Period; Advice of Counsel.  The terms of this Release/Restrictive Covenant will be open for acceptance by Employee for a period of 21 days during which time Employee may consider whether or not to accept this Release/Restrictive Covenant.  Employee agrees that changes to this Release/Restrictive Covenant, whether material or immaterial, will not restart this acceptance period.  Employee is hereby advised to seek the advice of an attorney regarding this Release/Restrictive Covenant. 5.             Binding Agreement.  This Release/Restrictive Covenant shall be binding upon, and inure to the benefit of, Employee and Company and their respective successors and permitted assigns. 6.             Representation.  Employee hereby acknowledges and states that Employee has read this Release/Restrictive Covenant.  Employee further represents that this Release/Restrictive Covenant is written in language that is understandable to Employee, that Employee fully appreciates the meaning of its terms, and that Employee enters into this Release/Restrictive Covenant freely and voluntarily. IN WITNESS WHEREOF, Employee, after due consideration, has authorized, executed and delivered this Release/Restrictive Covenant all as of the date first written above.       Robert A. Schriesheim   16 --------------------------------------------------------------------------------

Exhibit 10.2   LOGO [g66820img001.jpg]    FTI Consulting    900 Bestgate Road    Suite 100 Dennis J. Shaughnessy    Annapolis, MD 21401 Chairman of the Board       800.334.5701 toll free    410.224.6366 direct    410.224.6367 fax    [email protected]    www.fticonsulting.com May 17, 2005 Mr. David G. Bannister 205 Lugain Court Baltimore, Maryland 21208 Dear David: Jack and I are delighted to extend to you the following offer for employment at FTI.     1. Position – Sr. Vice President/ Sr. Managing Director in charge of Corporate Development.     2. Base Compensation – $300,000 a year.     3. Bonus Opportunity – Participation in mutually designed bonus program with an earning opportunity of 3X your base salary upon achievement of goals.     4. Stock Options – Initial stock option grant of 75,000 shares to be augmented by participation in a new senior management equity program to be rolled out in the second half of 2005.     5. Benefits – Full company benefits.     6. Special Benefits – Company car.     7. Location – Initially, Annapolis. We are very enthusiastic about the potential of you joining FTI in a role which we feel will be extremely important to our long term growth. In the position of Sr. Vice President in charge of Corporate Development you will report directly to Jack and myself, have a seat on the Executive Committee, and be the primary responsible executive for the development and execution of our external growth activity through either corporate acquisitions or acquisitions of individual group practices. -------------------------------------------------------------------------------- I look forward to discussing this opportunity in detail with you and hope that we can develop a meeting of the minds so that you can quickly join the FTI team       Best regards,       /s/ Dennis J. Shaughnessy     Dennis J. Shaughnessy Accepted:     /s/ David G. Bannister       5/17/05 David G. Bannister     Date

EXECUTION VERSION ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated November 29, 2006, between Residential Funding Company, LLC, a Delaware limited liability company ("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 November 1, 2006 (the "Series Supplement"), and the Standard Terms of Pooling and Servicing Agreement, dated as of November 1, 2006 (collectively, the "Pooling and Servicing Agreement"), pursuant to which the Company proposes to issue Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QH1 (the "Certificates") consisting of twelve classes designated as Class A-1, Class A-2, Class A-3, Class R-I, Class R-II, Class R-X, Class M-1, Class M-2, Class M-3, Class M-4, Class M-5 and Class SB 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 a de minimis portion 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 received on or with respect to the Mortgage Loans after November 1, 2006 (other than payments of principal and interest due on the Mortgage Loans on or before November 1, 2006). In consideration of such assignment, RFC or its designee will receive from the Company in immediately available funds an amount equal to $350,064,609.54 and a de minimis portion 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 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, LLC 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 and (ii) with respect to each Mortgage Loan other than a Cooperative 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 a de minimis portion 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) Except in the case of 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 payment-option, adjustable-rate first lien mortgage loans, with a negative amortization feature having terms to maturity of not more than 40 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) 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; (p) 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; (q) 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; (r) 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; (s) 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; (t) 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; (u) 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; (v) 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; (w) The appraisal was made by an appraiser who meets the minimum qualifications for appraisers as specified in the Program Guide; (x) 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; (y) 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; (z) 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; (aa) Each Mortgage Note and Mortgage constitutes a legal, valid and binding obligation of the borrower enforceable in accordance with its terms except as limited by bankruptcy, insolvency or other similar laws affecting generally the enforcement of creditor's rights; (bb) None of the Mortgage Loans are subject to the Home Ownership and Equity Protection Act of 1994; (cc) 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 a (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; (dd) None of the Mortgage Loans secured by a property located in the State of Georgia were originated on or after October 1, 2002 and before March 7, 2003; (ee) No Mortgage Loan is a High Cost Loan or Covered Loan, as applicable (as such terms are defined in the then current Standard & Poor's LEVELS(R)Glossary which is now Version 5.7 Revised, Appendix E (attached hereto as Exhibit A)); (ff) The information set forth in the prepayment charge schedule attached hereto as Exhibit B (the "Prepayment Charge Schedule") is complete, true and correct in all material respects as of the Cut off Date, and each prepayment charge set forth on the Prepayment Charge Schedule ("Prepayment Charge") is enforceable and was originated in compliance with all applicable federal, state and local laws; RFC shall provide written notice to GMAC Mortgage, LLC 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) 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 COMPANY, LLC By: ___________________________ Name: Christopher Martinez Title: Associate RESIDENTIAL ACCREDIT LOANS, INC. By: ___________________________ Name: Heather Anderson Title: Vice President -------------------------------------------------------------------------------- EXHIBIT A APPENDIX E OF THE STANDARD AND POOR'S GLOSSARY FOR FILE FORMAT FOR LEVELS(R)VERSION 5.7 REVISED REVISED October 20, 2006 APPENDIX E - STANDARD & POOR'S PREDATORY LENDING CATEGORIES Standard & Poor's has categorized loans governed by anti-predatory lending laws in the Jurisdictions listed below into three categories based upon a combination of factors that include (a) the risk exposure associated with the assignee liability and (b) the tests and thresholds set forth in those laws. Note that certain loans classified by the relevant statute as Covered are included in Standard & Poor's High Cost Loan Category because they included thresholds and tests that are typical of what is generally considered High Cost by the industry. ------------------------------------------------------------------------------------------------ STANDARD & POOR'S HIGH COST LOAN CATEGORIZATION ------------------------------------------------------------------------------------------------ ---------------------------------------- -------------------------- 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) ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Indiana Indiana Home Loan Practices Act, Ind. High Cost Home Loans Code Ann.ss.ss.24-9-1-1 et seq. Effective January 1, 2005; amended by 2005 HB 1179, effective July 1, 2005. ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Kansas Consumer Credit Code, Kan. Stat. Ann. High Loan to Value ss.ss.16a-1-101 et seq. Consumer Loan (id.ss. Sections 16a-1-301 and 16a-3-207 16a-3-207) and; 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 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Rhode Island Rhode Island Home Loan Protection Act, High Cost Home Loan R.I. Gen. Lawsss.ss.34-25.2-1 et seq. Effective December 31, 2006. ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- 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 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Tennessee Tennessee Home Loan Protection Act, High Cost Home Loan Tenn. Code Ann.ss.ss.45-20-101 et seq. Effective January 1, 2007. ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- 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 ---------------------------- ---------------------------------------- -------------------------- -------------------------------------------------------------------------------- EXHIBIT B (PREPAYMENT CHARGE SCHEDULE) ON FILE WITH RFC

Exhibit 10.2 CPI INTERNATIONAL, INC. STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the “Agreement”) is made and entered into as of the date of grant set forth on Exhibit A hereto by and between CPI International, Inc., a Delaware corporation (the “Company”), and the individual (the “Optionee”) set forth on Exhibit A. A.                                   Pursuant to the CPI International, Inc. 2006 Equity and Performance Incentive Plan (the “Plan”), the Committee has determined that it is to the advantage and best interest of the Company to grant to Optionee an option (the “Option”) to purchase the number of shares of the Common Stock of the Company (the “Shares” or the “Option Shares”) set forth on Exhibit A hereto, at the exercise price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Plan, which is incorporated herein by reference. B.                                     Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings set forth in the Plan. NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Optionee and the Company hereby agree as follows: 1.                                       GRANT AND TERMS OF STOCK OPTION. 1.1                                 GRANT OF OPTION.  THE COMPANY HAS GRANTED TO THE OPTIONEE THE RIGHT AND OPTION TO PURCHASE, SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE PLAN AND THIS AGREEMENT, ALL OR ANY PART OF THE NUMBER OF SHARES SET FORTH ON EXHIBIT A AT A PURCHASE PRICE PER SHARE EQUAL TO THE EXERCISE PRICE PER SHARE SET FORTH ON EXHIBIT A.  THIS OPTION IS NOT INTENDED TO BE AN INCENTIVE STOCK OPTION AND IS INSTEAD INTENDED TO BE A NONQUALIFIED STOCK OPTION. 1.2                                 VESTING AND EXERCISABILITY.  SUBJECT TO THE PROVISIONS OF THE PLAN AND THE OTHER PROVISIONS OF THIS AGREEMENT, THIS OPTION SHALL VEST AND BECOME EXERCISABLE IN ACCORDANCE WITH THE SCHEDULE SET FORTH ON EXHIBIT A.  NOTWITHSTANDING THE FOREGOING, IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT FOR ANY REASON, THIS OPTION SHALL IMMEDIATELY CEASE VESTING; PROVIDED, HOWEVER, IF SUCH TERMINATION OCCURS AS A RESULT OF EITHER DEATH OR DISABILITY, THE VESTING OF THIS OPTION SHALL BE PARTIALLY ACCELERATED AS SET FORTH ON EXHIBIT A HERETO. 1.3                                 TERM OF OPTION.  THE “TERM” OF THIS OPTION SHALL BEGIN ON THE DATE OF GRANT SET FORTH ON EXHIBIT A AND END ON THE EXPIRATION OF THE TERM SPECIFIED ON EXHIBIT A.  NO PORTION OF THIS OPTION MAY BE EXERCISED AFTER THE EXPIRATION OF THE TERM. 1.3.1                        IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT BY DEATH OR DISABILITY, THIS OPTION SHALL TERMINATE AND BE CANCELLED ON THE EARLIER OF (I) THE EXPIRATION OF THE TERM, OR (II) 12 MONTHS -------------------------------------------------------------------------------- AFTER TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT. 1.3.2                        IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT FOR ANY REASON OTHER THAN CAUSE, DEATH OR DISABILITY, THE PORTION OF THIS OPTION THAT IS NOT VESTED AND EXERCISABLE AS OF THE DATE OF TERMINATION SHALL BE IMMEDIATELY CANCELLED AND TERMINATED.  IN ADDITION, THE PORTION OF THIS OPTION THAT IS VESTED AND EXERCISABLE AS OF THE DATE OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT SHALL TERMINATE AND BE CANCELLED ON THE EARLIER OF (I) THE EXPIRATION OF THE TERM, OR (II) 90 DAYS AFTER TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT. 1.3.3                        IF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT IS TERMINATED FOR CAUSE, THIS ENTIRE OPTION SHALL BE CANCELLED AND TERMINATED AS OF THE DATE OF SUCH TERMINATION AND SHALL NO LONGER BE EXERCISABLE AS TO ANY SHARES, WHETHER OR NOT PREVIOUSLY VESTED. 2.                                       METHOD OF EXERCISE. 2.1                                 DELIVERY OF NOTICE OF EXERCISE. 2.1.1                        EXCEPT AS OTHERWISE PROVIDED IN SECTION 2.1.2, THIS OPTION SHALL BE EXERCISABLE BY WRITTEN NOTICE IN THE FORM ATTACHED HERETO AS EXHIBIT B WHICH SHALL STATE THE ELECTION TO EXERCISE THIS OPTION, THE NUMBER OF SHARES IN RESPECT OF WHICH THIS OPTION IS BEING EXERCISED, AND SUCH OTHER REPRESENTATIONS AND AGREEMENTS WITH RESPECT TO SUCH SHARES AS MAY BE REQUIRED BY THE COMPANY PURSUANT TO THE PROVISIONS OF THIS AGREEMENT AND THE PLAN.  SUCH WRITTEN NOTICE SHALL BE SIGNED BY OPTIONEE (OR BY OPTIONEE’S BENEFICIARY OR OTHER PERSON ENTITLED TO EXERCISE THIS OPTION IN THE EVENT OF OPTIONEE’S DEATH UNDER THE PLAN) AND SHALL BE DELIVERED IN PERSON OR BY OVERNIGHT DELIVERY SERVICE OR CERTIFIED MAIL TO THE SECRETARY OF THE COMPANY. 2.1.2                        IF PERMITTED BY THE COMPANY AT THE TIME OF EXERCISE, THIS OPTION MAY ALSO BE EXERCISED BY PROVIDING A NOTICE OF EXERCISE TO THE THIRD PARTY ADMINISTRATOR (AS THE COMPANY’S AGENT) BY OR THROUGH ANY MEANS PERMITTED BY THE THIRD PARTY ADMINISTRATOR FROM TIME TO TIME, INCLUDING, WITHOUT LIMITATION, BY PROVIDING NOTICE OF EXERCISE TO THE THIRD PARTY ADMINISTRATOR BY TELEPHONE OR BY USING THE THIRD PARTY ADMINISTRATOR’S INTERNET WEB SITE TO PROVIDE NOTICE OF EXERCISE, AND IN SUCH EVENT, THE NOTICE OF EXERCISE MAY BE PROVIDED, BUT SHALL NOT BE REQUIRED TO BE PROVIDED, IN WRITING.  FOR PURPOSES HEREOF, “THIRD PARTY ADMINISTRATOR” MEANS THE BANK OF NEW YORK AS THE COMPANY’S THIRD PARTY STOCK OPTION ADMINISTRATOR, OR, AS APPLICABLE, ANY SUCCESSOR THIRD PARTY STOCK OPTION ADMINISTRATOR DESIGNATED BY THE COMMITTEE. 2.1.3                        UPON EXERCISE IN ACCORDANCE WITH SECTION 2.1.1 OR 2.1.2, THE OPTIONEE SHALL PAY THE EXERCISE PRICE TO THE COMPANY IN ANY MANNER PERMITTED BY SECTION 2.3. THIS OPTION SHALL NOT BE DEEMED EXERCISED UNTIL THE COMPANY RECEIVES NOTICE OF EXERCISE PURSUANT TO THIS SECTION 2.1 AND THE EXERCISE PRICE AND ANY OTHER APPLICABLE 2 -------------------------------------------------------------------------------- TERMS AND CONDITIONS OF THIS AGREEMENT ARE SATISFIED.  THIS OPTION MAY NOT BE EXERCISED FOR A FRACTION OF A SHARE. 2.2                                 RESTRICTIONS ON EXERCISE.  NO SHARES WILL BE ISSUED PURSUANT TO THE EXERCISE OF THIS OPTION UNLESS AND UNTIL THERE SHALL HAVE BEEN FULL COMPLIANCE WITH ALL APPLICABLE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (WHETHER BY REGISTRATION OR SATISFACTION OF EXEMPTION CONDITIONS), ALL APPLICABLE LAWS, AND ALL APPLICABLE LISTING REQUIREMENTS OF ANY NATIONAL SECURITIES EXCHANGE OR OTHER MARKET SYSTEM ON WHICH THE COMMON STOCK IS THEN LISTED.  AS A CONDITION TO THE EXERCISE OF THIS OPTION, THE COMPANY MAY REQUIRE OPTIONEE TO MAKE ANY REPRESENTATION AND WARRANTY TO THE COMPANY AS MAY BE NECESSARY OR APPROPRIATE, IN THE JUDGMENT OF THE COMMITTEE, TO COMPLY WITH ANY APPLICABLE LAW. 2.3                                 METHOD OF PAYMENT.  PAYMENT OF THE EXERCISE PRICE SHALL BE MADE IN FULL AT THE TIME OF EXERCISE (A) IN CASH OR BY CERTIFIED CHECK OR BANK CHECK OR WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS, (B) BY DELIVERY OF A PROPERLY EXECUTED EXERCISE NOTICE TOGETHER WITH ANY OTHER DOCUMENTATION AS THE COMMITTEE AND THE PARTICIPANT’S BROKER, IF APPLICABLE, REQUIRE TO EFFECT AN EXERCISE OF THE OPTION AND DELIVERY TO THE COMPANY OF THE SALE OR OTHER PROCEEDS (AS PERMITTED BY APPLICABLE LAW) REQUIRED TO PAY THE EXERCISE PRICE, OR (C) WITH THE CONSENT OF THE COMMITTEE IN ITS DISCRETION, BY TENDERING PREVIOUSLY ACQUIRED SHARES (EITHER ACTUALLY OR BY ATTESTATION, VALUED AT THEIR THEN FAIR MARKET VALUE) THAT HAVE BEEN OWNED FOR A PERIOD OF AT LEAST SIX MONTHS (OR SUCH OTHER PERIOD TO AVOID ACCOUNTING CHARGES AGAINST THE COMPANY’S EARNINGS).  IN ADDITION, THE COMMITTEE MAY IMPOSE SUCH OTHER CONDITIONS IN CONNECTION WITH THE DELIVERY OF SHARES OF COMMON STOCK IN SATISFACTION OF THE EXERCISE PRICE AS IT DEEMS APPROPRIATE IN ITS SOLE DISCRETION. 2.4                                 TAX WITHHOLDING OBLIGATIONS.  IN ADDITION TO THE FOREGOING REQUIREMENTS, ANY EXERCISE OF THIS OPTION SHALL BE CONDITIONED UPON THE OPTIONEE SATISFYING ANY APPLICABLE TAX WITHHOLDING OBLIGATIONS IMPOSED ON THE COMPANY IN CONNECTION WITH THE EXERCISE OF THIS OPTION. 3.                                       NON-TRANSFERABILITY OF OPTION.  THIS OPTION MAY NOT BE TRANSFERRED IN ANY MANNER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT OR DISTRIBUTION OR TO A BENEFICIARY DESIGNATED PURSUANT TO THE PLAN, AND MAY BE EXERCISED DURING THE LIFETIME OF OPTIONEE ONLY BY OPTIONEE.  SUBJECT TO ALL OF THE OTHER TERMS AND CONDITIONS OF THIS AGREEMENT, FOLLOWING THE DEATH OF OPTIONEE, THIS OPTION MAY, TO THE EXTENT IT IS VESTED AND EXERCISABLE BY OPTIONEE IN ACCORDANCE WITH ITS TERMS ON THE DATE OF DEATH, BE EXERCISED BY OPTIONEE’S BENEFICIARY OR OTHER PERSON ENTITLED TO EXERCISE THIS OPTION IN THE EVENT OF OPTIONEE’S DEATH UNDER THE PLAN.  THIS OPTION MAY BE ASSIGNED, IN CONNECTION WITH THE OPTIONEE’S ESTATE PLAN, IN WHOLE OR IN PART, DURING THE OPTIONEE’S LIFETIME TO ONE OR MORE FAMILY MEMBERS OF THE OPTIONEE.  RIGHTS UNDER THE ASSIGNED PORTION MAY BE EXERCISED BY THE PERSON OR PERSONS WHO ACQUIRE A PROPRIETARY INTEREST IN SUCH OPTION PURSUANT TO THE ASSIGNMENT.  THE TERMS APPLICABLE TO THE ASSIGNED PORTION SHALL BE THE SAME AS THOSE IN EFFECT FOR THE OPTION IMMEDIATELY BEFORE SUCH ASSIGNMENT AND SHALL BE SET FORTH IN SUCH DOCUMENTS ISSUED TO THE ASSIGNEE AS THE COMMITTEE DEEMS APPROPRIATE. 4.                                       RESTRICTIONS; RESTRICTIVE LEGENDS.  OWNERSHIP AND TRANSFER OF SHARES ISSUED PURSUANT TO THE EXERCISE OF THIS OPTION WILL BE SUBJECT TO THE PROVISIONS OF, INCLUDING OWNERSHIP AND 3 -------------------------------------------------------------------------------- TRANSFER RESTRICTIONS (INCLUDING, WITHOUT LIMITATION, RESTRICTIONS IMPOSED BY APPLICABLE LAWS AND RESTRICTIONS SET FORTH OR REFERENCED IN LEGENDS IMPRINTED ON CERTIFICATES REPRESENTING SUCH SHARES). 5.                                       GENERAL. 5.1                                 GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY IN DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS OF DELAWARE OR ANY OTHER JURISDICTION. 5.2                                 NOTICES.  ANY NOTICE REQUIRED OR PERMITTED UNDER THIS AGREEMENT SHALL BE GIVEN IN WRITING BY OVERNIGHT COURIER OR BY POSTAGE PREPAID, UNITED STATES REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE ADDRESS SET FORTH BELOW OR TO SUCH OTHER ADDRESS FOR A PARTY AS THAT PARTY MAY DESIGNATE BY 10 DAYS ADVANCE WRITTEN NOTICE TO THE OTHER PARTIES.  NOTICE SHALL BE EFFECTIVE UPON THE EARLIER OF RECEIPT OR 3 DAYS AFTER THE DATE ON WHICH SUCH NOTICE IS DEPOSITED IN THE MAILS OR WITH THE OVERNIGHT COURIER. If to the Company:                                             CPI International, Inc. 811 Hansen Way Palo Alto, California 94303-1110 Attention: Chief Financial Officer If to Optionee, at the address set forth on Exhibit A. 5.3                                 COMMUNITY PROPERTY.  WITHOUT PREJUDICE TO THE ACTUAL RIGHTS OF THE SPOUSES AS BETWEEN EACH OTHER, FOR ALL PURPOSES OF THIS AGREEMENT, THE OPTIONEE SHALL BE TREATED AS AGENT AND ATTORNEY-IN-FACT FOR THAT INTEREST HELD OR CLAIMED BY HIS OR HER SPOUSE WITH RESPECT TO THIS OPTION AND THE PARTIES HERETO SHALL ACT IN ALL MATTERS AS IF THE OPTIONEE WAS THE SOLE OWNER OF THIS OPTION.  THIS APPOINTMENT IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE. 5.4                                 MODIFICATIONS.  THIS AGREEMENT MAY BE AMENDED, ALTERED OR MODIFIED ONLY BY A WRITING SIGNED BY EACH OF THE PARTIES HERETO. 5.5                                 APPLICATION TO OTHER STOCK.  IN THE EVENT ANY CAPITAL STOCK OF THE COMPANY OR ANY OTHER CORPORATION SHALL BE DISTRIBUTED ON, WITH RESPECT TO, OR IN EXCHANGE FOR SHARES OF COMMON STOCK AS A STOCK DIVIDEND, STOCK SPLIT, RECLASSIFICATION OR RECAPITALIZATION IN CONNECTION WITH ANY MERGER OR REORGANIZATION OR OTHERWISE, ALL RESTRICTIONS, RIGHTS AND OBLIGATIONS SET FORTH IN THIS AGREEMENT SHALL APPLY WITH RESPECT TO SUCH OTHER CAPITAL STOCK TO THE SAME EXTENT AS THEY ARE, OR WOULD HAVE BEEN APPLICABLE, TO THE OPTION SHARES ON OR WITH RESPECT TO WHICH SUCH OTHER CAPITAL STOCK WAS DISTRIBUTED. 5.6                                 ADDITIONAL DOCUMENTS.  EACH PARTY AGREES TO EXECUTE ANY AND ALL FURTHER DOCUMENTS AND WRITINGS, AND TO PERFORM SUCH OTHER ACTIONS, WHICH MAY BE OR BECOME REASONABLY NECESSARY OR EXPEDIENT TO BE MADE EFFECTIVE AND CARRY OUT THIS AGREEMENT. 5.7                                 NO THIRD-PARTY BENEFITS.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NONE OF THE PROVISIONS OF THIS AGREEMENT SHALL BE FOR THE BENEFIT OF, OR ENFORCEABLE BY, ANY THIRD-PARTY BENEFICIARY. 4 -------------------------------------------------------------------------------- 5.8                                 SUCCESSORS AND ASSIGNS.  EXCEPT AS PROVIDED HEREIN TO THE CONTRARY, THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES, THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS. 5.9                                 NO ASSIGNMENT.  EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE OPTIONEE MAY NOT ASSIGN ANY OF HIS, HER OR ITS RIGHTS UNDER THIS AGREEMENT WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, WHICH CONSENT MAY BE WITHHELD IN ITS SOLE DISCRETION.  THE COMPANY SHALL BE PERMITTED TO ASSIGN ITS RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT, BUT NO SUCH ASSIGNMENT SHALL RELEASE THE COMPANY OF ANY OBLIGATIONS PURSUANT TO THIS AGREEMENT. 5.10                           SEVERABILITY.  THE VALIDITY, LEGALITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT SHALL NOT BE AFFECTED EVEN IF ONE OR MORE OF THE PROVISIONS OF THIS AGREEMENT SHALL BE HELD TO BE INVALID, ILLEGAL OR UNENFORCEABLE IN ANY RESPECT. 5.11                           EQUITABLE RELIEF.  THE OPTIONEE ACKNOWLEDGES THAT, IN THE EVENT OF A THREATENED OR ACTUAL BREACH OF ANY OF THE PROVISIONS OF THIS AGREEMENT, DAMAGES ALONE WILL BE AN INADEQUATE REMEDY, AND SUCH BREACH WILL CAUSE THE COMPANY GREAT, IMMEDIATE AND IRREPARABLE INJURY AND DAMAGE.  ACCORDINGLY, THE OPTIONEE AGREES THAT THE COMPANY SHALL BE ENTITLED TO INJUNCTIVE AND OTHER EQUITABLE RELIEF, AND THAT SUCH RELIEF SHALL BE IN ADDITION TO, AND NOT IN LIEU OF, ANY REMEDIES IT MAY HAVE AT LAW OR UNDER THIS AGREEMENT. 5.12                           ARBITRATION. 5.12.1                  GENERAL.  ANY CONTROVERSY, DISPUTE, OR CLAIM BETWEEN THE PARTIES TO THIS AGREEMENT, INCLUDING ANY CLAIM ARISING OUT OF, IN CONNECTION WITH, OR IN RELATION TO THE FORMATION, INTERPRETATION, PERFORMANCE OR BREACH OF THIS AGREEMENT SHALL BE SETTLED EXCLUSIVELY BY ARBITRATION, BEFORE A SINGLE ARBITRATOR, IN ACCORDANCE WITH THIS SECTION 5.12 AND THE THEN MOST APPLICABLE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.  JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF.  SUCH ARBITRATION SHALL BE ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION.  ARBITRATION SHALL BE THE EXCLUSIVE REMEDY FOR DETERMINING ANY SUCH DISPUTE, REGARDLESS OF ITS NATURE.  NOTWITHSTANDING THE FOREGOING, EITHER PARTY MAY IN AN APPROPRIATE MATTER APPLY TO A COURT FOR PROVISIONAL RELIEF, INCLUDING A TEMPORARY RESTRAINING ORDER OR A PRELIMINARY INJUNCTION, ON THE GROUND THAT THE AWARD TO WHICH THE APPLICANT MAY BE ENTITLED IN ARBITRATION MAY BE RENDERED INEFFECTUAL WITHOUT PROVISIONAL RELIEF.  UNLESS MUTUALLY AGREED BY THE PARTIES OTHERWISE, ANY ARBITRATION SHALL TAKE PLACE IN THE CITY OF PALO ALTO, CALIFORNIA. 5.12.2                  SELECTION OF ARBITRATOR.  IN THE EVENT THE PARTIES ARE UNABLE TO AGREE UPON AN ARBITRATOR, THE PARTIES SHALL SELECT A SINGLE ARBITRATOR FROM A LIST OF NINE ARBITRATORS (WHICH SHALL BE RETIRED JUDGES OR CORPORATE OR LITIGATION ATTORNEYS EXPERIENCED IN EXECUTIVE COMPENSATION AND STOCK OPTIONS) PROVIDED BY THE OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION HAVING JURISDICTION OVER PALO ALTO, CALIFORNIA.  IF THE PARTIES ARE UNABLE TO AGREE UPON AN ARBITRATOR FROM THE LIST SO DRAWN, THEN THE PARTIES SHALL EACH STRIKE NAMES ALTERNATELY FROM THE LIST, WITH THE FIRST TO STRIKE BEING DETERMINED BY LOT.  AFTER EACH PARTY HAS USED FOUR STRIKES, THE REMAINING NAME ON THE LIST SHALL BE THE ARBITRATOR.  IF SUCH PERSON IS UNABLE TO SERVE FOR ANY REASON, THE PARTIES SHALL REPEAT THIS PROCESS UNTIL AN ARBITRATOR IS SELECTED. 5 -------------------------------------------------------------------------------- 5.12.3                  APPLICABILITY OF ARBITRATION; REMEDIAL AUTHORITY.  THIS AGREEMENT TO RESOLVE ANY DISPUTES BY BINDING ARBITRATION SHALL EXTEND TO CLAIMS AGAINST ANY PARENT, SUBSIDIARY OR AFFILIATE OF EACH PARTY, AND, WHEN ACTING WITHIN SUCH CAPACITY, ANY OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE OR AGENT OF EACH PARTY, OR OF ANY OF THE ABOVE, AND SHALL APPLY AS WELL TO CLAIMS ARISING OUT OF STATE AND FEDERAL STATUTES AND LOCAL ORDINANCES AS WELL AS TO CLAIMS ARISING UNDER THE COMMON LAW.  IN THE EVENT OF A DISPUTE SUBJECT TO THIS PARAGRAPH THE PARTIES SHALL BE ENTITLED TO REASONABLE DISCOVERY SUBJECT TO THE DISCRETION OF THE ARBITRATOR.  THE REMEDIAL AUTHORITY OF THE ARBITRATOR (WHICH SHALL INCLUDE THE RIGHT TO GRANT INJUNCTIVE OR OTHER EQUITABLE RELIEF) SHALL BE THE SAME AS, BUT NO GREATER THAN, WOULD BE THE REMEDIAL POWER OF A COURT HAVING JURISDICTION OVER THE PARTIES AND THEIR DISPUTE.  THE ARBITRATOR SHALL, UPON AN APPROPRIATE MOTION, DISMISS ANY CLAIM WITHOUT AN EVIDENTIARY HEARING IF THE PARTY BRINGING THE MOTION ESTABLISHES THAT HE OR IT WOULD BE ENTITLED TO SUMMARY JUDGMENT IF THE MATTER HAD BEEN PURSUED IN COURT LITIGATION.  IN THE EVENT OF A CONFLICT BETWEEN THE APPLICABLE RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND THESE PROCEDURES, THE PROVISIONS OF THESE PROCEDURES SHALL GOVERN. 5.12.4                  FEES AND COSTS.  ANY FILING OR ADMINISTRATIVE FEES SHALL BE BORNE INITIALLY BY THE PARTY REQUESTING ARBITRATION.  THE COMPANY SHALL BE RESPONSIBLE FOR THE COSTS AND FEES OF THE ARBITRATION, UNLESS THE OPTIONEE WISHES TO CONTRIBUTE (UP TO 50%) OF THE COSTS AND FEES OF THE ARBITRATION.  NOTWITHSTANDING THE FOREGOING, THE PREVAILING PARTY IN SUCH ARBITRATION, AS DETERMINED BY THE ARBITRATOR, AND IN ANY ENFORCEMENT OR OTHER COURT PROCEEDINGS, SHALL BE ENTITLED, TO THE EXTENT PERMITTED BY LAW, TO REIMBURSEMENT FROM THE OTHER PARTY FOR ALL OF THE PREVAILING PARTY’S COSTS (INCLUDING BUT NOT LIMITED TO THE ARBITRATOR’S COMPENSATION), EXPENSES, AND ATTORNEYS’ FEES. 5.12.5                  AWARD FINAL AND BINDING.  THE ARBITRATOR SHALL RENDER AN AWARD AND WRITTEN OPINION, AND THE AWARD SHALL BE FINAL AND BINDING UPON THE PARTIES.  IF ANY OF THE PROVISIONS OF THIS PARAGRAPH, OR OF THIS AGREEMENT, ARE DETERMINED TO BE UNLAWFUL OR OTHERWISE UNENFORCEABLE, IN WHOLE OR IN PART, SUCH DETERMINATION SHALL NOT AFFECT THE VALIDITY OF THE REMAINDER OF THIS AGREEMENT, AND THIS AGREEMENT SHALL BE REFORMED TO THE EXTENT NECESSARY TO CARRY OUT ITS PROVISIONS TO THE GREATEST EXTENT POSSIBLE AND TO INSURE THAT THE RESOLUTION OF ALL CONFLICTS BETWEEN THE PARTIES, INCLUDING THOSE ARISING OUT OF STATUTORY CLAIMS, SHALL BE RESOLVED BY NEUTRAL, BINDING ARBITRATION.  IF A COURT SHOULD FIND THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT ARE NOT ABSOLUTELY BINDING, THEN THE PARTIES INTEND ANY ARBITRATION DECISION AND AWARD TO BE FULLY ADMISSIBLE IN EVIDENCE IN ANY SUBSEQUENT ACTION, GIVEN GREAT WEIGHT BY ANY FINDER OF FACT, AND TREATED AS DETERMINATIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW. 5.13                           HEADINGS.  THE SECTION HEADINGS IN THIS AGREEMENT ARE INSERTED ONLY AS A MATTER OF CONVENIENCE, AND IN NO WAY DEFINE, LIMIT, EXTEND OR INTERPRET THE SCOPE OF THIS AGREEMENT OR OF ANY PARTICULAR SECTION. 5.14                           NUMBER AND GENDER.  THROUGHOUT THIS AGREEMENT, AS THE CONTEXT MAY REQUIRE, (A) THE MASCULINE GENDER INCLUDES THE FEMININE AND THE NEUTER GENDER INCLUDES THE MASCULINE AND THE FEMININE; (B) THE SINGULAR TENSE AND NUMBER INCLUDES THE PLURAL, AND THE PLURAL TENSE AND NUMBER INCLUDES THE SINGULAR; (C) THE PAST TENSE INCLUDES THE PRESENT, AND THE PRESENT TENSE INCLUDES THE PAST; (D) REFERENCES TO PARTIES, SECTIONS, PARAGRAPHS AND EXHIBITS 6 -------------------------------------------------------------------------------- MEAN THE PARTIES, SECTIONS, PARAGRAPHS AND EXHIBITS OF AND TO THIS AGREEMENT; AND (E) PERIODS OF DAYS, WEEKS OR MONTHS MEAN CALENDAR DAYS, WEEKS OR MONTHS. 5.15                           COUNTERPARTS.  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. 5.16                           COMPLETE AGREEMENT.  THIS AGREEMENT AND THE PLAN CONSTITUTE THE PARTIES’ ENTIRE AGREEMENT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL AGREEMENTS, REPRESENTATIONS, WARRANTIES, STATEMENTS, PROMISES AND UNDERSTANDINGS, WHETHER ORAL OR WRITTEN, WITH RESPECT TO THE SUBJECT MATTER HEREOF. 5.17                           WAIVER OF JURY TRIAL.  TO THE EXTENT EITHER PARTY INITIATES LITIGATION INVOLVING THIS AGREEMENT OR ANY ASPECT OF THE RELATIONSHIP BETWEEN US (EVEN IF OTHER PARTIES OR OTHER CLAIMS ARE INCLUDED IN SUCH LITIGATION), ALL THE PARTIES WAIVE THEIR RIGHT TO A TRIAL BY JURY.  THIS WAIVER WILL APPLY TO ALL CAUSES OF ACTION THAT ARE OR MIGHT BE INCLUDED IN SUCH ACTION, INCLUDING CLAIMS RELATED TO THE ENFORCEMENT OR INTERPRETATION OF THIS AGREEMENT, ALLEGATIONS OF STATE OR FEDERAL STATUTORY VIOLATIONS, FRAUD, MISREPRESENTATION, OR SIMILAR CAUSES OF ACTION, AND IN CONNECTION WITH ANY LEGAL ACTION INITIATED FOR THE RECOVERY OF DAMAGES BETWEEN OR AMONG US OR BETWEEN OR AMONG ANY OF OUR OWNERS, AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS. 7 --------------------------------------------------------------------------------   CPI INTERNATIONAL, INC.           By:           Its:               OPTIONEE               Name:   -------------------------------------------------------------------------------- EXHIBIT A DETAILS OF STOCK OPTION GRANT Optionee Name:   Date of Grant:   Number of Shares of Common Stock:   Exercise Price Per Share:   Term of Option: 10 Years after date of grant   Vesting Schedule:  Subject to the restrictions and limitations of the Option Agreement and the Plan, this Option shall vest and become exercisable with respect to 25% of the Shares subject to this Option on the first anniversary of the date of grant.  On each subsequent anniversary of the date of grant, if Optionee’s Continuous Status as an Employee, Director or Consultant has not terminated, this Option shall become vested and exercisable with respect to an additional 25% of the Shares subject to this Option, until 100% of the Shares subject to this Option have become vested and exercisable. If Optionee’s Continuous Status as an Employee, Director or Consultant terminates as result of death or Disability and the date of termination does not occur on an anniversary of the date of grant, then for purposes of determining the extent to which this Option has vested, Optionee’s Continuous Status as an Employee, Director or Consultant shall be deemed to have terminated on the next occurring anniversary of the date of grant.  For example, if Optionee’s Continuous Status as an Employee, Director or Consultant terminates as result of death or Disability 25 months after the date of grant, 50% of the Shares subject to this Option shall be deemed to be vested and exercisable as of the date of termination (and no further vesting shall occur) Employee Address:                                                                                -------------------------------------------------------------------------------- EXHIBIT B NOTICE OF EXERCISE OF STOCK OPTION CPI International, Inc. 811 Hansen Way Palo Alto, California 94303-1110 Attn: Chief Financial Officer Ladies and Gentlemen: The undersigned hereby elects to exercise the option indicated below: Option Grant Date:                                        Number of Shares Being Exercised:                                        Exercise Price Per Share:                                        Total Exercise Price: $                                       Method of Payment:                                         Enclosed herewith is payment in full of the total exercise price. My exact name, current address and social security number for purposes of the stock certificates to be issued and the shareholder list of the Company are:   Name:                                              Address:                                                                                          Social Security Number:                                         I understand that there may be adverse tax consequences to me as a result of the exercise of the Option and/or any sale of the Shares, and I have consulted with my own tax advisor regarding those consequences and I am not relying on the Company for any tax advice. I also agree that I will not sell or dispose of my Shares in violation of applicable securities laws, Company policy (including applicable “black-out” periods) or any agreement by which I am bound.     Sincerely,                   Dated:               (Optionee’s Signature)   -------------------------------------------------------------------------------- SPOUSAL CONSENT By his or her signature below, the spouse of the Optionee agrees to be bound by all of the terms and conditions of the foregoing Option Agreement (including those relating to the appointment of the Optionee as agent for any interest that Spouse may have in the Option Shares). OPTIONEE’S SPOUSE                       Signature                       Print Name     --------------------------------------------------------------------------------

PROMISSORY NOTE   Principal Amount: $80,000 Interest Rate: 10.00%   In consideration of value received, receipt of which is hereby acknowledged, MONTGOMERY REALTY GROUP, LLC., a Delaware limited liability company (“Debtor” or “Borrower”) promises to pay to DINESH MANIAR (“Lender” or “Promisee”), or order, in lawful money of the United States of America, the principal amount of Eighty Thousand Dollars ($80,000) or so much as may be outstanding, together with interest on the unpaid principal balance, payable monthly, at the rate of ten percent (10.00%) per annum, as set forth below, or the maximum interest rate allowable by law, whichever is less. All payments under this note shall be made payable to DINESH MANIAR, or order.   Principal & Interest Payments   Borrower shall pay Lender interest on the first day of each month commencing December 1, 2006 and each month thereafter. All outstanding principal, together with any and all accrued interest thereon shall be due and payable December 31, 2006.   Prepayment   This note may be prepaid, in whole or in part, prior to the maturity dates set forth above, without a prepayment penalty or other charge therefore.   Waiver   The Lender may delay or forgo enforcing any of his rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly agreed in writing, no party who signs this Note, whether as maker, guarantor or accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this Note, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest, if any, and take such other action deemed necessary by Lender without the consent of or notice to anyone. All such parties agree that Lender may modify this Note without the consent of or notice to anyone other than the party with whom this modification is made.   Attorneys Fees   This Note shall be governed by the laws of the State of California. In the event any action is taken by the Lender to enforce collection of any sum due under this Note, the maker agrees to pay, in addition to all other sums chargeable hereunder, reasonable costs and attorneys fees incurred in collection of this Note.   1   -------------------------------------------------------------------------------- No Defenses   This promissory note is an independent obligation of Borrower for the benefit of Lender, and the obligations of the Borrower under this promissory note are to be considered separate and apart from any defense that may arise from this note being considered part of a larger contract involving the sale of goods, the performance of services, or any other matter that might be brought as a defense to the obligation of Borrower to pay as due the sums set forth in this Promissory Note. Without limitation, Borrower waives his rights, if any, to reformation, rescission, injunction, offset or any other cause of action or form of relief which would in any way defeat the obligation of this promissory note.   Counterparts   This Note may be executed in counterparts, each of which shall be deemed an original.   Dated: November 30, 2006     /s/ James T. Graeb James T. Graeb, Esq. General Counsel MONTGOMERY REALTY GROUP, LLC   2    

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF THE SAID ACT AND APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.   NEXMED, INC.   7.5% Senior Secured Note Due December 31, 2007   New York, NY   November 30, 2006   FOR VALUE RECEIVED, the undersigned, NEXMED, INC., a Nevada corporation (the “Company”), hereby promises to pay to Metronome LPC 1, Inc., or its registered assigns, the principal sum of TWO MILLION DOLLARS AND ZERO CENTS ($2,000,000.00), or so much thereof as shall not have been prepaid, on the earlier of (i) December 31, 2007 or (ii) the closing by the Company on the sale of the East Windsor Property (as such term is defined in the Purchase Agreement; the earlier date of the preceding clauses (i) and (ii) being the “Maturity Date”), with interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount hereof from time to time outstanding and unpaid (the “Interest”), payable as provided in the next succeeding paragraph hereof, at the rate 7.5% per annum from the date of issuance hereof (being the date first written above, or the most recent date to which interest has been paid hereon, to but including the date on which said principal amount shall be paid in full; provided, however, if the Company has not entered into a contract for the sale of the East Windsor Property on or prior to May 31, 2007, and the amount owing hereunder (including all accrued interest and costs) is not repaid by such date, the rate of interest shall increase to 8.5% per annum   The Company shall pay interest (a) quarterly, commencing on February 1, 2007, and until the date on which the principal of and all accrued and unpaid interest on this Note shall be paid in full, (b) on the Maturity Date, and (c) upon the payment or prepayment of any principal owing under this Note (but only on the principal amount so prepaid or paid). If the first day of the calendar month on which Interest is due is not a Business Day, then such day for payment of Interest shall be the next succeeding Business Day and interest shall accrue by reason of such extension. At the Company’s sole option, it may make an Interest payment in kind in the form of common stock of the Company (“Common Stock”). If Interest is paid in Common Stock, the value of the Common Stock shall be calculated as ninety percent (90%) of the volume weighted average trading price for five (5) trading days prior to the interest payment date with a floor valuation equal to $0.48 per share.   The principal of this Note may be prepaid, in whole or ratably in part, at any time upon not less than five (5) nor more than twenty (20) days’ prior written notice to the holder hereof, together with all interest then accrued and unpaid thereon (or on the portion thereof being so prepaid, as the case may be), but without premium or penalty.     --------------------------------------------------------------------------------   All cash payments shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts.   This Note is issued pursuant to, is entitled to the benefits of, and is subject to the terms of the Securities Purchase Agreement, dated as of November 30, 2006 (the “Purchase Agreement”), between the Company, NexMed (U.S.A.), Inc. and Metronome LPC 1, Inc., providing for the issuance of the 7.5% Senior Secured Notes due December 31, 2007 of the Company, in the aggregate principal amount of $2,000,000.00.   This Note evidences senior indebtedness of the Company with the exception of Debt (as defined in the Purchase Agreement) secured by a mortgage on the East Windsor Property (as defined in the Purchase Agreement) which is senior to the indebtedness set forth herein. Pursuant to the terms set forth in the Purchase Agreement, this Note shall be secured by a security interest in the Company’s right, title and interest in and to certain property of the Company to the Security Agreement (as defined in the Purchase Agreement).   Upon the occurrence and during the continuation of any Event of Default (as defined in the Purchase Agreement), the outstanding principal amount of the Note, and to the extent permitted by applicable law, any interest payments thereon not paid when due, and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any bankruptcy proceeding under Title 11 of the United States Code or other applicable insolvency laws) payable in cash at a rate of 12% per annum (computed on the basis of a 360-day year of twelve 30-day months). Payment or acceptance of the increased rates of interest is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies under the Purchase Agreement. The maximum rate of interest, including default interest, charged hereunder shall not exceed the highest rate permitted by law.   This Note shall be governed by and construed in accordance with the laws of the State of New York.       NEXMED, INC.   By /s/ Mark Westgate                               Name: Mark Westgate Its: Vice President and Chief Financial Officer         --------------------------------------------------------------------------------  

EXHIBIT 10.13 REVOLVING CREDIT NOTE   $6,000,000.00 Maximum Tampa, Florida April 21, 2005 FOR VALUE RECEIVED the undersigned, ODYSSEY MARINE EXPLORATION, INC., a Nevada corporation (“Maker”), promises to pay to the order of MERCANTILE BANK and its successors or assigns, together with any other holder hereof (“Holder”), at 2307 West Kennedy Boulevard, Tampa, FL 33609, or such other place as Holder may from time to time designate in writing, the aggregate unpaid principal amount of all advances made by Holder to Maker, which amount in no event shall exceed the sum of SIX MILLION AND 00/100 DOLLARS ($6,000,000.00), plus accrued interest, to be paid in lawful money of the United States of America, as follows:     1) This Note shall bear interest at the rate equal to the “LIBOR 30-Day Index Rate” plus two hundred sixty-five basis points (2.65%) (the “LIBOR Spread”) per annum on the outstanding principal balance, but in no event shall the interest rate be greater than the Maximum Rate (as defined below). “LIBOR 30-Day Index Rate” means the rate of interest per annum equal to the London Interbank Offered Rate (“LIBOR”) for thirty (30) day U.S. dollar deposits as published in the “Money Rates” column of the local edition of The Wall Street Journal. If such 30-Day Index Rate is no longer available, Lender shall choose a new 30-Day Index Rate based on comparable information, and such selection by Lender of a comparable rate shall be dispositive of the issue as to the appropriate rate. If more than one rate is quoted, Lender shall use the arithmetic average of such rates. This rate will be effective on and from the date of disbursement of the Loan proceeds of this Note through the last day of the current month based on the most recent information available on the date of this Note. On the first day of the next month, the interest rate shall be readjusted to the current LIBOR 30-Day Index Rate plus the LIBOR Spread based on the most recent rate information available on the date that the interest rate is adjusted and such rate shall be effective for the next thirty (30) day period. The rate shall be adjusted every thirty (30) days thereafter at the current LIBOR 30-Day Index Rate plus the LIBOR Spread based on the most recent rate information available on the date that the interest rate is adjusted. If The Wall Street Journal is no longer published or if The Wall Street Journal no longer publishes such rate, then Lender shall select another publication that publishes such rate and this new publication shall be substituted for The Wall Street Journal.     2) Advances and payments: (a) All or part of the principal amount evidenced by this Note may be borrowed (and to the extent any principal amount advanced is repaid by Maker, such sum may be borrowed again) prior to the Maturity Date (as defined below), but only in accordance with the terms of the Revolving Credit Agreement (as defined below) and only if Maker is not in default hereunder or under any Loan Documents (as defined below). At no time, however, shall the principal balance hereunder exceed SIX MILLION AND 00/100 DOLLARS ($6,000,000.00).   1 -------------------------------------------------------------------------------- (b) Payments of accrued interest only shall be due and payable commencing on May 21, 2005, and continuing on the same day of every month. (c) Maker shall have no obligation to repay the outstanding principal balance prior to the Maturity Date, except for mandatory payments of amounts owing hereunder in accordance with the terms of the Revolving Credit Agreement or unless acceleration is made by Holder pursuant to the provisions of this Note. The remaining outstanding principal indebtedness, together with all accrued and unpaid interest thereon, shall be due and payable on April 21, 2008 (the “Maturity Date”), unless acceleration is made by Holder pursuant to the provisions hereof. Interest on this Note shall be computed on the basis of a 365-day or 366-day year as the case may be for the actual number of days outstanding. Except as set forth in Section 1(d) of the Revolving Credit Agreement, any payment or prepayment hereunder shall be applied first to unpaid costs of collection and late charges, if any, then to accrued and unpaid interest and the balance, if any, to installments of principal, in the inverse order of their maturity. After maturity or acceleration, this Note shall bear interest at the Default Interest Rate (as defined below) until paid in full. The actual amount due and owing from time to time hereunder shall be evidenced by Holder’s records of receipts and disbursements, which records (absent manifest error) shall be conclusive evidence of such amount. This Note is executed pursuant to the terms and conditions of that certain Revolving Credit Agreement of even date herewith between Maker, as Borrower, and Holder, as Lender (the “Revolving Credit Agreement”), and is secured by, inter alia, a Security Agreement of even date herewith. The foregoing and all other agreements, instruments and documents delivered in connection therewith and herewith are collectively referred to as the “Loan Documents.” This Note has been executed and delivered in, and is to be governed by and construed under the laws of, the State of Florida, as amended, except as modified by the laws and regulations of the United States of America. Maker shall have no obligation to pay interest or payments in the nature of interest in excess of the maximum rate of interest allowed to be contracted for by law, as changed from time to time, applicable to this Note (the “Maximum Rate”). Any interest in excess of the Maximum Rate paid by Maker (“excess sum”) shall be credited as a payment of principal, or, if Maker so requests in writing, returned to Maker, or, if the indebtedness and other obligations evidenced by this Note have been paid in full, returned to Maker together with interest at the same rate as was paid by Maker during such period. Any excess sum credited to principal shall be credited as of the date paid to Holder. The Maximum Rate varies from time to time and from   2 -------------------------------------------------------------------------------- time to time there may be no specific maximum rate. Holder may, without such action constituting a breach of any obligations to Maker, seek judicial determination of the applicable rate of interest, and its obligation to pay or credit any proposed excess sum to Maker. The “Default Interest Rate” and, in the event no specific maximum rate is applicable, the Maximum Rate shall be twenty-five percent (25%) per annum if the face amount of this Note is greater than $500,000.00; otherwise, it shall be eighteen percent (18%) per annum. Holder shall have the right to declare the total unpaid balance hereof to be immediately due and payable in advance of the Maturity Date upon the failure of Maker to pay when due any payment of principal or interest or other amount due hereunder; or upon the occurrence of an event of default pursuant to any other Loan Documents now or hereafter evidencing, securing payment of this Note or if Maker shall become insolvent or declare a voluntary or involuntary petition of bankruptcy. Exercise of this right shall be without notice to Maker or to any other person liable for payment hereof, notice of such exercise being hereby expressly waived. Without in any way altering the generality of this Note, upon the occurrence of any event of default or upon an occurrence that, with the giving of notice, or passage of time, or both, will constitute such an event of default hereunder or under any other Loan Documents now or hereafter evidencing, securing or guarantying payment of this Note, Holder shall have no further obligation under this Note or any Loan Document to disburse additional funds to Maker. Any payment hereunder not paid when due (at maturity, upon acceleration or otherwise) shall bear interest at the Default Interest Rate from the due date until paid. Provided Holder has not accelerated this Note, Maker shall pay Holder a late charge of five percent (5%) of any required payment which is not received by Holder when said payment is due. The parties agree that said charge is a fair and reasonable charge for the late payment and shall not be deemed a penalty. Time is of the essence hereunder. In the event that this Note is collected by law or through attorneys at law, or under advice therefrom, Maker agrees to pay all reasonable costs of collection, including reasonable attorneys’ fees, whether or not suit is brought, and whether incurred in connection with collection, trial, appeal, bankruptcy or other creditors’ proceedings or otherwise. Acceptance of partial payments or payments marked “payment in full” or “in satisfaction” or words to similar effect shall not affect the duty of Maker to pay all obligations due hereunder, and shall not affect the right of Holder to pursue all remedies available to it under any Loan Documents. The remedies of Holder shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No action or omission of Holder, including specifically any failure to exercise or forbearance in the exercise of any remedy, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Holder and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent remedy as to a subsequent event.   3 -------------------------------------------------------------------------------- Maker hereby consents and submits to the jurisdiction of the courts of the State of Florida, and, notwithstanding its place of residence or organization or the place of execution of this Note, any litigation relating hereto, whether arising in contract or tort, by statute or otherwise, shall be brought in (and, if brought elsewhere, shall be transferred to) a State court of competent jurisdiction in Hillsborough County, Florida. Any notice to be given or to be served upon any party hereto in connection with this Note, whether required or otherwise, may be given in any manner permitted under the Loan Documents. Whenever the context so requires, the neuter gender includes the feminine and/or masculine, as the case may be, and the singular number includes the plural, and the plural number includes the singular. Maker hereby expressly waives any valuation and appraisal, presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever, and diligence in collection. MAKER, BY EXECUTING THIS NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVES ITS RIGHTS TO A TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER’S EXTENDING CREDIT TO MAKER AND NO WAIVER OR LIMITATION OF HOLDER’S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY SIGNED ON HOLDER’S BEHALF. Maker acknowledges that the above paragraph has been expressly bargained for by Holder as part of the loan evidenced hereby and that, but for Maker’s agreement, Holder would not have extended the loan for the term and with the interest rate provided herein.   4 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Maker has executed this Note on the day and year first above written.   ODYSSEY MARINE EXPLORATION, INC., a Nevada corporation By:   /s/ John C. Morris Name:   John C. Morris Its:   President   “MAKER”   5

  Exhibit 10.34 December 29, 2005 Charles W. Scharf JPMorgan Chase & Co. Dear Charlie - As we have discussed, we hereby amend and restate as of the date hereof that certain letter agreement dated February 25, 2004. Reference to the effective date means July 1, 2004, the effective date of merger of Bank One Corporation and JPMorgan Chase & Co. (the “Company”). Office Location: New York, New York Company Equity Awards Granted Prior to the Effective Date:   •   Upon any termination of employment with the Company (other than a termination by the Company for Cause) following the effective date, (1) all outstanding stock options granted prior to the effective date vest in full and become immediately exercisable (2) Company options granted prior to the effective date remain exercisable for not less than three years following the date of termination (or longer period as per terms, e.g., if executive satisfied retirement rule), but in no event longer than the original full term, and (3) non-compete provision of the restrictive covenants in the Company equity awards granted prior to the effective date lapses. Termination following the effective date: Termination protection for 3 years after the effective date as follows:   •   Without Cause by the Company or by the Executive for Good Reason:   1.   Full vesting of all equity incentive awards including the initial restricted stock award granted July 1, 2004 (with other post-effective date awards vesting in accordance with their terms), with the Company options granted prior to the effective date remaining exercisable for three years following the date of termination (or longer period as per terms, e.g., if executive satisfies retirement rule), but in no event beyond the original full term and post-effective date option grants remaining exercisable in accordance with their terms unless a longer period is provided for pursuant to the terms of the JPMorgan Chase Executive Severance Policy; and     2.   All other benefits provided under the JPMorgan Chase Executive Severance Policy to similarly-situated executives. Under JPMorgan Chase’s current severance policy, which as you know is subject to change at the discretion of the Company, you will be eligible for severance in case of involuntary termination, except for Cause, in an amount equal to two times current base salary, plus a further amount determined at the discretion of JPMorgan Chase.   •   For this purpose, “Cause” shall mean: (1) continued failure to perform duties or continued failure to abide by the written policies of the Company after notice and a reasonable opportunity to cure (provided that such written policies have been previously provided to Page 1 of 2 --------------------------------------------------------------------------------         the executive); (2) gross misconduct which is demonstrably injurious to the Company; or (3) conviction or plea of guilty or nolo contendere to the commission of a felony.     •   For this purpose, “Good Reason” shall mean relocation from the location set forth above.     •   Death or Involuntary Termination due to Disability: full vesting of all equity incentive awards, with the Company options granted prior to the effective date remaining exercisable for not less than three years following the date of termination (or longer period as per terms, e.g., death, disability or retirement rule) and post-effective date grants remaining exercisable in accordance with their terms, but not beyond the original full term; other vested benefits.     •   Excise Tax Gross-Up: If any payments under this Agreement or otherwise are subject to Section 4999 of the Code, the executive will be paid an additional payment such that the executive will be placed in the same after-tax position as if no excise tax had been imposed, if the net after-tax benefit to the executive exceeds $100,000. Miscellaneous:   •   No mitigation or offset.     •   Governed by New York law. If the above reflects your understanding, please sign this letter in the space below. Very truly yours, /s/ James Dimon James Dimon ACKNOWLEDGED AND AGREED /s/ Charles W. Scharf Charles W. Scharf Page 2 of 2

Exhibit 10.5 SEPARATION AND GENERAL RELEASE AGREEMENT This Separation Agreement (this “Agreement”) is made and entered into as of July 12, 2006, by and among Michael LaRocco (the “Employee”) and Safeco Corporation, a Washington corporation (together with its successors and assigns, “Safeco”). RECITALS A. Employee serves as the President and Chief Operating Officer of Safeco’s insurance subsidiaries. Employee has tendered his notice of resignation from employment with Safeco effective as of the date of this Agreement (the “Termination Date”), which resignation is accepted. B. To resolve any issues among Employee, Safeco and its subsidiaries arising out of Employee’s employment, Employee and Safeco have voluntarily agreed to enter into this Agreement. This Agreement sets forth the complete understanding among Employee, Safeco and its subsidiaries regarding Employee’s resignation as an officer and employee of Safeco, and the commitments and obligations arising out of the termination of the employment relationship. AGREEMENT 1. Employment Termination. 1.1 Resignation. In consideration of the Severance Payment and other compensation and benefits described in this Agreement, Employee tenders his resignation of employment, including resignation as an officer and director of Safeco’s subsidiaries, effective as of the Termination Date. 1.2 Compensation Through Termination Date. Safeco will pay Employee all base salary through the Termination Date. 1.3 Group Health Benefits Coverage. Safeco shall continue to provide coverage under any group health benefits plan under which Employee and/or his dependents were covered through and including the Termination Date. Employee shall be responsible to pay any amounts chargeable as “employee premium contribution” amounts with respect to any such coverage. From and after the Termination Date, Safeco shall provide Employee and/or Employee’s dependents with such benefits continuation or conversion coverage as may be available or required under the terms of Safeco’s benefits plans or policies (understanding that Safeco retains the right to modify, amend or terminate any of the plans at any time without advance notice). Employee and/or Employee’s covered spouse and dependents may be eligible to elect a temporary extension of group health plan coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as subsequently amended (“COBRA”). Safeco will pay Employee $15,000 for such coverage.   1 -------------------------------------------------------------------------------- 1.4 Payment for Accrued Vacation. Safeco will pay Employee for accrued but unused vacation that exists as of the Termination Date. 1.5 Reimbursement for Expenses Incurred. Safeco will reimburse Employee for reasonable and necessary business expenses incurred by Employee on or before the Termination Date to the extent such expenses are reimbursable under Safeco’s normal expense reimbursement policies and procedures, and provided that receipts or other acceptable documentation for such expenses are submitted to Safeco by the Termination Date. 1.6 Acknowledgment of Full Compensation to Date. Employee acknowledges and agrees that, with the payment of his salary through the Termination Date, he will have received all salary due and owing him for services performed through the Termination Date, less all required or agreed upon withholdings. 1.7 No Authority To Act or Represent Safeco. From and after the Termination Date, Employee will have no further authority to bind Safeco or its subsidiaries to any contract or agreement or to act on behalf of Safeco or to represent Safeco at any industry or business functions. 1.8 Return of Materials. On or before the Termination Date, Employee will return to Safeco all Safeco-owned equipment and materials, including, but not limited to, any computers, wireless communication devices, all documents (whether existing in paper or electronic/digital media), compilations of data, files, manuals, letters, notebooks, reports, diskettes, CDs, flash drives, or similar devices, and all other materials and records of any kind, and any copies or other reproductions thereof, owned by Safeco or its subsidiaries and used by Employee in the course of Employee’s employment. Notwithstanding the foregoing, Employee may retain his blackberry for a period of five (5) days following the Termination Date. 1.9 Agreement to Cooperate. Employee agrees for a period of not longer than twelve (12) months from the Termination Date to respond promptly, and to cooperate with, reasonable requests for information that Safeco may make relating to matters on which Employee worked while he was employed by Safeco. Safeco agrees to directly pay or reimburse the Employee within seven (7) days for the actual expenses incurred by the Employee (including reasonable travel expenses and fees for time worked) as a result of his compliance with this provision, provided the Employee submits proper documentation of the expenses he incurs as reasonably required by Safeco. 1.10 Home Loan. In connection with Employee’s relocation to the Seattle area, Safeco provided Employee with a home purchase loan in the amount of $780,000. The principal amount, together with any accrued interest from the Termination Date, will be due one (1) year after the Termination Date. This is consistent with the original loan terms as reflected in that certain Promissory Note Secured by a Deed of Trust, dated October 8, 2001, and nothing contained in this Agreement or otherwise amends Employee’s obligations with respect to this loan in any manner.   2 -------------------------------------------------------------------------------- 2. Payments; Contributions. 2.1 Severance Payment. In consideration of the termination of Employee’s role as an officer and Employee’s resignation as an officer and director of Safeco’s subsidiaries, Employee’s release agreement in Section 3 and other agreements made herein, in addition to the benefits provided under Section 1 above and the further consideration provided under Section 2.2 below, Safeco agrees to pay Employee a total sum of Two Hundred Seventy Five Thousand Dollars ($275,000) in cash as a severance payment (the “Severance Payment”). The Severance Payment will be subject to withholding and deduction for payroll taxes and other deductions as are required by federal and state law. The Severance Payment will be paid in a lump sum within ten (10) business days of the Effective Date of the Agreement (See Section 10.4). Employee and Safeco agree that the Severance Payment represents sufficient consideration for the potential claims being released. 2.2 Payment in Lieu of Leadership Performance Plan Incentive. Safeco agrees to pay Employee the sum of Six Hundred Thousand Dollars ($600,000) in cash in lieu of any annual incentive payment Employee might have received in 2007 under the Leadership Performance Plan. Employee will not be entitled to any other bonus, incentive payment or other variable pay for past services. The sums specified in this Section shall also be subject to withholding and deductions and paid in a lump sum within ten (10) business days of the date of the normal bonus payouts under Safeco’s existing bonus programs, which payout date will be on or about March 9, 2007. Any such payment under this Section 2.2 is contingent upon Employee’s full and complete compliance with the terms, conditions and restrictions set forth in this Agreement. 2.3 Equity Awards. Safeco shall accelerate and fully vest, on the Termination Date, the following equity awards (the “Awards”):   Type    No. of Shares    Grant Date ISO    1,309    05/07/03 NQ    10,653    05/07/03 RSR    951    05/07/03 RSR    8,039    05/05/04 RSR    6,116    03/11/05 RSR    6,181    03/10/06 The terms and conditions of the Safeco Long Term Incentive Plan of 1997, as amended, and Executive’s award agreements, pursuant to which the Awards were granted, will continue to govern such Awards. Except for the Awards, all equity awards that are granted to Executive that are not fully vested on the Termination Date will be deemed to have expired without vesting. With respect to the RSRs, the Settlement Date shall be the Termination Date.   3 -------------------------------------------------------------------------------- Executive acknowledges that accelerated stock options may not qualify for preferential income tax treatment as an incentive stock option under the Internal Revenue Code. 3. Release and Settlement. 3.1 Release. In consideration of Safeco’s delivery of the Severance Payment and other consideration and benefits provided to Employee under this Agreement, Employee releases Safeco and its subsidiaries, insurers, employee benefit plans in which Employee participates, and the employees, agents, officers, directors and shareholders or any of them (including their respective spouses and marital communities), from all claims, demands, actions, causes of action, or damages, of any kind or nature whatsoever that Employee may now have or may ever have had against any of them, whether such claims are known or unknown, and including but not limited to the Claims as described below. However, nothing in this Agreement will create or imply any waiver by Employee of any claims (a) with respect to Employee’s entitlement to compensation for vested benefits arising under any Safeco retirement or welfare benefit plan, program or agreement, in accordance with the terms and conditions of such plans, (b) with respect to any breach by Safeco of its obligations under this Agreement, all of which rights will be preserved and unaffected by this release, or (c) with respect to indemnification by Safeco, to the extent that such indemnification rights may arise or be provided under Safeco’s Articles of Incorporation or Bylaws, in connection with Employee’s official actions (or omissions) on behalf of Safeco during the period Employee served as an officer of Safeco and director of its subsidiaries. EMPLOYEE ACKNOWLEDGES AND AGREES THAT THROUGH THIS RELEASE EMPLOYEE IS GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND AND NATURE WHATSOEVER, KNOWN OR UNKNOWN, CONTINGENT OR LIQUIDATED, THAT EMPLOYEE MAY HAVE AGAINST SAFECO AND ITS SUBSIDIARIES, ENTITIES AND THE OTHER PERSONS REFERENCED ABOVE, EXCEPT FOR THE RIGHTS SPECIFICALLY EXCLUDED ABOVE. 3.2 The Claims. For the purposes of this Agreement, “Claims” mean and include, without limitation, Claims with respect to any of the following: (i) breach of contract; (ii) discrimination, retaliation, or constructive or wrongful discharge; (iii) lost wages, unpaid compensation under any wage claims statutes, lost employee benefits, physical and personal injury, defamation, tortuous interference with business expectancy, stress, mental distress, or impaired reputation; (iv) Claims arising under the Age Discrimination in Employment Act (“ADEA”), the Older Workers Benefit Protection Act, the Washington State Law Against Discrimination, Title VII of the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, the Family Medical Leave Act, the Employee Retirement Income Security Act, or any other federal, state or local laws or regulations prohibiting employment discrimination; (v) attorneys’ fees; and (vi) any other Claim arising from or relating to Employee’s employment with Safeco and/or Employee’s separation from service.   4 -------------------------------------------------------------------------------- 3.3 Consideration for Release. Safeco represents, and Employee acknowledges, that the Severance Payment and the other consideration and benefits provided hereunder exceed any amount Safeco may arguably be required to pay under any agreement or arrangement to which Employee is a party or under which Employee claims some benefit, or under the standard policies and procedures of Safeco, and represents valuable consideration to Employee for the release of the Claims described above. 4. No Admission. Employee understands and acknowledges that neither the Severance Payment nor the other benefits provided hereunder, nor the execution and delivery of this Agreement by Safeco, constitutes an admission by Safeco to (i) any breach of an agreement with Employee, (ii) any violation of a federal, state or local statute, regulation or ordinance, or (iii) any other wrongdoing. Safeco understands and acknowledges that neither Employee’s acceptance of the Severance Payment and other benefits provided hereunder, nor Employee’s execution and delivery of this Agreement, constitutes an admission by Employee to (i) any breach of an agreement with Safeco, (ii) any violation of a federal, state or local statute, regulation or ordinance, or (iii) any other wrongdoing. 5. Confidential Information. 5.1 Possession of Proprietary Information and Trade Secrets. Employee recognizes that by virtue of Employee’s employment by Safeco, Employee has acquired significant proprietary information and trade secrets relating to Safeco’s strategic planning, customers, agents, distribution, underwriting, underwriting models and platforms, products, financial projections, capital planning and financing, staffing, operations and accounting information (the “Confidential Information”). Employee recognizes and acknowledges that the Confidential Information constitutes valuable, special and unique assets of Safeco and its subsidiaries, access to and knowledge of which were essential to the performance of Employee’s duties during Employee’s employment. Employee specifically reaffirms that he will continue to abide by the provisions of the Product Ownership Agreement and the Intellectual Property Agreement that he entered into with Safeco and its subsidiaries. 5.2 Materials. Employee will not remove from Safeco’s premises or possession any documents, marketing materials, compilations of data or other files or records of any nature, or any copy or reproduction thereof, that were created or developed by Employee while employed by Safeco, contain Confidential Information or that otherwise belong to Safeco and its subsidiaries.   5 -------------------------------------------------------------------------------- 6. Non-Disparagement/Conduct Adverse Employee agrees not to make any disparaging or derogatory remarks about Safeco, its subsidiaries or any of their officers, directors, employees or agents at any time. Safeco agrees that it will use its best efforts to cause its executive officers (those officers who are members of Safeco’s Policy Committee) and directors not to make any public statement that is intended to criticize or disparage the Employee. This Section 6 will not be construed to prohibit Employee from responding truthfully and publicly to incorrect public statements or from making truthful statements when required by law or order of a court or other person or body having jurisdiction. Employee agrees that without the prior written consent of Safeco’s chief executive officer, and for a period of not longer than twelve (12) months from the Termination Date, he shall not work for or consult with any person or entity with respect to any claim such person or entity may have against Safeco or with respect to any offer to acquire, or to merge with, Safeco that such person or entity is considering making, is preparing to make or is making. 7. Noncompetition, Nonsolicitation and Intellectual Property 7.1 Scope of Competition. Employee agrees that he will not, directly or indirectly, during his employment and for a three (3) months from the Termination Date, be employed by, consult with or otherwise perform services for, own, manage, operate, join, control or participate in the ownership, management, operation or control of or be connected with, in any manner, any Competitor. A “Competitor” shall include any entity which, directly or indirectly, competes with Safeco or its subsidiaries or produces, markets, distributes or otherwise derives benefit from the production, marketing or distribution of products or services that compete with products then produced or services then being provided or marketed, by Safeco or the feasibility for production of which Safeco is then actually studying, or which is preparing to market or is developing products or services that will be in competition with the products or services then produced or being studied or developed by Safeco, in each case within the geographical area of the United States, unless released from such obligation in writing by Safeco’s chief executive officer. Employee shall be deemed to be related to or connected with a Competitor if such Competitor is (a) a partnership in which he is a general or limited partner or employee, (b) a corporation or association of which he is a shareholder, officer, employee, or (c) a partnership, corporation or association of which he is a member, consultant or agent; provided, however, that nothing herein shall prevent the purchase or ownership by Employee of shares which constitute less than five percent of the outstanding equity securities of a publicly or privately held corporation, if Employee had no other relationship with such corporation. 7.2 Scope of Nonsolicitation and No Hiring Obligation. For a period of two (2) years following the Termination Date, Employee shall not directly or indirectly solicit, influence or entice, or attempt to solicit, influence or entice, any employee or consultant of Safeco to cease his or her relationship with Safeco or solicit, influence, entice or in any way divert any customer, distributor, partner, joint venturer or supplier of Safeco to do business or in any way become associated with any competitor of Safeco or   6 -------------------------------------------------------------------------------- its subsidiaries. For a period of two (2) years following the Termination Date, Employee shall not directly or indirectly hire, on his own behalf or on behalf of any entity with which he may become affiliated any individual or consultant employed by Safeco as of July 1, 2006. 7.3 Assignment of Intellectual Property. Employee specifically reaffirms that he will continue to abide by the provisions of the Product Ownership Agreement and the Intellectual Property Agreement that he entered into with Safeco and its subsidiaries. 7.4 Disclosure and Protection of Inventions. Employee hereby represents that he has previously disclosed or shall disclose in writing before the Termination Date all concepts, designs, processes, technology, plans, embodiments, inventions or improvements constituting intellectual property to Safeco promptly after its or their development. At Safeco’s request and at Safeco’s expense, Employee will assist Safeco or its designee in efforts to protect all rights relating to such intellectual property. Such assistance may include, without limitation, the following: (a) making application in the United States and in foreign countries for a patent or copyright on any work products specified by Safeco; (b) executing documents of assignment to Safeco or its designee of all of Employee’s right, title and interest in and to any work product and related intellectual property rights; and (c) taking such additional action (including, without limitation, the execution and delivery of documents) to perfect, evidence or vest in Safeco or its designee all right, title and interest in and to any intellectual property and any rights related thereto. 7.5 Nondisclosure of Intellectual Property. Following the Termination Date, Employee will not use nor disclose (except as required by his duties to Safeco) any concept, design, process, technology, trade secret, customer list, plan, embodiment, or invention, any other intellectual property or any other Confidential Information, whether patentable or not, of Safeco of which Employee became or becomes informed or aware during his employment, whether or not developed by Employee. 8. Legal Action. 8.1 No Claims. Employee represents that Employee has not filed a Claim or complaint against Safeco or its subsidiaries, or any of their employees, agents, officers, directors or shareholders with any court or agency. Safeco represents that other than as disclosed to Employee, it is not aware of any legal action pending or potentially pending against Employee for acts or omissions as a Safeco employee. 8.2 Indemnification. The existing rights of the Employee and obligations of Safeco with regard to indemnification of the Employee are not dependent upon Employee’s continued employment or holding an office or directorship with Safeco or an affiliate. To the extent provided as of the Termination Date in the indemnification provisions of Safeco’s articles of incorporation and bylaws and to the maximum extent permitted under the laws of the state of Washington, Employee will be entitled to indemnification, and advancement of expenses, in respect of matters that occurred during the time that he was an officer of Safeco.   7 -------------------------------------------------------------------------------- 8.3 No Action on Released Claims. Employee agrees not to sue or pursue any court or administrative action against Safeco or its subsidiaries, or any of their employees, agents, officers, directors or shareholders, to the extent allowed by applicable law, regarding any Claims released herein or otherwise arising from Employee’s employment with Safeco or Employee’s separation from service, except with respect to any breach by Safeco of its obligations under this Agreement. If any government agency brings any claim or conducts any investigation against Safeco, Employee waives and agrees to relinquish any damages or other individual relief that may be awarded as a result of any such proceedings to the extent it relates to his employment. 8.4 Liability for Defense Costs. If, notwithstanding this Agreement, Employee should file any lawsuit or other proceeding based on legal claims that Employee has released herein, Employee agrees to pay or reimburse Safeco for all reasonable costs, including attorneys’ fees, which it, or its subsidiaries, or their employees, agents, officers or directors, incur in defending against Employee’s claims. This paragraph will not apply to any claimed breach by Safeco of any of the terms or conditions of this Agreement. 9. Agreement Confidential. 9.1 Terms of Agreement. Employee and Safeco agree that neither of them will reveal nor publicize the existence of this Agreement or its terms, including but not limited to the amount of the Severance Payment, except as required by law, including as required by financial and other corporate reporting requirements (which means that a press release and this Agreement will be filed with the Securities and Exchange Commission in accordance with its rules and regulations). Other than as just described and unless agreed upon between the parties, the parties agree that they will not discuss with or make an announcement to the public at large or to any individual person or persons any statements with regard to this Agreement, or matters relating to its terms. Notwithstanding the foregoing, the parties may discuss the existence and terms of this Agreement with their respective attorneys, accountants, financial advisors to obtain counsel and advice, and, in Employee’s case, with members of Employee’s immediate family, and, in Safeco’s case, with members of Safeco’s Policy Committee. Nothing in this confidentiality provision prohibits Employee from representing to third parties that Employee “resigned from Safeco on mutually agreeable terms” or that the parties “parted amicably.” 9.2 Employment References. If a prospective employer contacts Safeco for an employment reference with respect to Employee, Safeco will provide, unless required otherwise by law or with specific permission of Employee, only the following information: Employee’s dates of employment, and Employee’s title and salary at the Termination Date.   8 -------------------------------------------------------------------------------- 10. Acknowledgment. 10.1 Informed Agreement. Employee declares that Employee has read and fully understands the terms of this Agreement and its significance and consequence. Employee further declares that this Agreement is the product of good faith negotiations between Employee and Safeco, and that Employee voluntarily accepts the same for the purpose of resolving arrangements with respect to Employee’s resignation. 10.2 Attorney. Employee acknowledges that Safeco has advised Employee to review the terms of this Agreement with an attorney of Employee’s own choosing and that Employee has done so or knowingly waived Employee’s right to do so. 10.3 Voluntary Act. Employee acknowledges that this Agreement is voluntary and has not been given as a result or any coercion. 10.4 Review and Revocation Periods, Effective Date. Employee has a period of at least twenty-one (21) days during which to consider this Agreement before signing, but may sign it in less than 21 days at his option. Negotiations about the terms or language of this Agreement will not re-start the 21-day consideration period. Employee has seven (7) days after signing in which Employee may revoke this Agreement. This Agreement will not become effective or enforceable until such seven-day period has expired (the “Effective Date of the Agreement”). Employee understands that he may revoke this Agreement by delivering a written notice to the attention of Allie Mysliwy at Safeco Plaza, T-22, Seattle, WA 98185, no later than the close of business on the seventh day after Employee signs this Agreement. Employee understands and acknowledges that if Employee revokes this Agreement it will not be effective or enforceable and Employee will not receive the payments or other benefits described herein. 11. Entire Agreement. Subject to Sections 5.1 and 7.3, this Agreement constitutes the entire agreement between Employee and Safeco, and it supersedes and replaces all prior written and oral agreements and understandings between the parties with respect to its subject matter other than any agreement of confidentiality entered into in connection with his employment. Neither Safeco nor any Safeco Subsidiary has made any promises to Employee other than those included within this Agreement. 12. Waiver. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 13. Costs. Following the Termination Date, Safeco shall pay Employee a lump sum of Ten Thousand Dollars ($10,000) to defray any attorney and tax advisor fees incurred in   9 -------------------------------------------------------------------------------- connection with Employee’s separation from employment with Safeco. Except for this payment to Employee, each party shall separately bear their costs and expenses incurred in connection with the negotiation and preparation of this Agreement. 14. Injunctive Relief. Employee recognizes that irreparable and continuing injury for which there is not adequate remedy at law will result to Safeco and its subsidiaries and their businesses and property if Employee breaches Employee’s obligations under this Agreement. In the event of any such breach or threatened breach, Safeco will be entitled to seek temporary injunctive relief upon a showing of such breach or threatened breach without proof of actual damage and without posting a bond therefore, and/or an order of temporary and permanent specific performance enforcing this Agreement, and any other remedies provided by applicable law. Employee agrees that in the event of any such proven breach, Safeco will be entitled to recover its costs associated with enforcing this Agreement, including reasonable attorney’s fees. Employee further understands and agrees that the word “temporary” as used herein will include both temporary and preliminary relief and/or remedies available. 15. Mediation. Any dispute under this Agreement must be submitted in advance of litigation for mediation by a mutually agreed-upon mediator at Judicial Dispute Resolution, LLC, 1411 Fourth Avenue, Suite 200, Seattle, Washington. 16. Amendment. No supplement, modification, or amendment of this Agreement will be valid, unless it is made in writing and signed by both parties hereto. 17. Severability. If any provision or portion of this Agreement is held to be unenforceable or invalid by any court of competent jurisdiction, the remainder of this Agreement will remain in full force and effect and will in no way be affected or invalidated thereby. 18. Governing Law; Jurisdiction and Venue. The parties acknowledge that this Agreement will be governed, interpreted and enforced in accordance with the laws of the state of Washington, without regard to its conflict of law principles. Any suit or action arising out of or in connection with this Agreement, or any breach hereof, will be brought and maintained in the federal or state courts located in Seattle, Washington. The parties irrevocably submit to the jurisdiction and venue of such courts for the purpose of such suit or action and expressly and irrevocably waive, to the fullest extent permitted by law, any objection they may now or hereafter have to the venue of any such suit or action in any such court and any claim that any such suit or action has been brought in an inconvenient forum.   10 -------------------------------------------------------------------------------- PLEASE READ CAREFULLY. THIS SEPARATION AND GENERAL RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.   EMPLOYEE /s/ Michael LaRocco Michael LaRocco Date: July 12, 2006 SAFECO CORPORATION By   /s/ Paula Rosput Reynolds   Paula Rosput Reynolds   Its President and Chief Executive Officer Date: July 12, 2006   11

EXHIBIT 10.6 ENGAGEMENT AGREEMENT BETWEEN LANDRUM & COMPANY, INC. AND ALCIS-CA EFFECTIVE FEBRUARY 1, 2006 ATTORNEY-CLIENT FEE AGREEMENT This is the written fee agreement (“Agreement”) that California law, under Business and Professions Code section 6148, requires attorneys to have with their clients and it is intended to fulfill the requirements of that section. 1. IDENTIFICATION OF PARTIES. This Agreement, executed in duplicate with each party receiving an executed original, is made between LANDRUM & COMPANY, A PROFESSIONAL CORPORATION, hereafter referred to as “Law Firm,” and ALCiS HEALTH, INC., hereafter referred to as “Client.” 2. BUSINESS AND LEGAL SERVICES TO BE PROVIDED. The business consulting and legal services to be provided by Law Firm to Client are as follows: This Agreement is intended primarily to ensure our availability to undertake any services of a business or business law nature required by you in connection with your operation of ALCiS Health, Inc. and any subsidiaries. We will provide business consulting and general legal advice, including reviewing agreements related to the business, and will provide direct and indirect litigation support as requested. 3. MEDIA CONTACTS. Any media inquiries on Client matters will be directed to Client. Law Firm is not obligated to make any statements to the media and is not authorized to make any statements to the media without Client’s prior approval. 4. RESPONSIBILITIES OF LAW FIRM AND CLIENT. Law Firm will perform the legal services and business consulting services called for under this Agreement, keep Client informed of progress and developments, and respond promptly to Client’s inquiries and communications. Client will be truthful and cooperative with Law Firm; keep Law Firm reasonably informed of developments and of Client’s address, telephone numbers and whereabouts; and timely make any payments required by this Agreement. 5. ATTORNEY’S FEES. Client will pay Law Firm for the services provided under this Agreement at the respective hourly rates of the individuals providing the services. Subject to paragraph 7 below, the rates fall within the following ranges: $325 per hour for partners or senior attorneys (including James F. Landrum, Jr.), $220 to $ 275 per hour for associates, $65 to $120 per hour for law clerks, and $45 to $90 per hour for paralegals. Law Firm will charge in increments of one tenth of an hour, rounded off for each particular activity to the nearest one tenth of an hour. The minimum time charged for any particular activity will be one tenth of an hour. -------------------------------------------------------------------------------- Law Firm will charge for all activities undertaken in providing services to Client under this Agreement, including, but not limited to, the following: conferences, court sessions, and depositions (preparation and participation); correspondence and legal documents (review and preparation); legal research; and telephone conversations. When two or more of Law Firm’s personnel are engaged in working on the matter at the same time, such as in conferences between them, the time of each will be charged at his or her hourly rate. If, while this Agreement is in effect, Law Firm increases the hourly rates being charged to clients generally for attorney’s fees, that increase may be applied to fees incurred under this Agreement, but only with respect to services provided 30 days or more after written notice of the increase is mailed to Client. If Client chooses not to consent to the increased rates, Client may terminate Law Firm’s services under this Agreement by written notice effective when received by Law Firm, provided Client execute and return a substitution-of-attorney form immediately on its receipt from Law Firm if Law Firm is Client’s attorney of record in any proceeding. Should Client still be under a retainer relationship (i.e. monthly commitment with 90 days notice of changes) with Law Firm, pursuant to paragraph 7 below, Law Firm agrees to provide 90 days notice of any fee increase. Any termination of services by Client without 90 days notice by Client shall make Client liable for the balance otherwise due had 90 days notice been given. This point is understood and agreed by the parties, and the parties agree that this point was the result of negotiation between the parties. Client acknowledges that Law Firm has made no promises about the total amount of attorney’s fees to be incurred by Client under this Agreement. 6. COSTS. Client will pay all “costs” in connection with Law Firm’s representation of Client under this Agreement. Costs may be advanced by Law Firm and then billed to Client if the costs cannot be met out of client deposits that are applicable toward costs. Costs include, but are not limited to, court filing fees, fees fixed by law or assessed by public agencies, deposition costs, expert and consultant fees and expenses, specifically authorized by Client, investigation costs, long-distance telephone charges, messenger service and other delivery fees, postage, photocopying and reproduction expenses, travel costs that are required by the course of representing Client’s interests and that are specifically authorized by Client, including parking, mileage, transportation, meals and hotel costs, and process server fees. All costs and expenses will be charged at Law Firm’s cost, except the following items will be charged at the following costs: In-office copying ($0.25 per page), fax charges ($1.00 per page), mileage ($0.35 per mile). 7. RETAINER, DEPOSIT FOR FEES. Client will pay to Law Firm an initial deposit of $13,000, to be received by Law Firm on or before February 1, 2006, and to be applied against attorney’s fees incurred by Client. Of this amount, $13,000 is a nonrefundable monthly retainer and $0 is a refundable deposit for fees. Based on Client’s desire to receive a lower hourly rate, Client agrees to commit to a minimum number of hours of attorney time per month with a 90 day notice period prior to any change in the number of minimum hours, but with no reductions to the minimum number of hours in the first 6 months other than as agreed below. In the event the number of hours is not used in full, no amount of this monthly retainer shall be refundable. Client has chosen an initial commitment of 80 hours per month for months February, March and April 2006, and 40 hours per month for months May, June and July 2006. -------------------------------------------------------------------------------- At any time after the first 3 months of this Agreement, upon 90 days notice, Client may terminate this agreement or reduce the number of hours Client desires to commit to per month. Any termination of services by Client without 90 days notice by Client shall make Client liable for the balance otherwise due had 90 days notice been given. This point is understood and agreed by the parties, and the parties agree that that this point was the result of negotiation between the parties. After the above 90 day notice period has run (unless mutually agreed otherwise, in each party’ sole discretion), such change in hours shall be instituted. Any reduction in minimum hours in may result in a higher hourly rate. Rates to Client shall be discounted as follows:   No commitment of hours   Full Rate 21 to 40 hours per month   20% discount off standard fees 41 to 60 hours per month   35% discount off standard fees 61 to 79 hours per month   40% discount off standard fees 80 or more hours per month   50% discount off standard fees As of the effective date of this Agreement, Client agrees to pay the stated $13,000 retainer on the 1st day of each of the months of February, March, and April, which shall be applied for up to 80 hours of legal services and/or business consulting fees per month. For the months of May, June, and July, Client agrees to pay a retainer of $9,500 on the 1st day of the month to be applied for up to 45 hours of legal services and/or business consulting fees per month. Additional hours required under this section shall be charged at the applicable discounted rate. Should Client reduce the number of hours committed to per month, then after the required 90 day notice period has run, the monthly retainer amount shall at that time be reduced to an amount equal to the monthly number of hours committed multiplied by the then existing hourly rate. 8. DEPOSIT FOR COSTS. Based on Client’s agreement to pay costs as they are invoiced, Client will not be required to pay to Law Firm an initial deposit to be applied against costs incurred by Client. Law Firm shall seek Client approval for major disbursements (over $500) in advance of incurring the expense. Client will reimburse for reasonable disbursements made on its behalf. Client will not be charged for general overhead or other charges that are a normal part of the Law Firm’s overhead, such as (i) time spent on preparation of billing statements or (ii) courier or expedited mail services where the urgency was only necessary due to the fault of Law Firm. 9. STATEMENTS AND PAYMENTS. Law Firm will send Client monthly statements indicating attorney’s fees and costs incurred and their basis, any amounts applied from deposits, and any current balance owed. If no attorney’s fees or costs are incurred for a particular month, or if they are minimal, the statement may be held and combined with that for the following month. Any balance will be paid in full within 30 days after the statement is mailed. -------------------------------------------------------------------------------- 10. EFFECTIVE DATE OF AGREEMENT. The effective date of this Agreement will be the date it is executed by the second of the parties to do so, having been executed by Client, it is received by Law Firm and Law Firm received the initial deposits required under paragraph 7 and paragraph 8 of this Agreement, provided the Agreement and deposit(s) are received on or before February 1, 2006, or Law Firm accepts late payment. Once effective, this Agreement will, however, apply to services provided by Law Firm on this matter before its effective date. 11. DISCLAIMER OF GUARANTEE AND ESTIMATES. Nothing in this Agreement and nothing in Law Firm’s statements to Client will be construed as a promise or guarantee about the outcome of any matter. Law Firm makes no such promises or guarantees. Law firm’s comments about the outcome of any matter are expressions of opinion only. Any estimate of fees given by Law Firm shall not be a guarantee. Actual fees may vary from estimates given. 12. ENTIRE AGREEMENT. This Agreement represents the entire Agreement of the parties. No other agreement, statements or promises made on or before the effective date of this Agreement shall be binding upon the parties. 13. SEVERABILITY. Should any provision of this Agreement be found to be void or unenforceable, the remainder of this Agreement shall remain in full force and effect 14. MODIFICATION. No modification to this Agreement, nor any waiver of any rights, shall be effective unless assented to in writing by the party to be charged. THE PARTIES HAVE READ AND UNDERSTOOD THE FOREGOING TERMS AND AGREE TO THEM AS OF THE DATE LAW FIRM FIRST PROVIDED SERVICES. THE CLIENT SHALL RECEIVE A FULLY EXECUTED DUPLICATE ORIGINAL OF THIS AGREEMENT. The foregoing is agreed to by:   /s/ Mark Lemma     /s/ James F. Landrum, Jr. Mark Lemma, CFO     James F. Landrum, Jr. ALCiS Health, Inc.     Landrum & Company, Inc.

  Exhibit 10.63 SALE AND SERVICING AGREEMENT by and among CSE QRS FUNDING II LLC, as the Seller CSE MORTGAGE LLC, as the Originator and as the Servicer EACH OF THE PURCHASERS AND PURCHASER AGENTS FROM TIME TO TIME PARTY HERETO, CITIGROUP GLOBAL MARKETS REALTY CORP., as the Administrative Agent and as the Citigroup Agent and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Backup Servicer and as the Collateral Custodian Dated as of June 30, 2006   --------------------------------------------------------------------------------   TABLE OF CONTENTS                       ARTICLE I   DEFINITION     2                             Section 1.1       Certain Defined Terms     2       Section 1.2       Other Terms     55       Section 1.3       Computation of Time Periods     55       Section 1.4       Interpretation     55       Section 1.5       Special Provisions Relating to Alternative Currency Loans     56                         ARTICLE II   PURCHASE OF THE VARIABLE FUNDING CERTIFICATES     56                             Section 2.1       The Variable Funding Certificates     56       Section 2.2       [Reserved]     58       Section 2.3       Procedures for Advances by Purchasers     58       Section 2.4       Reduction of the Facility Amount; Mandatory and Optional Repayments     59       Section 2.5       Determination of Interest     60       Section 2.6       Percentage Evidenced by each Variable Funding Certificate     61       Section 2.7       [Reserved]     61       Section 2.8       Notations on Variable Funding Certificates     61       Section 2.9       Settlement Procedures During the Revolving Period     61       Section 2.10       Settlement Procedures During the Amortization Period     63       Section 2.11       Collections and Allocations     64       Section 2.12       Payments, Computations, Etc     65       Section 2.13       Optional Repurchase     65       Section 2.14       Fees     66       Section 2.15       Increased Costs; Capital Adequacy; Illegality     66       Section 2.16       Taxes     68       Section 2.17       Assignment of the Sale Agreement     69       Section 2.18       Substitution of Assets     69       Section 2.19       Optional Sales     70       Section 2.20       Discretionary Sales     72       Section 2.21       Required Equity Requirements     73                         ARTICLE III   CONDITIONS TO ADVANCES     74                             Section 3.1       Conditions to Closing and Initial Advance     74       Section 3.2       Conditions Precedent to All Advances     75                         ARTICLE IV   REPRESENTATIONS AND WARRANTIES     77                             Section 4.1       Representations and Warranties of the Seller     77       Section 4.2       Representations and Warranties of the Seller Relating to the Agreement and the Collateral     87       Section 4.3       Representations and Warranties of the Servicer     88       Section 4.4       Representations and Warranties of the Backup Servicer     91       Section 4.5       Representations and Warranties of the Collateral Custodian     92       Section 4.6       Breach of Certain Representations and Warranties     92   i --------------------------------------------------------------------------------   TABLE OF CONTENTS (Continued)                                 Page                               ARTICLE V   GENERAL COVENANTS     93                             Section 5.1       Affirmative Covenants of the Seller     93       Section 5.2       Negative Covenants of the Seller     96       Section 5.3       Covenants of the Seller Relating to the Hedging of Assets     99       Section 5.4       Affirmative Covenants of the Servicer     100       Section 5.5       Negative Covenants of the Servicer     102       Section 5.6       Affirmative Covenants of the Backup Servicer     103       Section 5.7       Negative Covenants of the Backup Servicer     104       Section 5.8       Affirmative Covenants of the Collateral Custodian     104       Section 5.9       Negative Covenants of the Collateral Custodian     104                         ARTICLE VI   ADMINISTRATION AND SERVICING OF ASSETS     104                             Section 6.1       Designation of the Servicer     104       Section 6.2       Duties of the Servicer     105       Section 6.3       Authorization of the Servicer     107       Section 6.4       Collection of Payments     107       Section 6.5       Servicer Advances     109       Section 6.6       Realization Upon Charged-Off Assets     110       Section 6.7       Maintenance of Insurance Policies     110       Section 6.8       Servicing Compensation     111       Section 6.9       Payment of Certain Expenses by Servicer     111       Section 6.10       Reports     111       Section 6.11       Annual Statement as to Compliance     112       Section 6.12       Annual Independent Public Accountant’s Servicing Reports     112       Section 6.13       Limitation on Liability of the Servicer and Others     113       Section 6.14       The Servicer Not to Resign     113       Section 6.15       Servicer Defaults     113       Section 6.16       Appointment of Successor Servicer     115                         ARTICLE VII   THE BACKUP SERVICER     117                             Section 7.1       Designation of the Backup Servicer     117       Section 7.2       Duties of the Backup Servicer     117       Section 7.3       Merger or Consolidation     118       Section 7.4       Backup Servicing Compensation     119       Section 7.5       Backup Servicer Removal     119       Section 7.6       Limitation on Liability     119       Section 7.7       The Backup Servicer Not to Resign     120                         ARTICLE VIII   THE COLLATERAL CUSTODIAN     120                             Section 8.1       Designation of Collateral Custodian     120       Section 8.2       Duties of Collateral Custodian     120       Section 8.3       Merger or Consolidation     122   ii --------------------------------------------------------------------------------   TABLE OF CONTENTS (Continued)                                 Page                                   Section 8.4       Collateral Custodian Compensation     122       Section 8.5       Collateral Custodian Removal     122       Section 8.6       Limitation on Liability     123       Section 8.7       The Collateral Custodian Not to Resign     124       Section 8.8       Release of Documents     124       Section 8.9       Return of Required Asset Documents     125       Section 8.10       Access to Certain Documentation and Information Regarding the Collateral; Audits     125       Section 8.11       Securities Intermediary     125                         ARTICLE IX   SECURITY INTEREST     127                             Section 9.1       Grant of Security Interest     127       Section 9.2       Release of Lien on Collateral     128       Section 9.3       Further Assurances     128       Section 9.4       Remedies     128       Section 9.5       Waiver of Certain Laws     128       Section 9.6       Power of Attorney     129                         ARTICLE X   TERMINATION EVENTS     129                             Section 10.1       Termination Events     129       Section 10.2       Remedies     132                         ARTICLE XI   INDEMNIFICATION     133                             Section 11.1       Indemnities by the Seller     133       Section 11.2       Indemnities by the Servicer     136       Section 11.3       After-Tax Basis     136                         ARTICLE XII   THE ADMINISTRATIVE AGENT AND PURCHASER AGENTS     136                             Section 12.1       The Administrative Agent     136       Section 12.2       The Purchaser Agents     139       Section 12.3       Additional Agent     141                         ARTICLE XIII   MISCELLANEOUS     143                             Section 13.1       Amendments and Waivers     143       Section 13.2       Notices, Etc     144       Section 13.3       Ratable Payments     144       Section 13.4       No Waiver; Remedies     144       Section 13.5       Binding Effect; Benefit of Agreement     144       Section 13.6       Term of this Agreement     145       Section 13.7       Governing Law; Consent to Jurisdiction; Waiver of Objection to Venue     145       Section 13.8       Waiver of Jury Trial     145   iii --------------------------------------------------------------------------------   TABLE OF CONTENTS (Continued)                                 Page                                   Section 13.9       Costs, Expenses and Taxes     146       Section 13.10       No Proceedings     146       Section 13.11       Recourse Against Certain Parties     147       Section 13.12       Protection of Right, Title and Interest in the Collateral; Further Action Evidencing Advances     148       Section 13.13       Confidentiality     149       Section 13.14       Execution in Counterparts; Severability; Integration     151       Section 13.15       Waiver of Set-off     151       Section 13.16       Assignments     151       Section 13.17       Heading and Exhibits     152       Section 13.18       Loans Subject to Retained Interest Provisions     152       Section 13.19       Tax Treatment of Advances     152   EXHIBITS       EXHIBIT A-1   Form of Borrowing Notice (Advances and Reduction of Facility Amount) EXHIBIT A-2   Form of Borrowing Notice (Reinvestments of Principal Collections) EXHIBIT A-3   Form of Borrowing Base Certificate EXHIBIT B-1   Form of Variable Funding Certificate (Purchasers) EXHIBIT B-2   Form of Variable Funding Certificate (Additional Purchasers) EXHIBIT C   Form of Monthly Report EXHIBIT D   Form of Hedging Agreement (including Schedule and Confirmation) EXHIBIT E-1   Form of Officer’s Certificate to Solvency (CSE QRS Funding II LLC) EXHIBIT E-2   Form of Officer’s Certificate to Solvency (CSE Mortgage LLC) EXHIBIT F-1   Form of Officer’s Closing Certificate (CSE QRS Funding II LLC) EXHIBIT F-2   Form of Officer’s Closing Certificate (CSE Mortgage LLC) EXHIBIT G-1   Form of Power of Attorney (CSE QRS Funding II LLC) EXHIBIT G-2   Form of Power of Attorney (CSE Mortgage LLC) EXHIBIT H   Form of Release of Required Asset Documents EXHIBIT I   Form of Assignment of Mortgage EXHIBIT J   Form of Servicer’s Certificate EXHIBIT K   Form of Transferee Letter EXHIBIT L   Form of Certificate of Outside Counsel EXHIBIT M   Form of Assumption Agreement SCHEDULES       SCHEDULE I   Condition Precedent Documents SCHEDULE II   List of Lock-Box Banks and Lock-Box Accounts SCHEDULE III   Location of Required Asset Documents and Asset Files SCHEDULE IV   Asset List SCHEDULE V   Residential Mortgage Policies and Procedures iv --------------------------------------------------------------------------------   SALE AND SERVICING AGREEMENT      THIS SALE AND SERVICING AGREEMENT (such agreement as amended, modified, waived, supplemented, restated or replaced from time to time, the “Agreement”) is made as of this 30th day of June, 2006, by and among:      (1) CSE QRS FUNDING II LLC, a Delaware limited liability company, as the seller (together with its successors and assigns in such capacity, the “Seller”);      (2) CSE MORTGAGE LLC, a Delaware limited liability company (“CSE Mortgage”), as the originator (together with its successors and assigns in such capacity, the “Originator”), and as the servicer (together with its successors and assigns in such capacity, the “Servicer”);      (3) EACH OF THE PURCHASERS AND PURCHASER AGENTS FROM TIME TO TIME PARTY HERETO (together with their respective successors and assigns in such capacities, each a “Purchaser” and a “Purchaser Agent,” respectively);      (4) CITIGROUP GLOBAL MARKETS REALTY CORP., a Delaware corporation (“Citigroup Global Markets”), as the administrative agent for the Purchaser Agents hereunder (together with its successors and assigns in such capacity, including any successor appointed pursuant to ARTICLE XII, the “Administrative Agent”), and as the Purchaser Agent for Citigroup Global Markets Realty Corp. (together with its successors and assigns in such capacity, the “Citigroup Agent”); and      (5) WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), not in its individual capacity but as the backup servicer (together with its successors and assigns in such capacity, the “Backup Servicer”), and not in its individual capacity but as the collateral custodian (together with its successors and assigns in such capacity, the “Collateral Custodian”). R E C I T A L S      WHEREAS, the Seller has acquired, and may from time to time continue to acquire, certain Assets (as defined below) from the Originator pursuant to the Sale Agreement (as defined below);      WHEREAS, the Seller is prepared to transfer and assign, and grant security interests in, certain Assets and other proceeds with respect thereto to the Purchasers from time to time;      WHEREAS, the Purchasers may, in accordance with the terms of this Agreement, purchase such Assets; and      WHEREAS, on the Closing Date, the Seller will transfer and assign, and grant a security interest in the Tandem Asset (as defined below) and the Purchaser will purchase such Asset by making the Tandem Advance in respect thereof;      WHEREAS, all other conditions precedent to the execution of this Agreement have been complied with. 1 --------------------------------------------------------------------------------        NOW, THEREFORE, based upon the foregoing Recitals, the mutual premises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITION      Section 1.1 Certain Defined Terms.      Certain capitalized terms used throughout this Agreement are defined above or in this Section 1.1. As used in this Agreement and its schedules, exhibits and other attachments, unless the context requires a different meaning, the following terms shall have the following meanings: “1940 Act”: Defined in Section 10.1(i). “Accrual Period”: (a) with respect to each Advance (or portion thereof) funded at an Interest Rate other than the CP Rate, (i) with respect to the first Payment Date, the period from and including the Closing Date to but excluding such first Payment Date and (ii) with respect to any subsequent Payment Date, the period from and including the previous Payment Date to but excluding such subsequent Payment Date, and (b) with respect to each Advance (or portion thereof) funded at an Interest Rate equal to the CP Rate, (i) with respect to the first Payment Date, the period from and including the Closing Date to and including the last day of the calendar month in which the Closing Date occurs and (ii) with respect to any subsequent Payment Date, the period ending on the last day of the calendar month immediately preceding the month in which the Payment Date occurs and commencing on the first day of such immediately preceding calendar month. “Acquired Loan”: A Loan that is originated by a Person other than the Originator, CapitalSource Finance LLC or any of their respective Subsidiaries and acquired by the Originator in a “true sale” transaction pursuant to an acquisition agreement, provided that the foregoing shall exclude any Retained Interest. “Addition Date”: With respect to any Additional Assets, the date on which such Additional Assets become part of the Collateral. “Additional Agent”: Each Person (together with its successors and assigns) that becomes a party to this Agreement as an Additional Agent, on behalf of any Additional Purchaser, pursuant to an Additional Purchaser Agreement. “Additional Agent Fee Letter”: Each Additional Agent Fee Letter Agreement that shall be entered into by and among the Seller, the Servicer and such Additional Agent in connection with the transactions contemplated by this Agreement, as amended, modified, waived, supplemented, restated or replaced from time to time. 2 --------------------------------------------------------------------------------   “Additional Agent’s Account”: A special account, designated by the Additional Agent in an Additional Purchaser Agreement, in the name of an Additional Agent maintained with the related Additional Purchaser. “Additional Assets”: All Assets that become part of the Collateral after the Closing Date. “Additional Purchaser”: Defined in Section 13.16. “Additional Purchaser Agreement”: With respect to each Additional Purchaser, the Transferee Letter relating to such Additional Purchaser. “Adjusted Advances Outstanding”: On any day, the aggregate principal amount of all Advances Outstanding minus the aggregate principal amount of the Tandem Advance outstanding. “Adjusted Aggregate Outstanding Asset Balance”: On any date of determination, the Aggregate Outstanding Asset Balance minus the Tandem Outstanding Asset Balance. “Adjusted Availability”: At any time, an amount equal to the excess, if any, of (i) the lesser of (a) the Adjusted Facility Amount and (b) the Adjusted Maximum Availability over (ii) the Adjusted Advances Outstanding on such day; provided that during the Amortization Period, the Adjusted Availability shall be zero. “Adjusted Average Pool Charged-Off Ratio”: As of any Determination Date, the percentage equivalent of a fraction (i) the numerator of which is equal to the sum of the Outstanding Asset Balance of all Assets that became Charged-Off Assets (excluding, if applicable, the Tandem Asset) (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date), and (ii) the denominator of which is equal to a fraction the numerator of which is the sum of the Adjusted Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date) and the denominator of which is 12 (or the corresponding lesser number of Determination Dates included in the calculations described herein). “Adjusted Borrowing Base”: On any date of determination, the sum of (i) the Adjusted Aggregate Outstanding Asset Balance and (ii) (a) the Outstanding Asset Balances of all Additional Assets that are Eligible Assets to be included as part of the Collateral on such date minus (b) the amount (calculated without duplication) by which such Eligible Assets exceed any applicable Pool Concentration Criteria. “Adjusted Commitments”: With respect to each Purchaser, (a) prior to the Termination Date, such Purchaser’s Commitment minus an amount equal to such Purchaser’s Pro Rata Share of the outstanding principal amount of the Tandem Advance as of the applicable date of determination subject in all cases, to a maximum of $600,000,000 and (b) on or after the Termination Date, such Purchaser’s Pro Rata Share of the Adjusted Advances Outstanding. “Adjusted Eurodollar Rate”: For any Accrual Period, an interest rate per annum equal to a fraction, expressed as a percentage and rounded upwards (if necessary) to the nearest 1/100 of 3 --------------------------------------------------------------------------------   1%, (i) the numerator of which is equal to the offered quotation to first-class banks in the New York interbank Eurodollar market by the Administrative Agent for Dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Advance for which an interest rate is then being determined with maturities comparable to the Accrual Period to be applicable to such Advance, determined as of 10:00 a.m. (New York City, New York time) on the date which is two Business Days prior to the commencement of such Accrual Period (and rounded upward to the next whole multiple of 1/16 of 1%) to a fraction, expressed as a percentage and rounded upwards (if necessary) to the nearest 1/100 of 1%, and (ii) the denominator of which is equal to 100% minus the Eurodollar Reserve Percentage for such Accrual Period. “Adjusted Facility Amount”: On any date of determination, the aggregate Adjusted Commitments then in effect; provided that such amount may not at any time exceed $600,000,000 without the written agreement of the parties hereto; provided further that, on or after the Termination Date, the Adjusted Facility Amount shall mean the Adjusted Advances Outstanding. “Adjusted Maximum Availability”: On any date of determination an amount equal to the least of:      (a) the Adjusted Facility Amount;      (b) the sum of (i) the product of the Adjusted Borrowing Base and the Adjusted Weighted Average Advance Rate on such date plus (ii) the amount on deposit in the Principal Collections Account received in reduction of the Outstanding Asset Balance of any Asset that is an Eligible Asset other than the Tandem Asset; and      (c) an amount equal to (i) the Adjusted Borrowing Base minus (ii) the Adjusted Minimum Overcollateralization Amount plus (iii) the amount on deposit in the Principal Collections Account received in reduction of the Outstanding Asset Balance of any Asset that is an Eligible Asset other than the Tandem Asset; provided that in case of each of the foregoing clauses (a)-(c), during the Amortization Period, the Adjusted Maximum Availability shall be equal to the Adjusted Advances Outstanding. “Adjusted Minimum Overcollateralization Amount”: As of any date of determination, an amount equal to the product of 1.5 and the sum of the Outstanding Asset Balances of all Eligible Assets (excluding the Tandem Asset) attributable to the Obligor having the largest aggregate Outstanding Asset Balance of Eligible Assets included as part of the Collateral (excluding the Tandem Asset) (excluding the amount, calculated without duplication, by which such Eligible Assets exceed any applicable Pool Concentration Criteria). “Adjusted Minimum Pool Yield”: An Adjusted Pool Yield equal to 2.75%. “Adjusted Overcollateralization Amount”: As of any date of determination, an amount equal to the product of (i) the Adjusted Overcollateralization Percentage on such date and (ii) the Adjusted Borrowing Base on such date. 4 --------------------------------------------------------------------------------   “Adjusted Overcollateralization Percentage”: As of any date of determination, the percentage equivalent of (a) one minus (b) a fraction (i) the numerator of which is equal to the Adjusted Advances Outstanding on such date and (ii) the denominator of which is equal to the Adjusted Aggregate Outstanding Asset Balance as of such date. “Adjusted Overcollateralization Shortfall”: As of any date of determination, the positive difference, if any, of (a) the Adjusted Minimum Overcollateralization Amount on such date minus (b) the Adjusted Overcollateralization Amount on such date. “Adjusted Pool Charged-Off Ratio”: As of any Determination Date, the product of (i) 12 and (ii) the percentage equivalent of a fraction, (a) the numerator of which is equal to the sum of the Outstanding Asset Balances of all Eligible Assets (excluding the Tandem Asset) that became Charged-Off Assets (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date, and (b) the denominator of which is equal to the Adjusted Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date. “Adjusted Pool Rate”: As of any Determination Date, the annualized percentage equivalent of a fraction, (a) the numerator of which is equal to all Interest Collections on Assets included in the Adjusted Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date that are deposited into the Collection Account during such Collection Period, and (b) the denominator of which is equal to the Adjusted Aggregate Outstanding Asset Balance as of the first day of such Collection Period. “Adjusted Pool Yield”: On any day, the excess, if any, of (a) the Adjusted Pool Rate on such day over (b) the sum of (i) the Interest Rate, (ii) the Program Fee Rate and (iii) the Servicing Fee Rate, in each case as of such day. “Adjusted Required Advance Reduction Amount”: On any day, an amount equal to the excess, if any, of (a) Adjusted Advances Outstanding on such day minus (b) the Adjusted Maximum Availability on such day. “Adjusted Weighted Average Advance Rate”: For any Adjusted Advances Outstanding on any day, the weighted average of the Advance Rates applicable to the Eligible Assets (excluding the Tandem Asset) backing such Advances on such day, weighted according to the proportion of the Adjusted Aggregate Outstanding Asset Balance each type of such Eligible Asset represents. “Administrative Agent”: Defined in the Preamble of this Agreement. “Advance”: Defined in Section 2.1(b). “Advance Rate”: 85% with respect to any Senior Secured ABLs and 80% with respect to the Tandem Asset on any date of determination, and for all other Eligible Assets the corresponding percentage set forth below: Senior Secured Loan and Sale/Leaseback Loan 5 --------------------------------------------------------------------------------                                                     Classification   LTV <=65%   LTV <=70%   LTV<=75%   LTV <=80%   LTV <=85%   LTV <=90% Multifamily     —       —       80 %     75 %     70 %     65 % Retail, Office, Industrial, Healthcare, Land Development and other     —       —       80 %     75 %     65 %     60 % Hotel     80 %     75 %     70 %     65 %     N/A       N/A   B-Note Loans                                   Classification   LTV<=75%   LTV <=80%   LTV <=85%   LTV <=90% Multifamily     —       —       65 %     55 % Retail, Office, Industrial, Healthcare, Land Development and other     —       —       60 %     55 % Hotel     60 %     55 %     N/A       N/A   CMBS Securities           Moody’s/S&P Rating   Advance Rate Aaa/AAA/AAA     97 % Aa1/AA+/AA+     95 % Aa2/AA/AA     95 % Aa3/AA-/AA-     90 % A1/A+/A+     85 % A2/A/A     85 % A3/A-/A-     80 % Baa1/BBB+/BBB+     75 % Baa2/BBB/BBB     75 % Baa3/BBB-/BBB-     65 % Ba1/BB+/BB+     50 % Ba2/BB/BB     50 % Ba3/BB-/BB-     40 % B1/B+/B+     25 % B2/B/B     25 % B3/B-/B-     25 % Below B3/B-/B-     0 % 6 --------------------------------------------------------------------------------   Mezzanine Loan                       Classification   LTV <=80%   LTV <=85%   LTV <=90% Multifamily     —     —     50 % Retail, Office, Industrial, Healthcare and other     —     —     50 % Hotel     50 %   N/A     N/A   For purposes of calculating the Advance Rate with respect to any Acquired Loans, Assigned Loans, Agented Loans and Participation Loans, the applicable Advance Rate will be determined by reference to the type of underlying Loan being acquired, assigned, agented or participated in, as the case may be. “Advances Outstanding”: On any day, the aggregate principal amount of all Advances outstanding on such day, after giving effect to all repayments of Advances and the making of new Advances on such day. “Affected Party”: The Administrative Agent, the Purchaser Agents, the Purchasers, each Liquidity Bank, all assignees and participants of the Purchasers and each Liquidity Bank, any successor to Citigroup Global Markets as Administrative Agent and any sub-agent of the Administrative Agent and any successor to a Purchaser Agent. “Affiliate”: With respect to a Person, means any other Person that, directly or indirectly, controls, is controlled by or under common control with such Person, or is a director or officer of such Person. For purposes of this definition, “control” (including the terms “controlling,” “controlled by” and “under common control with”) when used with respect to any specified Person means the possession, direct or indirect, of the power to vote 20% or more of the voting securities of such Person or to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. “Agent’s Account”: With respect to (a) Citigroup, the Citigroup Agent’s Account or (b) any Additional Agent, any Additional Agent’s Account, in each case as applicable. “Agented Loans”: With respect to any Loan, one or more loans by an Eligible Obligor wherein (a) the loan(s) are originated by the Originator in accordance with the Credit and Collection Policy as a part of a syndicated loan transaction that has been fully consummated between the Originator and the related Obligor (without regard to any subsequent syndication of such Loan) prior to such Agented Loans becoming part of the Collateral hereunder, (b) upon an assignment of the note under the Sale Agreement to the Seller, any original note related thereto will be endorsed to the Administrative Agent and held by the Collateral Custodian, on behalf of the Secured Parties, (c) the Seller, as assignee of the loan, will have all of the rights but none of the obligations of the Originator with respect to such loan and the Originator’s right, title and interest in and to the Related Property including the right to receive and collect payments directly in its own name and to enforce its rights directly against the Obligor thereof, (d) the loan, if secured, is secured by an undivided interest in the Related Property that also secures and is shared by, on a pro rata basis, all other holders of such Obligor’s loan of equal priority and (e) CapitalSource 7 --------------------------------------------------------------------------------   Finance LLC or the Originator (or a wholly owned subsidiary of the Originator) is the collateral agent and payment agent for loans to such Obligor. “Aggregate Outstanding Asset Balance”: On any date of determination, the sum of the Outstanding Asset Balances of all Eligible Assets included as part of the Collateral on such date, minus the Outstanding Asset Balances of any Delinquent Assets. Notwithstanding anything to the contrary contained herein, for purposes of determining the Aggregate Outstanding Asset Balance, if any portion of an Asset is deemed to be “charged-off” in accordance with the provisions of the definition of Charged-Off Asset, then the entire Asset shall be deemed to have a zero Outstanding Asset Balance, except for purposes of calculating the Average Pool Charged-Off Ratio and the Adjusted Average Pool Charged-Off Ratio. “Aggregate Unpaids”: At any time, an amount equal to the sum of all unpaid Advances Outstanding, Interest, Breakage Costs, Hedge Breakage Costs and all other amounts owed by the Seller to the Purchasers, the Purchaser Agents, the Administrative Agent, the Backup Servicer, each Hedge Counterparty and the Collateral Custodian hereunder (including, without limitation, all Indemnified Amounts, other amounts payable under Article XI and amounts required under Section 2.9, Section 2.10, Section 2.14, Section 2.15 and Section 2.16 to the Affected Parties or Indemnified Parties) or under any Hedging Agreement (including, without limitation, payments in respect of the termination of any such Hedging Agreement) or by the Seller or any other Person under any fee letter (including, without limitation, the Purchaser Fee Letter, any Additional Agent Fee Letter, the Backup Servicer Fee Letter and the Collateral Custodian Fee Letter) delivered in connection with the transactions contemplated by this Agreement (whether due or accrued). “Allocation Adjustment Event”: With respect to each Loan included in the Collateral subject to the Retained Interest provisions of this Agreement, the occurrence of any one or more of the following under and as defined in any Permitted Securitization Transaction rated by the Rating Agencies, as applicable: (i) a “Servicer Default”, (ii) an “Event of Default” or (iii) an “Accelerated Amortization Event”. “Alternative Currency”: At any time, any of Canadian Dollars, British Pounds Sterling or Euros. “Alternative Rate”: An interest rate per annum equal to the Adjusted Eurodollar Rate calculated on a daily basis; provided that the Alternative Rate shall be the Base Rate if a Eurodollar Disruption Event occurs. “Amortization Period”: The period beginning on the Termination Date and ending on the Collection Date. “Applicable Law”: For any Person or property of such Person, all existing and future applicable laws, rules, regulations (including proposed, temporary and final income tax regulations), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by any Governmental Authority (including, without limitation, usury laws, the Federal Truth in Lending Act, and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System), and applicable judgments, decrees, injunctions, writs, awards or 8 --------------------------------------------------------------------------------   orders of any court, arbitrator or other administrative, judicial, or quasi-judicial tribunal or agency of competent jurisdiction. “Appraisal”: With respect to any Mortgaged Property as to which an appraisal is required or permitted to be performed pursuant to the terms of this Agreement, an appraisal performed in conformance with the guidelines of the Appraisal Institute. “Appraisal Institute”: The international membership association of professional real estate appraisers. “Asset Checklist”: The list of loan documents attached as Schedule 5 to the Sale Agreement or an electronic list delivered by or on behalf of the Seller to the Collateral Custodian that identifies each of the items contained in the related Asset File, as amended from time to time. “Asset Files”: With respect to any Asset, as applicable, and Related Security, copies of each of the Required Asset Documents and duly executed originals (to the extent required by the Credit and Collection Policy) and copies of any other Records relating to such Asset and Related Security. “Asset List”: The Asset List provided by or on behalf of the Seller to the Administrative Agent and the Collateral Custodian, in the form of Schedule IV hereto, as such list may be amended, supplemented or modified from time to time in accordance with this Agreement. “Assets”: Loans, CMBS Securities and the Tandem Asset, individually or collectively, as the context requires. “Assigned Loan”: A Loan originated by a Person other than the Originator in which a constant percentage interest has been assigned to the Originator by such Person in accordance with the Credit and Collection Policy and (i) the transaction has been fully consummated prior to such Loan becoming part of the Collateral hereunder, (ii) the Originator is a party to a credit agreement and/or an assignment agreement with the Obligor with respect to such Loan, and (iii) the agent bank receives payment directly from the Obligor thereof on behalf of each lender that has been assigned a percentage interest in such Loan; provided that any such Loan shall exclude any Retained Interest. “Assignment of Leases and Rents”: With respect to any Mortgaged Property, any assignment of leases, rents and profits or similar instrument executed by the Obligor, assigning to the mortgagee all of the income, rents and profits derived from the ownership, operation, leasing or disposition of all or a portion of such Mortgaged Property, whether contained in the Mortgage or in a document separate from the Mortgage, in the form that was duly executed, acknowledged and delivered, as amended, modified, renewed or extended through the date hereof and from time to time hereafter in accordance with the Credit and Collection Policy. “Assignment of Mortgage”: As to each Loan secured by an Interest in Real Property, one or more assignments, notices of transfer or equivalent instruments, each in recordable form and sufficient under the laws of the relevant jurisdiction to reflect the transfer of the related Mortgage or similar security instrument and all other documents related to such Loan and to the Seller and to grant a perfected lien thereon by the Seller in favor of the Administrative Agent, on behalf of 9 --------------------------------------------------------------------------------   the Secured Parties, each such Assignment of Mortgage to be substantially in the form of Exhibit I hereto. “Assumption Agreement”: Defined in Section 13.16(b). “Availability”: At any time, an amount equal to the excess, if any, of (i) the lesser of (a) the Facility Amount and (b) the Maximum Availability over (ii) the Advances Outstanding on such day; provided that during the Amortization Period, the Availability shall be zero. “Available Funds”: With respect to any Payment Date, all amounts received in the Collection Account (including, without limitation, any Collections on the Assets included in the Collateral and earnings from Permitted Investments in the Collection Account) during the Collection Period that ended on the last day of the calendar month immediately preceding the calendar month in which such Payment Date occurs. “Average Pool Charged-Off Ratio”: As of any Determination Date, the percentage equivalent of a fraction (i) the numerator of which is equal to the sum of the Outstanding Asset Balance of all Assets that became Charged-Off Assets (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date), and (ii) the denominator of which is equal to a fraction the numerator of which is the sum of the Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date) and the denominator of which is 12 (or the corresponding lesser number of Determination Dates included in the calculations described herein). “Average Portfolio Charged-Off Ratio”: As of any Determination Date, the percentage equivalent of a fraction (i) the numerator of which is equal to the sum of the Portfolio Outstanding Asset Balance of all Portfolio Assets (excluding equity investments) that became Charged-Off Portfolio Assets (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date), and (ii) the denominator of which is equal to a fraction the numerator of which is the sum of the Portfolio Outstanding Asset Balance (excluding equity investments) as of the first day of the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date) and the denominator of which is 12 (or the corresponding lesser number of Determination Dates included in the calculations described herein); provided that such calculation shall exclude the effects of any Liquid Real Estate Assets that are acquired and levered by the Originator solely to satisfy REIT asset and income tests. “Average Portfolio Delinquency Ratio”: As of any Determination Date, the percentage equivalent of a fraction the numerator of which is equal to the sum of the Portfolio Delinquency Ratio on such Determination Date and each of the two preceding Determination Dates (or such lesser number as shall have elapsed as of such Determination Date) and the denominator of which is equal to three (or the corresponding lesser number of Determination Dates included in 10 --------------------------------------------------------------------------------   the calculations described herein); provided that such calculation shall exclude the effects of any Liquid Real Estate Assets that are acquired and levered by the Originator solely to satisfy REIT asset and income tests. “Backup Servicer”: Wells Fargo Bank, National Association, not in its individual capacity, but solely as Backup Servicer, its successor in interest pursuant to Section 7.3 or such Person as shall have been appointed as Backup Servicer pursuant to Section 7.5. “Backup Servicer Fee Letter”: The Backup Servicer Fee Letter, dated as of the date hereof, by and among the Servicer, the Administrative Agent, and the Backup Servicer, as such letter may be amended, modified, supplemented, restated or replaced from time to time. “Backup Servicer Fee Rate”: The rate per annum set forth in the Backup Servicer Fee Letter as the “Backup Servicer Fee Rate.” “Backup Servicer Termination Notice”: Defined in Section 7.5. “Backup Servicing Fee”: Defined in the Backup Servicer Fee Letter. “Banded Floating Rate Loan”: A Loan where the interest rate payable by the Obligor thereof fluctuates between a minimum interest rate and a maximum interest rate allowable under its Underlying Instruments. “Bankruptcy Code”: The United States Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.), as amended from time to time. “Base Rate”: On any date, a fluctuating interest rate per annum equal to the higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1.5%. “Benefit Plan”: Any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Seller or any ERISA Affiliate of the Seller is, or at any time during the immediately preceding six years was, an “employer” as defined in Section 3(5) of ERISA. “B-Note Loan”: Any Term Loan that (i) is a multilender loan, (ii) is secured by a first or second priority Lien on all of the Obligor’s assets constituting Related Property for the Loan, (iii) has a “first dollar” at risk not to exceed 65% of the Loan to Value Ratio and a “last dollar” at risk not to exceed 90% of the Loan to Value Ratio, and (iv) contains terms which, upon the occurrence of an event of default under the Underlying Instruments or in the case of any liquidation or foreclosure on the Related Property, provide that the principal of the Seller’s portion of such Loan would be paid only after the other lenders parties on the senior tranche related to such Loan are paid in full. “Borrowing Base”: On any date of determination, the sum of (i) the Aggregate Outstanding Asset Balance and (ii) (a) the Outstanding Asset Balances of all Additional Assets that are Eligible Assets to be included as part of the Collateral on such date minus (b) the amount (calculated without duplication) by which such Eligible Assets exceed any applicable Pool Concentration Criteria. 11 --------------------------------------------------------------------------------   “Borrowing Base Certificate”: Each certificate, in the form of Exhibit A-3, required to be delivered by the Seller along with each Borrowing Notice. “Borrowing Notice”: Each notice, in the form of Exhibit A-1 or A-2 (as applicable), required to be delivered by the Seller (i) in respect of (a) the Initial Advance and each incremental Advance (as applicable), (b) any reduction of the Facility Amount or repayment of the Advances Outstanding, or (c) any reinvestment of Principal Collections under Section 2.9(b); and (ii) on each Determination Date. “Breakage Costs”: Any amount or amounts as shall compensate a Purchaser for any loss, cost or expense incurred by such Purchaser (as determined by such Purchaser’s Purchaser Agent in such Purchaser Agent’s sole discretion) as a result of (i) a prepayment by the Seller of Advances Outstanding or Interest or (ii) any difference between the CP Rate and the Adjusted Eurodollar Rate. All Breakage Costs shall be due and payable hereunder upon demand. “British Pound Sterling”: The lawful currency of the United Kingdom. “Business Day”: Any day other than a Saturday or a Sunday on which (a) banks are not required or authorized to be closed in Minneapolis, Minnesota or New York City, New York, and (b) if the term “Business Day” is used in connection with the determination of the LIBOR Rate, dealings in United States dollar deposits are carried on in the London interbank market. “Canadian Dollars”: The lawful currency of Canada. “Capital Stock”: Any capital stock or membership interests (in the case of a limited liability company) or equivalent equity interests of CapitalSource Inc. or any Consolidated Subsidiary (to the extent issued to a Person other than CapitalSource Inc.), whether common or preferred. “Change-in-Control”: Any of the following:      (a) any Person or two or more Persons acting in concert shall have acquired “beneficial ownership,” directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, or control over, Voting Stock of any Credit Party (or other securities convertible into such Voting Stock) representing 33-1/3% or more of the combined voting power of all Voting Stock of such Credit Party;      (b) the replacement of greater than 50% of the board of directors of any Credit Party over a two year period from the directors who constituted the board of directors at the beginning of such period, and such replacements shall not have been approved or nominated by a vote of at least a majority of the board of directors of such Credit Party then still in office who were either members of such board of directors at the beginning of such period or whose election as a member of such board of directors was previously so approved;      (c) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of any Credit Party and its Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act); 12 --------------------------------------------------------------------------------        (d) the failure of CapitalSource Inc. to own (directly or through wholly owned subsidiaries), free and clear of all Liens, 99.9% of the outstanding Voting Stock of the Originator;      (e) the creation or imposition of any Lien on any limited liability company membership interests in the Seller;      (f) the failure by the Originator to own all of the limited liability company membership interests in the Seller;      (g) the CSE Management Agreement shall fail to be in full force and effect; or      (h) CapitalSource Finance LLC shall fail to be the sub-servicer. Notwithstanding the foregoing, solely for the purpose of determining whether there has been a Change-in-Control pursuant to clause (a) above, any purchase by one or more Excluded Persons which increases any of such Excluded Persons’ direct or indirect ownership interest (whether individually or in the aggregate) in the Voting Stock of any Credit Party shall not constitute a Change-in-Control even if the amount of Voting Stock acquired or controlled by such Excluded Person(s) exceeds (whether individually or in the aggregate) 33-1/3% of the combined voting power of all Voting Stock of the Originator or CapitalSource Inc., as applicable; provided that for so long as any of such Excluded Persons’ direct or indirect ownership interest in the Voting Stock of the Originator or CapitalSource Inc. exceeds (individually or in the aggregate) 33-1/3% of the combined voting power of all Voting Stock of the Originator or CapitalSource Inc, as applicable, the initiation by the Originator or CapitalSource Inc. of any action intended to terminate or having the effect of terminating the registration of its securities under Section 12(g) of the Exchange Act or intended to suspend or having the effect of suspending its obligation to file reports with the U.S. Securities and Exchange Commission under Sections 13 and 15(d) of the Exchange Act, shall constitute a Change-in-Control. “Excluded Person” shall mean each of John Delaney, Jason Fish, Farallon Capital Management, LLC, Madison Dearborn Partners, LLC and each of their Affiliates. As used herein, “beneficial ownership” shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act. “Charged-Off Asset”: An Asset the Servicer has deemed to be “charged-off” pursuant to the criteria set forth in the Credit and Collection Policy, excluding the balance of any Asset for which a loss was specifically provided as of June 30, 2006. “Charged-Off Portfolio Asset”: A Portfolio Asset the Servicer has deemed to be “charged-off” pursuant to the criteria set forth in the Credit and Collection Policy, excluding the balance of any Portfolio Asset for which a loss was specifically provided as of June 30, 2006. “Citigroup”: Citigroup Global Markets Realty Corp., in its capacity as a Purchaser. “Citigroup Agent”: Defined in the Preamble of this Agreement. “Citigroup Agent’s Account”: A special account (account number 066-612187) in the name of the Citigroup Agent maintained at Citibank, N.A. 13 --------------------------------------------------------------------------------   “Clearing Agency”: An organization registered as a “clearing agency” pursuant to Section 17A of the Exchange Act. “CMBS Securities”: Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the securities) on the cash flow from a pool of commercial mortgage loans made to finance the acquisition, construction and improvement of properties. They generally have the following characteristics: (i) the commercial mortgage loans have varying contractual maturities; (ii) the commercial mortgage loans are secured by Interests in Real Property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (iii) the commercial mortgage loans are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; (iv) repayment thereof can vary substantially from the contractual payment schedule (if any), with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium; and (v) the valuation of individual properties securing the commercial mortgage loans is the primary factor in any decision to invest in these securities. “Closing Date”: June 30, 2006. “Code”: The Internal Revenue Code of 1986, as amended from time to time. “Collateral”: All right, title, and interest (whether now owned or hereafter acquired or arising, and wherever located) of the Seller in all accounts, cash and currency, chattel paper, tangible chattel paper, electronic chattel paper, copyrights, copyright licenses, equipment, fixtures, general intangibles, instruments, commercial tort claims, deposit accounts, securities accounts, inventory, investment property, letter-of-credit rights, software, supporting obligations, accessions, and other property consisting of, arising out of, or related to any of the following (in each case excluding the Retained Interest and the Excluded Amounts): (i) the Existing Assets and the Additional Assets, and all monies due or to become due in payment under such Existing Assets and the Additional Assets on and after the related Cut-Off Date, including but not limited to all Collections, but excluding any Excluded Amounts; and (ii) all Related Security with respect to the Existing Assets and the Additional Assets, and (iii) all income and Proceeds of the foregoing. “Collateral Custodian”: Wells Fargo Bank, National Association, not in its individual capacity, but solely as Collateral Custodian, its successor in interest pursuant to Section 8.3 or such Person as shall have been appointed Collateral Custodian pursuant to Section 8.5. “Collateral Custodian Fee”: Defined in the Collateral Custodian Fee Letter. “Collateral Custodian Fee Letter”: The Collateral Custodian Fee Letter, dated as of the date hereof, by and among the Originator, the Administrative Agent and the Collateral Custodian, as such letter may be amended, modified, supplemented, restated or replaced from time to time. “Collateral Custodian Termination Notice”: Defined in Section 8.5. 14 --------------------------------------------------------------------------------   “Collection Account”: Defined in Section 6.4(f). “Collection Date”: The date following the Termination Date on which the Aggregate Unpaids have been reduced to zero and indefeasibly paid in full. “Collection Period”: Each calendar month. “Collections”: (a) All cash collections and other cash proceeds of any Asset, including, without limitation, Scheduled Payments, Finance Charges, Prepayments, Insurance Proceeds, all Recoveries or other amounts received in respect thereof but excluding any Excluded Amounts, (b) any cash proceeds or other funds received by the Seller or the Servicer with respect to any Related Security, (c) all payments received pursuant to any Hedging Agreement or Hedge Transaction and (d) all Deemed Collections. “Commercial Paper Notes”: On any day, any short-term promissory notes of any Purchaser issued by such Purchaser in the commercial paper market. “Commitment”: With respect to each Purchaser the commitment of such Purchaser to make Advances in accordance herewith in an amount not to exceed (i)(a) prior to the Termination Date, the dollar amount set forth opposite such Purchaser’s signature on the signature pages hereto or the signature pages of the Additional Purchaser Agreement relating to such Purchaser, as applicable, under the heading “Commitment” and (b) on or after the Termination Date, such Purchaser’s Pro Rata Share of the aggregate Advances Outstanding or (ii) as to Purchasers only, with respect to each Advance, the Pro Rata Share. “Commitment Fee”: (a) With respect to any Purchaser, as defined in such Purchaser’s Purchaser Fee Letter and (b) with respect to any Additional Purchaser, as defined in such Additional Purchaser’s Additional Purchaser Fee Letter. “Concentrations Effective Date”: The earlier of:      (i) the date that is three months following the closing of a Permitted Securitization Transaction after the Closing Date; or      (ii) the date on which the Adjusted Aggregate Outstanding Asset Balance first equals or exceeds $100,000,000 following the more recent of (a) the Closing Date and (b) the closing of a Permitted Securitization Transaction after the Closing Date. “Consolidated Funded Indebtedness”: As of any date of determination, all outstanding Indebtedness of the Originator and its Subsidiaries determined on a consolidated basis in accordance with GAAP. “Consolidated Subsidiary”: At any date any Subsidiary the accounts of which, in accordance with GAAP, would be consolidated with those of CapitalSource Inc. in its consolidated and consolidating financial statements as of such date. 15 --------------------------------------------------------------------------------   “Consolidated Tangible Net Worth”: As of any date of determination, the assets less the liabilities of any Person and its Subsidiaries on a consolidated basis, less intangible assets (including goodwill), all determined in accordance with GAAP. “Contractual Obligation”: With respect to any Person, any provision of any securities issued by such Person or any indenture, mortgage, deed of trust, contract, undertaking, agreement, instrument or other document to which such Person is a party or by which it or any of its property is bound or is subject. “Corporate Trust Office”: With respect to Wells Fargo, the office at which any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Agreement is located at the address set forth under the signature of Wells Fargo on the applicable signature page hereto. “CP Rate”: For any day during any Accrual Period, the per annum rate equivalent to the weighted average of the per annum rates paid or payable by a Purchaser from time to time as interest on or otherwise (by means of interest rate hedges or otherwise taking into consideration any incremental carrying costs associated with short-term promissory notes issued by such Purchaser maturing on dates other than those certain dates on which such Purchaser is to receive funds) in respect of the promissory notes issued by such Purchaser that are allocated, in whole or in part, by such Purchaser’s Purchaser Agent (on its behalf) to fund or maintain the Advances Outstanding funded by such Purchaser during such period, as determined by such Purchaser’s Purchaser Agent (on its behalf) and reported to the Seller and the Servicer, which rates shall reflect and give effect to (i) the commissions of placement agents and dealers in respect of such promissory notes, to the extent such commissions are allocated, in whole or in part, to such promissory notes by such Purchaser’s Purchaser Agent (on its behalf) and (ii) other borrowings by such Purchaser, including, without limitation, borrowings to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market; provided that if any component of such rate is a discount rate, in calculating the CP Rate, such Purchaser’s Purchaser Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. “Credit and Collection Policy”: The written credit policies and procedures manual of the Originator and the Servicer (which policies shall include without limitation policies on a risk rating system, due diligence format, underwriting parameters and credit approval procedures) in the form provided to the Administrative Agent prior to the Closing Date, as it may be as amended or supplemented from time to time in accordance with Section 5.1(h) and Section 5.4(f). “Credit Party”: Any of CapitalSource Inc., CapitalSource TRS Inc., the Originator and any other Subsidiary of CapitalSource Inc. that becomes a party to that certain Credit Agreement, dated as of March 14, 2006, among CapitalSource Inc., as borrower, the guarantors named therein, the lender parties thereto, Wachovia Bank, National Association, as administrative agent for the lenders, as swingline lender, and issuing lender, and Bank of America, N.A., as issuing lender, as such agreement is amended, modified, waived, supplemented or restated from time to time; and “Credit Parties” shall mean the foregoing collectively.. 16 --------------------------------------------------------------------------------   “CSE Management Agreement”: The management agreement, dated as of January 1, 2006, by and among CapitalSource Inc., CSE Mortgage and CapitalSource Finance LLC, as the same may be amended, restated, modified or supplemented from time to time. “CSE Prime Rate”: The rate designated by CSE Mortgage (or the originator of an Assigned Loan) from time to time and/or pursuant to the related Underlying Instruments as its prime rate in the United States, such rate to change as and when the designated rate changes; provided that the CSE Prime Rate is not intended to be the lowest rate of interest charged by CSE Mortgage (or such originator) in connection with extensions of credit to debtors. “CSE LIBOR Rate”: The posted rate for 30, 60 or 90 day, as applicable, deposits in Dollars appearing on Telerate Page 3750, as and when determined in accordance with the applicable Required Asset Documents. “Cut-Off Date”: With respect to each Asset and Additional Asset, the related Funding Date therefor. “Currency”: Dollars or any Alternative Currency. “Deemed Collection”: Defined in Section 2.4(c). “Delayed-Draw Term Loan”: A Loan that is fully committed on the closing date thereof and is required by its terms to be fully funded in one or more installments on draw dates to occur within three years after the closing date thereof but which, once fully funded, has the characteristics of a Term Loan. “Delinquent Asset”: An Asset (that is not a Charged-Off Asset) as to which either of the following first occurs: (a) all or any portion of one or more principal or interest payments (other than in respect of default rate interest) remain unpaid for at least 60 days from the original due date for such payment (without giving effect to any Servicer Advance thereon) or (b) consistent with the Credit and Collection Policy such Asset would be classified as delinquent by the Servicer. “Delinquent Portfolio Asset”: A Portfolio Asset (that is not a Charged-Off Portfolio Asset) (excluding equity investments) as to which either of the following first occurs: (a) all or any portion of one or more principal or interest payments (other than in respect of default rate interest) remain unpaid for at least 60 days from the original due date for such payment (without giving effect to any Servicer Advance thereon) or (b) consistent with the Credit and Collection Policy (or such similar policies and procedures utilized by the Servicer in servicing such Portfolio Asset) such Portfolio Asset would be classified as delinquent by the Servicer. “Derivatives”: Any exchange-traded or over-the-counter (i) forward, future, option, swap, cap, collar, floor or foreign exchange contract or any combination thereof, whether for physical delivery or cash settlement, relating to any interest rate, interest rate index, currency, currency exchange rate, currency exchange rate index, debt instrument, debt price, debt index, depository instrument, depository price, depository index, equity instrument, equity price, equity index, commodity, commodity price or commodity index, (ii) any similar transaction, contract, 17 --------------------------------------------------------------------------------   instrument, undertaking or security, or (iii) any transaction, contract, instrument, undertaking or security containing any of the foregoing. “Determination Date”: The last day of each Collection Period. “Development Properties”: An existing property that is undergoing renovation or redevelopment that either (i) disrupts at least 30% of the occupancy of the property, or (ii) temporarily reduces the NOI of the property by more than 30%; provided that a property will not be considered a Development Property after it has an occupancy rate of at least 80%. “DIP Loan”: A loan to an Obligor that is a “debtor-in-possession” as defined under the Bankruptcy Code. “Discretionary Sale”: Defined in Section 2.20. “Discretionary Sale Date”: The Business Day identified by the Seller to the Administrative Agent in a Discretionary Sale Notice as the proposed date of a Discretionary Sale. “Discretionary Sale Notice”: Defined in Section 2.20(a). “Dollar Equivalent”: On any day, with respect to the amount of any Alternative Currency, the amount of Dollars that would be required to purchase such amount of Alternative Currency on such day, based on the spot selling rate from the prior Business Day as determined by the Servicer reported on Wall Street Journal to sell such Alternative Currency for Dollars in the London foreign exchange market. “Dollars”: Means, and the conventional “$” signifies, the lawful currency of the United States. “Eligible Asset”: On any date of determination, each Asset (A) for which the Administrative Agent, Collateral Custodian and Backup Servicer have received the following no later than 2:00 p.m. (New York City, New York time) on the day prior to the related Funding Date: (1) a faxed copy of the duly executed original promissory note, master purchase agreement and purchase statements, Loan Register and Asset Checklist, as applicable, in a form and substance satisfactory to the Administrative Agent and, with respect to any Loans closed in escrow, a certificate (in the form of Exhibit L) from the counsel to the Originator or the Obligor of such Loans certifying the possession of the Required Asset Documents; provided that notwithstanding the foregoing, the Required Asset Documents (including any UCCs included in the Required Asset Documents) shall be in the possession of the Collateral Custodian within two Business Days of any related Funding Date as to any Additional Assets; (2) a Borrowing Notice delivered by the Seller to the Collateral Custodian and the Administrative Agent as part of the Borrowing Notice or Monthly Report delivered by the Servicer, (3) a Borrowing Base Certificate, and (4) a Certificate of Assignment (Exhibit A to the Sale Agreement, including Schedule I thereto); provided that if such Asset is part of a capital contribution to the Seller the Collateral Custodian shall have received the Required Asset Documents within three Business Days of receipt of the Certificate of Assignment and (B) that satisfies each of the following eligibility requirements, as applicable: (1) With respect to any Asset: 18 --------------------------------------------------------------------------------        (a) the Asset, together with the Related Security, has been originated or acquired by the Originator, sold to the Seller pursuant to (and in accordance with) the Sale Agreement and the Seller has good title, free and clear of all Liens (other than Permitted Liens), on such Asset and Related Security;      (b) the Asset, (i) (together with the Collections and Related Security related thereto) has been the subject of a grant by the Seller in favor of the Administrative Agent on behalf of the Secured Parties, of a first priority perfected security interest, and (ii) with respect to which, at the time of the sale of such Asset to the Seller, the Originator had a first priority (other than in the case of B-Note Loans or Mezzanine Loans) perfected security interest in the Related Property (other than additional or “boot” collateral) relating to such Loan;      (c) at the time such Asset is included in the Collateral, the Asset (i) is not (and since its origination by the Originator or, in the case of Acquired Loans, acquisition by the Originator has never been) a Charged-Off Asset (either in whole or in part), (ii) is not past due in the case of a Loan or the Tandem Asset, with respect to payments of principal or interest (provided that if such Asset is past due at the time it is included in the Collateral but not more than ten days past due, the Originator and the Servicer must reasonably believe that such Asset will promptly and in no event later than the date of the next Scheduled Payment due on such Asset, be brought current with respect to all payments due thereunder), and (iii) has never been more than 60 days past due, with respect to payments of principal or interest, or, in the case of Acquired Loans, to the best of the Originator’s knowledge after due inquiry, has never been more than 60 days past due in the 12 months prior to acquisition;      (d) the Asset is an “eligible asset” as defined in Rule 3a-7 under the 1940 Act;      (e) the Asset is an “account”, “chattel paper”, “instrument” or a “general intangible” within the meaning of Article 9 of the UCC of all applicable jurisdictions;      (f) the Obligor with respect to such Asset is an Eligible Obligor and such Asset is payable only in Dollars and does not permit the currency in which or the country in which such Asset is payable to be changed; provided that notwithstanding the foregoing, any such Asset denominated in an Alternative Currency shall be deemed to satisfy the requirements in this clause that it be payable in Dollars if such Asset is subject to appropriate currency hedging as determined by the Administrative Agent in its sole discretion;      (g) the Asset is evidenced by a promissory note, Loan Register, security agreement, loan or note purchase agreement or other Underlying Instruments that have been duly authorized and executed, are in full force and effect and constitute the legal, valid, binding and absolute and unconditional payment obligation of the related Obligor, enforceable against such Obligor in accordance with their terms (subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and to general principles of equity, whether considered in a suit at law or in equity), and there are no conditions precedent to the enforceability or validity of the Asset that have not been satisfied or validly waived;      (h) the Asset does not contravene in any material respect any Applicable Laws (including, without limitation all applicable predatory and abusive lending laws and all laws, 19 --------------------------------------------------------------------------------   rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, licensing and privacy) and with respect to which no part thereof is in violation of any Applicable Law in any material respect;      (i) neither the assignment of the Asset under the Sale Agreement by the Originator, the sale of the Asset hereunder or the granting of a security interest hereunder by the Seller violates, conflicts with or contravenes any Applicable Laws or any contractual or other restriction, limitation or encumbrance;      (j) on or before the applicable Cut-Off Date, the Obligor of such Asset shall have been directed to make all payments to the Lock-Box or directly to the Lock-Box Account;      (k) the Asset requires the Obligor thereof to maintain reasonable and customary property damage and loss insurance with respect to the real or personal property constituting the Related Property (if any) if such Related Property is of a type customarily so insured;      (l) the Related Property (if any) (i) has not been foreclosed on or repossessed from the current Obligor by the Servicer, and (ii) has not suffered any material loss or damage that has not been repaired or restored or for which insurance proceeds are not available;      (m) the Asset provides by its terms that the Obligor’s payment obligations are absolute and unconditional without any right of rescission, setoff, counterclaim or defense for any reason against the Originator and the Asset contains a clause that has the effect of unconditionally and irrevocably obligating the Obligor to make periodic payments (including taxes) notwithstanding any damage to, defects in, or destruction of the Related Property (if any) or any other event, including obsolescence of any property or improvements;      (n) the Asset is not subject to any litigation, dispute, refund, claims of rescission, setoff, netting, counterclaim or defense whatsoever, including but not limited to, claims by or against the Obligor thereof or a payor to or account debtor of such Obligor;      (o) the Asset requires the Obligor to maintain the Related Property in good condition and to bear all the costs of operating and maintaining same, including taxes and insurance relating thereto;      (p) the Asset shall not have been originated in, nor shall it be subject to the laws of, any jurisdiction under which the sale, transfer and assignment of such Asset under the Transaction Documents would be unlawful, void or voidable;      (q) the Asset, together with the Required Asset Documents and Asset File related thereto, is assignable and does not require the consent of or notice to the Obligor to consummate the transactions contemplated by the Transaction Documents or contain any other restriction on the transfer or the assignment of the Asset for the purpose of consummating the transactions contemplated by the Transaction Documents other than a consent or waiver of such restriction that has been obtained prior to the date on which the Asset was sold to the Seller; provided that with respect to Loans which are secured by an interest in commercial real estate, the Required Asset Documents may restrict the transfer or the assignment of the related Loan so long as such Loan is freely assignable or transferable to a Qualified Transferee; 20 --------------------------------------------------------------------------------        (r) the Obligor of such Asset is legally responsible for all taxes relating to the Related Security or other security relating to such Asset, and all payments in respect of the Asset are required to be made free and clear of, and without deduction or withholding for or on account of, any taxes, unless such withholding or deduction is required by Applicable Law in which case the Obligor thereof is required to make “gross-up” payments that cover the full amount of any such withholding taxes on an after-tax basis;      (s) the Asset complies with the representations and warranties made by the Seller and Servicer hereunder and all information provided by the Seller or the Servicer with respect to the Asset is true and correct in all material respects;      (t) the Asset and the Related Security have not been sold, transferred, assigned or pledged by the Seller to any Person;      (u) no selection procedure adverse to the interests of the Administrative Agent, the Purchaser Agents or the Secured Parties was utilized by the Seller or Originator in the selection of Assets for inclusion in the Collateral; it being understood that selection procedures used by the Seller or Originator for the inclusion of Assets in one or more of its various securitizations or other financing facilities and which are solely intended to obtain the most beneficial advance rates thereunder and/or otherwise maximize the efficiency of such facilities, shall not be deemed to be adverse procedures for purposes of this paragraph;      (v) the Asset has not been compromised, adjusted, extended, satisfied, rescinded, set-off or modified by the Seller, the Originator or the Obligor with respect thereto, and no Asset is subject to compromise, adjustment, extension, satisfaction, rescission, set-off, counterclaim, defense, abatement, suspension, deferment, deductible, reduction, termination or modification, whether arising out of transactions concerning the Asset, or otherwise, by the Seller, the Originator or the Obligor with respect thereto except as otherwise permitted under Section 6.4(a) of this Agreement and in accordance with the Credit and Collection Policy;      (w) the particular Asset is not one as to which the Seller or the Servicer has knowledge which should lead it to expect such Asset will not be paid in full;      (x) the Obligor of such Asset is not the subject of an Insolvency Event or Insolvency Proceedings;      (y) the Asset is secured by a valid, perfected, first priority (other than with respect to B-Note Loans and Mezzanine Loans) security interest in all assets that constitute the collateral for the Asset (subject to Liens expressly permitted by the Underlying Instruments);      (z) all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the making or performance of the Asset have been duly obtained, effected or given and are in full force and effect;      (aa) the Asset satisfies all applicable requirements of and was originated or acquired, underwritten and closed in accordance with the Credit and Collection Policy (including without 21 --------------------------------------------------------------------------------   limitation the execution by the Obligor of all documentation required by the Credit and Collection Policy);      (bb) the Asset was originated or acquired in the ordinary course of the Originator’s business;      (cc) the Asset arises pursuant to documentation with respect to which the Originator has performed all obligations required to be performed by it thereunder;      (dd) the Asset is not Margin Stock;      (ee) the acquisition of the Asset by the Seller will not cause the Seller or the pool of Collateral to be required to be registered as an investment company under the 1940 Act;      (ff) the Asset is not subject to a guaranty by the Originator or any Affiliate thereof; and      (gg) the proceeds of the Asset will not be used to finance “ground-up” construction activities; provided that financing for purposes of Land Development shall not be considered a “ground-up” construction activity. (2) With respect to any Loan and the Tandem Asset:      (a) the Loan provides (i) for periodic payments of interest and/or principal in cash, which are due and payable on a monthly, quarterly or semi-annual basis unless otherwise consented to in writing by the Administrative Agent, and (ii) that the Servicer (or, with respect to Assigned Loans, that the agent bank or a majority of the related lenders) may accelerate all payments if the Obligor is in default under the Loan and any applicable grace period has expired (in the case of any B-Note Loan or Mezzanine Loan, subject to any applicable intercreditor or subordination agreement); provided that Sale/Leaseback Loans shall provide for payments of interest and/or principal in cash, no less frequently than on a quarterly basis;      (b) the Loan is underwritten as (i) a rediscount loan, (ii) a commercial real estate loan, or (iii) a Sale/Leaseback Loan, in each case pursuant to and in accordance with the Credit and Collection Policy;      (c) the Loan is a Sale/Leaseback Loan, Senior Secured ABL Loan, Senior Secured Loan, B-Note Loan or Mezzanine Loan;      (d) the Loan has an original term to maturity of not more than 25 years;      (e) the Loan provides for cash payments that fully amortize the Outstanding Asset Balance of such Loan on or by its maturity and does not provide for such Outstanding Asset Balance to be discounted pursuant to a prepayment in full;      (f) the Loan does not permit the Obligor to defer all or any portion of the current cash interest due thereunder; 22 --------------------------------------------------------------------------------        (g) the Loan does not permit the payment obligation of the Obligor thereunder to be converted or exchanged for equity capital of such Obligor;      (h) other than Participation Loans, Agented Loans and Assigned Loans, with respect to the Originator’s obligation to fund and the actual funding of the Loan by the Originator, the Originator has not assigned or granted participations to, in whole or in part;      (i) except with respect to B-Note Loans, Mezzanine Loans and certain Loans that, in the Originator’s reasonable judgment cannot be cross-collateralized or cross-defaulted because of REIT eligibility criteria, if the Obligor of such Loan is the Obligor of more than one Loan, all such Loans are cross-collateralized and cross-defaulted;      (j) the Loan does not represent capitalized interest or payment obligations relating to “put” rights;      (k) the Loan is not a Loan or extension of credit by the Originator to the Obligor for the purpose of making any past due principal, interest or other payments due on such Loan;      (l) the Originator (i) has completed to its satisfaction, in accordance with the Credit and Collection Policy, a due diligence audit and collateral assessment with respect to such Loan and (ii) has done nothing to impair the rights of the Administrative Agent, the Purchaser Agents or the Secured Parties with respect to the Loan, the Related Security, the Scheduled Payments or any income or Proceeds therefrom;      (m) except with respect to B-Note Loans and Mezzanine Loans and, to the extent set forth in the definition thereof, the Loan is not subordinated to any other loan or financing to the related Obligor;      (n) if the Loan is a Revolving Loan, either it provides by its terms that any future funding thereunder is in the Originator’s sole and absolute discretion or it is subject to the Retained Interest provision of this Agreement;      (o) the Face Amount of the Loan is the dollar amount thereof shown on the books and records of the Originator and Seller;      (p) with respect to B-Note Loans or Mezzanine Loans, the Originator has entered into an intercreditor agreement or subordination agreement (or such provisions are contained in the principal Underlying Instruments) with, or provisions for the benefit of, the senior lender, which agreement or provisions are assignable to and have been assigned to the Seller, and which provide that any standstill of remedies by the Originator or its assignee is limited (A) such that no standstill of remedies may be imposed unless (x) a default with respect to the senior obligation has occurred and is continuing and (y) in the case of such a default, other than a payment default, the Originator’s or assignee’s receipt from the senior lender or Obligor of a notice of default by the Obligor under the senior debt, and (B) to no longer than 180 days in duration in the aggregate in any given year;      (q) with respect to any Acquired Loan or Assigned Loan, such Loan has been re-underwritten by the Originator and satisfies all of the Originator’s underwriting criteria; 23 --------------------------------------------------------------------------------        (r) with respect to any Acquired Loan acquired from an Affiliate of the Originator, the Administrative Agent has received a satisfactory legal opinion concerning the acquisition of such Loan by the Originator in a true sale transaction;      (s) with respect to any Acquired Loan that was acquired in a pool by the Originator along with one or more other Acquired Loans, the Administrative Agent has approved in writing such Loan for inclusion in the Collateral and has completed its own due diligence with respect to such Loan;      (t) with respect to Agented Loans, the related Underlying Instruments (a) shall include a note purchase or similar agreement containing provisions relating to the appointment and duties of a payment agent and a collateral agent and intercreditor and (if applicable) subordination provisions, and (b) are duly authorized, fully and properly executed and are the valid, binding and unconditional payment obligation of the Obligor thereof;      (u) with respect to Agented Loans, CapitalSource Finance LLC or the Originator (or a wholly owned subsidiary of the Originator) has been appointed the collateral agent of the security and the payment agent for all such notes prior to such Agented Loan becoming a part of the Collateral;      (v) with respect to Agented Loans, if the entity serving as the collateral agent of the security for all syndicated notes of the Obligor has or will change from the time of the origination of the notes, all appropriate assignments of the collateral agent’s rights in and to the collateral on behalf of the noteholders have been or will be executed and filed or recorded as appropriate prior to such Agented Loan becoming a part of the Collateral;      (w) with respect to any Agented Loan, all required notifications, if any, have been given to the collateral agent, the payment agent and any other parties required by the Required Asset Documents of, and all required consents, if any, have been obtained with respect to, the Originator’s assignment of such Agented Loan and the Originator’s right, title and interest in the Related Property to the Seller and the Administrative Agent’s security interest therein on behalf of the secured parties;      (x) with respect to Agented Loans, the right to control the actions of and replace the collateral agent and/or the paying agent of the syndicated notes is to be exercised by at least a majority in interest of all holders of such Agented Loans;      (y) with respect to Agented Loans, all syndicated notes of the Obligor of the same priority are cross-defaulted, the Related Property securing such notes is held by the collateral agent for the benefit of all holders of the syndicated notes and all holders of such notes (a) have an undivided interest in the collateral securing such notes and (b) share in the proceeds of the sale or other disposition of such collateral on a pro rata basis;      (z) no portion of the proceeds used to make payments of principal or interest on such Loan have come from a new loan by the Originator;      (aa) does not contain a confidentiality provision that restricts or purports to restrict the ability of the Administrative Agent or any Secured Party to exercise their rights under this 24 --------------------------------------------------------------------------------   Agreement, including, without limitation, their rights to review the Loan, the Required Asset Documents and Asset File;      (bb) is not a consumer loan;      (cc) is not a DIP loan; and      (dd) none of the Loans secured by a Mortgage are high-cost loans as defined by applicable predatory and abusive-lending laws. (3) In addition to the criteria set forth in clauses (1) and (2) above, with respect to any Sale/Leaseback Loan, the following additional criteria:      (a) the Originator or CapitalSource Finance LLC shall be the lender of record for such Loan; provided that with respect to any Sale/Leaseback Loan for which CapitalSource Finance LLC is the lender of record prior to such Sale/Leaseback Loan becoming part of the Collateral the Seller shall deliver a true sale opinion in form and substance acceptable to the Administrative Agent;      (b) (i) the Collateral Custodian or an escrow agent (pursuant to an escrow agreement in form and substance acceptable to the Administrative Agent in its sole discretion) shall hold a Mortgage in blank for the benefit of each Purchaser with respect to all real property assets of the SPE Obligor and (ii) the Administrative Agent shall have the right to cause the Collateral Custodian (at the expense of the Originator) to file the Mortgage(s) for the benefit of the Administrative Agent and the Purchasers upon (A) the occurrence of a Termination Event or an Unmatured Termination Event or (B) a default or event of default (however defined or described) in the Underlying Instruments for such Sale/Leaseback Loan;      (c) the Originator shall provide an indemnity to the Purchasers to cover any losses suffered by the Purchasers as a result of any Lien against any of the SPE Obligor’s assets that is pari passu or takes priority over the Liens granted pursuant to the Transaction Documents;      (d) the Underlying Lessee is not an Affiliate of CapitalSource Inc. or its Subsidiaries;      (e) the SPE Obligor owns the fee simple or ground lease interest in the underlying property and shall not grant a Lien on such underlying property to any Person other than the Originator;      (f) in no event shall the payments on the Lease abate or diminish, except:      (I) upon a purchase by the Underlying Lessee of the underlying Property (the “Leased Property”) following (A) a condemnation with respect to the Leased Property, in which such a material part of the Leased Property is taken, or all points of ingress and/or egress to public roadways servicing the underlying property are materially impaired by a taking, so as to have a material adverse effect on Underlying Lessee’s business, and (B) the making of a rejectable offer (the “Rejectable Offer”) by the Underlying Lessee to SPE Obligor to purchase the Leased Property, together with all condemnation awards at a purchase price equal to the fair market value thereof as 25 --------------------------------------------------------------------------------   determined by an Appraisal on an as-is basis but disregarding the related condemnation but in no event shall such purchase price be less than the outstanding principal of and accrued interest on the related Sale/Leaseback Loan,      (II) upon the making of a Rejectable Offer following such condemnation and its rejection by SPE Obligor, such rejection to be conditioned upon (i) the prepayment by SPE Obligor of the Sale/Leaseback Loan at par plus any accrued interest or (ii) SPE Obligor providing assurances of such prepayment which are acceptable to the Administrative Agent,      (III) upon the termination of the Underlying Lease following a casualty with respect to the Leased Property which renders the Leased Property unsuitable for its primary intended use, such termination to be conditioned upon (i) the prepayment by SPE Obligor of the Sale/Leaseback Loan at par plus any accrued interest or (ii) SPE Obligor providing assurances of such prepayment which are acceptable to the Administrative Agent, or      (IV) in the event a condemnation or casualty described in clauses (I)(A) and (III) above, respectively, occurs in the final 12 months of the term of the Underlying Lease, the Underlying Lessee shall have the right to terminate the Underlying Lease with no further obligations thereunder other than the satisfaction of all accrued and unpaid obligations to the date of termination. In the event that SPE Obligor accepts the Rejectable Offer, SPE Obligor shall convey title to the Leased Property by deed (or, in the case of a ground lease, assignment of its rights and obligations under such ground to the Underlying Lessee) and assign its rights and interests in the related condemnation awards to the Underlying Lessee upon payment of the purchase price therefor. In the event that the SPE Obligor rejects the Rejectable Offer, then subject to the Underlying Lessee’s satisfaction of all accrued and unpaid obligations to the date of termination, the Underlying Lessee shall have the right to terminate the Underlying Lease upon notice thereof;      (g) the terms of the Lease shall provide periodic payments (which shall not be subject to defense, set-off or counterclaim) from Underlying Lessee to SPE Obligor no less frequently than on a quarterly basis to at least equal the interest and principal payments on the related Loan, including with an appropriate rate of return to SPE Obligor which shall be similar to interest rates charged by Originator to other third parties on loans with a similar risk profile;      (h) the term of the Lease shall be at least equal to the term of the related Loan;      (i) the Underlying Lessee shall not be in default under the Lease at the time of contribution and thereafter shall not be in payment default;      (j) any extraordinary payments by Underlying Lessee to SPE Obligor, including, but not limited to, default, bankruptcy and early lease termination payments (but excluding late payment fees) shall be applied to effectuate a reduction in the principal to the related Loan; 26 --------------------------------------------------------------------------------        (k) (i) the Underlying Lessee or SPE Obligor shall maintain risk property insurance in an amount at least equal to the full replacement cost of the underlying property, (ii) shall maintain general liability, business interruption and any other insurance agreed upon in the Lease and (iii) all such insurance policies shall name the Originator and each Purchaser as additional insured;      (l) either the rights of the SPE Obligor under the Lease are freely assignable by the SPE Obligor or the Underlying Lessee has consented to the assignment of such rights to the Originator and its assignees;      (m) the Loan shall contain customary representations, warranties, indemnities, events of default and remedies (including liquidated damages) similar to other transactions that Originator would make to a third party in an arms-length transaction; and      (n) the Seller shall have a pledge of the SPE Obligor’s equity interest. (4) In addition to the criteria set forth in clause (1) above, with respect to any CMBS Security (such CMBS Security to be approved by the Administrative Agent in its sole discretion), the following additional criteria:      (a) the CMBS Security shall have an S&P Rating of not lower than “B-,” and if such CMBS Security is rated by either of Moody’s or Fitch, such CMBS Security shall have a rating of not lower than “B3” or “B-,” respectively;      (b) the servicer designated under the Underlying Instruments and the underlying pool of assets serving as collateral for such CMBS Security are each located in the United States or any other country approved by the Administrative Agent in its sole discretion, upon receipt and review of satisfactory information or due diligence conducted by the Originator;      (c) the CMBS Security has an expected remaining maturity that does not exceed 180 months;      (d) the CMBS Security is not delinquent in payment and, since its origination, such CMBS Security has never been 30 or more days delinquent in payment of either principal or interest (unless otherwise approved by the Administrative Agent);      (e) if any commercial mortgage loan contributed to an underlying pool of assets serving as collateral for the CMBS Security accounts for more than 10% of the aggregate principal balance of the underlying pool of assets for such CMBS Security, such CMBS Security shall have received (i) a rating by two of any of Moody’s, S&P or Fitch and (ii) such rating by Moody’s, S&P and Fitch shall be not lower than “Baa3”, “BBB-” or “BBB-”, respectively;      (f) the CMBS Security was purchased and re-underwritten by the Originator and the documentation and closing included, without limitation, delivery of relevant and customary opinions and assignments, in each case in accordance with the Credit and Collection Policy; 27 --------------------------------------------------------------------------------        (g) the CMBS Security is secured by a valid and perfected first priority security interest in the related underlying pool of assets that constitutes the primary collateral for the CMBS Security;      (h) the Underlying Instruments for such CMBS Security do not prohibit the transfer of such CMBS Security to a foreign entity or otherwise prohibit the transfer of the CMBS Security to the underlying collateral pool of a Permitted Securitization Transaction;      (i) the CMBS Security is not known by the Originator, the Seller or the Servicer to be in default;      (j) the CMBS Security is not a financing executed in connection with an Insolvency Proceeding;      (k) the CMBS Security shall provide for payments of interest and/or principal in cash, no less frequently than on a quarterly basis; (l) the CMBS Security is not a Zero-Coupon Bond; and      (m) the CMBS Security has not been acquired by the Originator or by the Seller at a purchase price less than 65% of the outstanding principal balance of such CMBS Security unless otherwise agreed by the Administrative Agent. “Eligible Obligor”: On any date of determination, any Obligor that:      (i) is a business organization (and not a natural person) duly organized and validly existing under the laws of its jurisdiction of organization,      (ii) is a legal operating entity or holding company,      (iii) has not entered into the Loan primarily for personal, family or household purposes,      (iv) is not a Governmental Authority,      (v) except with respect to Sale/Leaseback Loans to SPE Obligors, the Obligor is not an Affiliate of the Originator or Seller,      (vi) is not in the gaming (other than Obligors in the business of providing services to the gaming industry), nuclear waste or natural resource exploration/production and oil field service industries,      (vii) is not engaged in the business of conducting proprietary research on new drug development,      (viii) is not the subject of an Insolvency Proceeding,      (ix) as of the applicable Cut-Off Date, has an Eligible Risk Rating, and 28 --------------------------------------------------------------------------------        (x) is not an Obligor of a Charged-Off Asset or Delinquent Asset. “Eligible Repurchase Obligations”: Repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States, in either case entered into with a depository institution or trust company (acting as principal) described in clauses (c)(ii) and (c)(iv) of the definition of Permitted Investments. “Eligible Risk Rating”: With respect to a designated Obligor, a “Rating 1,” “Rating 2,” “Rating 3,” or, solely in the case of Assets originated or acquired by CapitalSource Inc. or its Affiliates longer than six months before the Asset becomes part of the Collateral, “Rating 4” each as determined in accordance with the Credit and Collection Policy. “Environmental Laws”: Any and all foreign, federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of hazardous materials. Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. § 331 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300, et seq.), the Environmental Protection Agency’s regulations relating to underground storage tanks (40 C.F.R. Parts 280 and 281), and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), and the rules and regulations thereunder, each as amended or supplemented from time to time. “ERISA”: The United States Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. “ERISA Affiliate”: (a) Any corporation that is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Seller, (b) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with the Seller, or (c) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Seller, any corporation described in clause (a) above or any trade or business described in clause (b) above. “Euro”: The lawful currency of the Participating Member States. “Eurocurrency Liabilities”: Defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. “Eurodollar Disruption Event”: The occurrence of any of the following: (a) any Liquidity Bank shall have notified the Administrative Agent of a determination by such Liquidity Bank or any of its assignees or participants that it would be contrary to law or to the directive of any central bank or other governmental authority (whether or not having the force of law) to obtain Dollars 29 --------------------------------------------------------------------------------   in the London interbank market to fund any Advance, (b) any Liquidity Bank shall have notified the Administrative Agent of the inability, for any reason, of such Liquidity Bank or any of its assignees or participants to determine the Adjusted Eurodollar Rate, (c) any Liquidity Bank shall have notified the Administrative Agent of a determination by such Liquidity Bank or any of its assignees or participants that the rate at which deposits of Dollars are being offered to such Liquidity Bank or any of its assignees or participants in the London interbank market does not accurately reflect the cost to such Liquidity Bank, such assignee or such participant of making, funding or maintaining any Advance or (d) any Liquidity Bank shall have notified the Administrative Agent of the inability of such Liquidity Bank or any of its assignees or participants to obtain Dollars in the London interbank market to make, fund or maintain any Advance. “Eurodollar Reserve Percentage”: For any period means the percentage, if any, applicable during such period (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any basic, emergency, supplemental, marginal or other reserve requirements) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term of one month. “Excepted Person”: Defined in Section 13.13(a). “Excess Spread Account”: Defined in Section 6.4(g). “Exchange Act”: The United States Securities Exchange Act of 1934, as amended. “Excluded Amounts”: (a) Any amount received in the Lock-Box by, on or with respect to any Asset included as part of the Collateral, which amount is attributable to the payment of any tax, fee or other charge imposed by any Governmental Authority on such Asset, (b) any amount representing a reimbursement of insurance premiums and (c) any amount with respect to any Asset retransferred or substituted for upon the occurrence of a Warranty Event (if the Seller has decided that such Asset is no longer to be included in the Collateral) or that is otherwise replaced by a Substitute Asset (if the Seller has decided that such Asset is no longer to be included in the Collateral), to the extent such amount is attributable to a time after the effective date of such replacement. “Existing Assets”: Each Asset purchased by the Seller under the Sale Agreement and owned by the Seller on the Closing Date. “Face Amount”: With respect to any Asset, the Outstanding Asset Balance thereof, or, in the case of the Tandem Asset, the Tandem Outstanding Asset Balance thereof, in each case as shown on the applicable Asset List. “Facility Amount”: The aggregate Commitments then in effect; provided that such amount may not at any time exceed $900,000,000 without the written agreement of the parties hereto; provided further that, on or after the Termination Date, the Facility Amount shall mean the Advances Outstanding. 30 --------------------------------------------------------------------------------   “Facility Termination Date”: June 27, 2009, or such later date as the Administrative Agent and each Purchaser Agent, in its sole discretion, shall notify the Seller of in writing. “FDIC”: The Federal Deposit Insurance Corporation, and any successor thereto. “Federal Funds Rate”: For any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the overnight federal funds rates as in Federal Reserve Board Statistical Release H.15(519) or any successor or substitute publication selected by the Administrative Agent (or, if such day is not a Business Day, for the next preceding Business Day), or, if, for any reason, such rate is not available on any day, the rate determined, in the sole opinion of the Administrative Agent, to be the rate at which overnight federal funds are being offered in the national federal funds market at 9:00 a.m. (New York City, New York time). “Finance Charges”: With respect to any Asset, any interest or finance charges owing by an Obligor pursuant to or with respect to such Asset. “Financial Sponsor”: Any Person, including any Subsidiary of another Person, whose principal business activity is acquiring, holding, and selling investments (including controlling interests) in otherwise unrelated companies that each are distinct legal entities with separate management, books and records and bank accounts, whose operations are not integrated one with another and whose financial condition and creditworthiness are independent of the other companies so owned by such Person. “Fitch”: Fitch, Inc. or any successor thereto. “Fixed Rate Asset”: A Loan that is an Eligible Asset other than a Floating Rate Asset. “Fixed Rate Asset Percentage”: As of any date of determination, the percentage equivalent of a fraction (a) the numerator of which is equal to the sum of the Outstanding Asset Balances of all Fixed Rate Assets and Banded Floating Rate Loans that are within 0.50% of the maximum interest rate allowable under their Required Asset Documents as of such date, and (b) the denominator of which is equal to the Aggregate Outstanding Asset Balance as of such date. “Floating Rate Asset”: A Loan that is an Eligible Asset where the interest rate payable by the Obligor thereof is based on the CSE Prime Rate or CSE LIBOR Rate, plus some specified interest percentage in addition thereto, and the Loan provides that such interest rate will reset immediately upon any change in the related CSE Prime Rate or CSE LIBOR Rate. “Funding Date”: With respect to the initial Funding Date, the third Business Day following the Closing Date, and as to any incremental Advance, any Business Day that is one Business Day immediately following the receipt by the Administrative Agent and each Purchaser Agent of a Borrowing Notice (along with a Borrowing Base Certificate) in accordance with Section 2.3. “GAAP”: Generally accepted accounting principles as in effect from time to time in the United States. “Governmental Authority”: With respect to any Person, any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) 31 --------------------------------------------------------------------------------   thereof, any body or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over such Person. “H.15”: Federal Reserve Statistical Release H.15. “Hedge Amount”: On any day, an amount equal to the product of (a) the Borrowing Base and (b) the Fixed Rate Asset Percentage on such day. “Hedge Collateral”: Defined in Section 5.3(b). “Hedge Breakage Costs”: For any Hedge Transaction, any amount payable by the Seller for the early termination of that Hedge Transaction or any portion thereof. “Hedge Counterparty”: Means (a) Citibank, N.A. and its successors and assigns, and (b) any entity that (i) on the date of entering into a Hedging Agreement (x) is an interest rate swap dealer that has been approved in writing by the Administrative Agent (which approval shall not be unreasonably withheld), and (y) has a long-term unsecured debt rating of not less than “A” by S&P, not less than “A2” by Moody’s and not less than “A” by Fitch (if such entity is rated by Fitch) (“Long-term Rating Requirement”) and a short-term unsecured debt rating of not less than “A-1” by S&P, not less than “P-1” by Moody’s and not less than “F-1” by Fitch (if such entity is rated by Fitch) (“Short-term Rating Requirement”), and (ii) in a Hedging Agreement (x) consents to the assignment of the Seller’s rights under each Hedging Agreement to the Administrative Agent for the benefit of the Secured Parties pursuant to Section 5.3(b) and (y) agrees that in the event that Moody’s, S&P or Fitch reduces its long-term unsecured debt rating below the Long-term Rating Requirement, or reduces its short-term unsecured debt rating below the Short-term Rating Requirement, it shall transfer its rights and obligations under each Hedge Transaction to another entity that meets the requirements of clause (i) and (ii) hereof and has entered into a Hedging Agreement with the Seller on or prior to the date of such transfer. “Hedge Guaranty”: The Guaranty, dated as of June 30, 2006, by and between CSE Mortgage in favor of the applicable Hedge Counterparty, as amended, modified, waived, supplemented, restated or replaced from time to time. “Hedge Notional Amount”: For any Advance, the aggregate notional amount in effect on any day under all Hedge Transactions entered into pursuant to Section 5.3(a) for that Advance. “Hedge Percentage”: With respect to:      (a) Fixed Rate Assets is, on any day that (i) the Aggregate Outstanding Asset Balance exceeds $150,000,000, an amount equal to 100% if the sum of the Outstanding Asset Balances of all Fixed Rate Assets exceeds $50,000,000, (ii) the Aggregate Outstanding Asset Balance exceeds $150,000,000, an amount equal to 0% if the sum of the Outstanding Asset Balances of all Fixed Rate Assets is less than or equal to $50,000,000, (iii) the Aggregate Outstanding Asset Balance is less than or equal to $150,000,000, an amount equal to 100% if the sum of the Outstanding Asset Balances of all Fixed Rate Assets exceeds $20,000,000 or (iv) the Aggregate Outstanding Asset Balance is less than or equal to $150,000,000, an amount equal to 0% if the 32 --------------------------------------------------------------------------------   sum of the Outstanding Asset Balances of all Fixed Rate Assets is less than or equal to $20,000,000;      (b) Floating Rate Assets is 0%;      (c) Banded Floating Rate Loans that are within 0.50% of the maximum interest rate allowable under their Required Asset Documents, on any day, is an amount equal to 100%. “Hedge Transaction”: Each interest rate or index rate swap transaction between the Seller and a Hedge Counterparty that is entered into pursuant to Section 5.3(a) and is governed by a Hedging Agreement. “Hedged Rate”: For any Advance, the interest rate payable to a Hedge Counterparty under the Hedge Transaction related to such Advance computed as of the Cut-Off Date under or with respect to the Asset to which that Advance relates. “Hedging Agreement”: Each agreement between the Seller and a Hedge Counterparty that governs one or more Hedge Transactions entered into pursuant to Section 5.3(a), which agreement shall consist of a “Master Agreement” in a form published by the International Swaps and Derivatives Association, Inc., together with a “Schedule” thereto substantially in the form of Exhibit D hereto or such other form as the Administrative Agent shall approve in writing, and each “Confirmation” thereunder confirming the specific terms of each such Hedge Transaction. “Highest Required Investment Category”: (i) With respect to ratings assigned by Moody’s, “Aa2” or “P-1” for one month instruments, “Aa2” and “P-1” for three month instruments, “Aa3” and “P-1” for six month instruments and “Aa2” and “P-1” for instruments with a term in excess of six months, (ii) with respect to rating assigned by S&P, “A-1” for short-term instruments and “A” for long-term instruments, and (iii) with respect to rating assigned by Fitch (if such investment is rated by Fitch), “F-1+” for short-term instruments and “AAA” for long-term instruments. “Increased Costs”: Any amounts required to be paid by the Seller to an Affected Party pursuant to Section 2.15. “Indebtedness”: With respect to any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or that is evidenced by a note, bond, debenture or similar instrument or other evidence of indebtedness customary for indebtedness of that type, (b) all obligations of such Person under leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all indebtedness, obligations or liabilities of that Person in respect of Derivatives, and (f) obligations under direct or indirect guaranties in respect of obligations (contingent or otherwise) to purchase or otherwise acquire, or to otherwise assure a creditor against loss in respect of, indebtedness or obligations of others of the kind referred to in clauses (a) through (e) above. 33 --------------------------------------------------------------------------------   “Indemnified Amounts”: Defined in Section 11.1. “Indemnified Parties”: Defined in Section 11.1. “Independent Director”: Defined in Section 4.1(u). “Industry”: The industry of an Obligor as determined by reference to the two digit standard industry classification or North American Industry Classification System codes. “Initial Advance”: The first Advance. “Insolvency Event”: With respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any applicable Insolvency Law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable Insolvency Law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing. “Insolvency Laws”: The Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. “Insolvency Proceeding”: Any case, action or proceeding before any court or other Governmental Authority relating to any Insolvency Event. “Instrument”: Any “instrument” (as defined in Article 9 of the UCC), other than an instrument that constitutes part of chattel paper. “Insurance Policy”: With respect to any Asset an insurance policy covering liability and physical damage to or loss of the Related Property. “Insurance Proceeds”: Any amounts payable or any payments made on or with respect to an Asset under any Insurance Policy. “Intercreditor Agreement”: The Fourth Amended and Restated Intercreditor and Lockbox Administration Agreement, dated as of June 30, 2005, by and among each of the financing agents from time to time party thereto, Bank of America, N.A., as the lockbox bank, CapitalSource Finance LLC, as the originator, as the original servicer and as the lockbox 34 --------------------------------------------------------------------------------   servicer, and CapitalSource Funding LLC, as the owner of the account and as the owner of the lockbox, as amended, modified, waived, supplemented, restated or replaced from time to time. “Interest”: For each Accrual Period and each Advance outstanding, the sum of the products of:                   IR x P x   1 D                       where:                           IR   =   the Interest Rate applicable on such day;                   P   =   the principal amount of such Advance on such day; and                   D   =   360 or, to the extent the Interest Rate is based on the Base Rate, 365 or 366 days, as applicable. provided that (i) no provision of this Agreement shall require the payment or permit the collection of Interest in excess of the maximum permitted by Applicable Law and (ii) Interest shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason. “Interest Collections”: Any and all amounts received in respect of any interest, fees or other similar charges (including any Finance Charges) from or on behalf of any Obligor that are deposited into the Collection Account, or received by or on behalf of the Seller by the Servicer or Originator in respect of an Asset, in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment (net of any payment owed by the Seller to, and including any receipts from, any Hedge Counterparties). “Interests in Real Property”: A fee simple interest, a financeable estate for years or a leasehold interest, in each case in real property. “Interest Rate”: For any Accrual Period and for each Advance outstanding for each day during such Accrual Period:      (i) to the extent the applicable Purchaser has funded the applicable Advance through the issuance of commercial paper, a rate equal to the applicable CP Rate; or      (ii) to the extent the applicable Purchaser did not fund the applicable Advance through the issuance of commercial paper, a rate equal to the Alternative Rate; provided that the Interest Rate shall be the Base Rate for any Accrual Period for any Advance as to which a Purchaser has funded the making or maintenance thereof by a sale of an interest therein to any Liquidity Bank under the applicable Liquidity Agreement on any day other than the first day of such Accrual Period without giving such Liquidity Bank(s) at least two Business Days’ prior notice of such assignment. 35 --------------------------------------------------------------------------------   “ISDA Definitions”: The 2000 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc. “Issuer”: Any Purchaser whose principal business consists of issuing commercial paper or other securities to fund its acquisition or maintenance of receivables, accounts, instruments, chattel paper, general intangibles and other similar assets. “Land Development”: Financing to an entity engaged in the business of purchasing land for the purposes of resale to a developer. “Lease”: The underlying triple-net lease between SPE Obligor and any Underlying Lessee pursuant to which the Underlying Lessee is responsible for all expenses arising from the use or operation of the underlying property, including, without limitation, taxes, insurance premiums, alterations, and repairs and maintenance costs. “Leased Property”: Defined in clause 3(f) of the definition of Eligible Asset. “LIBOR Rate”: For any day during any Accrual Period and any Advance or portion thereof, an interest rate per annum equal to:      (1) the posted rate for 30 day deposits in Dollars appearing on Telerate page 3750 as of 11:00 a.m. (London time) on the Business Day which is the second Business Day immediately preceding the applicable Funding Date (with respect to the initial Accrual Period for such Advance) and as of the second Business Day immediately preceding the first day of the applicable Accrual Period (with respect to all subsequent Accrual Periods for such Advance); or      (2) if no such rate appears on Telerate page 3750 at such time and day, then the LIBOR Rate shall be determined by Citigroup Global Realty at its principal office in New York, New York as its rate (each such determination, absent manifest error, to be conclusive and binding on all parties hereto and their assignees) at which 30 day deposits in Dollars are being, have been, or would be offered or quoted by Wachovia to major banks in the applicable interbank market for Eurodollar deposits at or about 11:00 a.m. (New York, New York time) on such day. “Lien”: Any mortgage, lien, pledge, charge, right, claim, security interest or encumbrance of any kind of or on any Person’s assets or properties in favor of any other Person (including any UCC financing statement or any similar instrument filed against such Person’s assets or properties). “Liquid Real Estate Assets”: (a) Residential mortgage-backed securities that (i) have a rating of not less than “AA” by S&P/Fitch and “Aa2” by Moody’s, (ii) are purchased by CapitalSource Inc. or its Consolidated Subsidiaries solely to meet REIT asset and income tests, and (iii) are leveraged through debt facilities utilizing leverage greater than 12 times the amount of equity investment in such Liquid Real Estate Assets and (b) residential mortgage whole loan purchases made by CapitalSource Inc. or its Consolidated Subsidiaries solely to meet REIT asset and income tests, all in accordance with the Residential Mortgage Policies and Procedures. 36 --------------------------------------------------------------------------------   “Liquidation Expenses”: With respect to (a) any Asset, the aggregate amount of all out-of-pocket expenses reasonably incurred by the Servicer (including amounts paid to any subservicer) and any reasonably allocated costs of counsel (if any), in each case in accordance with the Servicer’s customary procedures in connection with the repossession, refurbishing and disposition of any related assets securing such Asset upon or after the expiration or earlier termination of such Asset and other out-of-pocket costs related to the liquidation of any such assets, including the attempted collection of any amount owing pursuant to such Asset if it is a Charged-Off Asset, and if requested by the Administrative Agent, the Servicer and Originator must provide to the Administrative Agent a breakdown of the Liquidation Expenses for any Asset along with any supporting documentation therefor, and (b) any Portfolio Asset, the aggregate amount of all out-of-pocket expenses reasonably incurred by the Servicer (including amounts paid to any subservicer) and any reasonably allocated costs of counsel (if any), in each case in accordance with the Servicer’s customary procedures in connection with the repossession, refurbishing and disposition of any related assets securing such Portfolio Asset upon or after the expiration or earlier termination of such Portfolio Asset and other out-of-pocket costs related to the liquidation of any such assets, including the attempted collection of any amount owing pursuant to such Portfolio Asset if it is a Charged-Off Portfolio Asset, and if requested by the Administrative Agent, the Servicer and Originator must provide to the Administrative Agent a breakdown of the Liquidation Expenses for any Portfolio Asset along with any supporting documentation therefor. “Liquidity Agreement”: (a) with respect to each Purchaser which is an Issuer, the Liquidity Purchase Agreement, by and among such Purchaser, the Liquidity Banks named therein, and the related Purchaser Agent, as such agreement may be amended, modified, waived, supplemented, restated or replaced from time to time, and (b) with respect to each Additional Purchaser which is an Issuer, the liquidity purchase agreement by and among such Additional Purchaser, the Liquidity Banks named therein and the related Additional Agent, as such agreement may be amended, modified, waived, supplemented, restated or replaced from time to time. “Liquidity Bank”: The Person or Persons who provide liquidity support to any Purchaser which is an Issuer or Additional Purchaser which is an Issuer pursuant to a Liquidity Agreement in connection with the issuance by such Purchaser of Commercial Paper Notes. “Liquidity Factor Reduction Event”: With respect to each Asset included as part of the Collateral subject to the Retained Interest provisions of this Agreement, a “Liquidity Factor Reduction Event” under and as defined in any Permitted Securitization Transaction rated by the Rating Agencies. “Loan”: Any loan originated by the Originator or, in the case of an Assigned Loan or an Acquired Loan, otherwise acquired by the Originator, that is identified on an Asset List and sold or contributed to the Seller hereunder and included as part of the Collateral, which loan includes, without limitation, (i) the Required Asset Documents and Asset File, and (ii) all right, title and interest of the Originator in and to the loan and any Related Property. “Loan Register”: Defined in Section 5.4(n). 37 --------------------------------------------------------------------------------   “Loan-to-Liquidation Value” or “LLV”: With respect to any Loan, as of the date of origination, the percentage equivalent of a fraction (i) the numerator of which is equal to the maximum availability (as provided in the applicable Underlying Instruments) of such Loan as of the date of its origination and (ii) the denominator of which is equal to the liquidation value of the Related Property securing such Loan that is subject to a first priority lien in favor of the Originator (as determined by the Servicer in accordance with the Credit and Collection Policy and in a commercially reasonable manner). “Loan-to-Value Ratio” or “LTV”: With respect to any Loan, as of any date of determination, the percentage equivalent of a fraction (a) the numerator of which is equal to the total commitment amount of such Loan as of the date of its origination (as provided in the related Underlying Instruments) (or the Outstanding Asset Balance with respect to Delayed-Draw Term Loans as determined on the last day of each calendar month) plus the total commitment amount or principal amount, as the case may be, as of the applicable date of origination or incurrence, of all loans and other indebtedness which is senior to or pari passu with such Loan in the “capital structure” of the related Obligor (as defined in, and as determined by the Servicer in accordance with, the Credit and Collection Policy and in a commercially reasonable manner), and (b) the denominator of which is equal to the lower of the Obligor’s cost to acquire the Related Property or the current value (determined by means of an Appraisal) of the Related Property. “Lock-Box”: The post office box to which Collections are remitted for retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank into a Lock-Box Account, the details of which are contained in Schedule II. “Lock-Box Account”: The account maintained at the Lock-Box Bank for the purpose of receiving Collections, the details of which are contained in Schedule II, as such schedule may be amended from time to time. “Lock-Box Agreement”: The Fifth Amended and Restated Three Party Agreement Relating to Lockbox Services and Control (with Activation Upon Notice), dated as of June 30, 2005, by and among certain financing agents party thereto, Bank of America, N.A., as the lockbox bank, CapitalSource Finance LLC, as the originator, as the original servicer and as the lockbox servicer, and CapitalSource Funding LLC, as the owner of the account and as the owner of the lockbox, as amended, modified, waived, supplemented, restated or replaced from time to time. “Lock-Box Bank”: Bank of America, N.A., or any of the banks or other financial institutions holding one or more Lock-Box Accounts. “Margin Stock”: Margin Stock as defined under Regulation U. “Material Adverse Effect”: With respect to any event or circumstance, means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Servicer or the Seller, (b) the validity, enforceability or collectibility of this Agreement or any other Transaction Document or the validity, enforceability or collectibility of the Assets generally or any material portion of the Assets, (c) the rights and remedies of the Administrative Agent, the Purchasers, the Purchaser Agents and the Secured Parties under the Transaction Documents, (d) the ability of the Seller, the Servicer, the Backup Servicer or the 38 --------------------------------------------------------------------------------   Collateral Custodian to perform its obligations under this Agreement or any Transaction Document, or (e) the status, existence, perfection, priority or enforceability of the Administrative Agent’s, the Purchaser Agents’, or the Secured Parties’ interest in the Collateral. “Material Mortgage Loan”: Any Loan for which the underlying Related Property consisting of real property owned by the Obligor (i) represents 25% or more (measured by the book value of the three most valuable parcels of real property as of the date of such Loan) of (a) the original commitment for such Loan and (b) the fair value of the underlying Obligor and Related Property as a whole and (ii) is material to the operations of the related business of such Obligor; provided that a Material Mortgage Loan shall not include certain parcels of real property which the Obligor is in the process of disposing. “Materials of Environmental Concern”: Any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. “Maximum Availability”: On any date of determination an amount equal to the least of:      (a) the Facility Amount;      (b) the sum of (i) the product of the Borrowing Base and the Weighted Average Advance Rate on such date plus (ii) the amount on deposit in the Principal Collections Account received in reduction of the Outstanding Asset Balance of any Asset that is an Eligible Asset; and      (c) an amount equal to (i) the Borrowing Base minus (ii) the Minimum Overcollateralization Amount plus (iii) the amount on deposit in the Principal Collections Account received in reduction of the Outstanding Asset Balance of any Asset that is an Eligible Asset; provided that in case of each of the foregoing clauses (a)-(c), during the Amortization Period, the Maximum Availability shall be equal to the Advances Outstanding. “Mezzanine Loan”: Any Term Loan (i) that is subordinate to a B-Note Loan, if any, in terms of priority of payment obligations, (ii) the payment of which may contain a form of equity participation in the issuer or Obligor and is secured by a pledge from the parent of the Obligor of the equity in such Obligor, and (iii) that does not share in the same collateral package as the Obligor’s senior loans. “Minimum Overcollateralization Amount”: As of any date of determination, an amount equal to the product of 1.5 and the sum of the Outstanding Asset Balances of all Eligible Assets attributable to the Obligor having the largest aggregate Outstanding Asset Balance of Eligible Assets included as part of the Collateral (excluding the amount, calculated without duplication, by which such Eligible Assets exceed any applicable Pool Concentration Criteria). “Minimum Pool Yield”: A Pool Yield equal to 2.75%. 39 --------------------------------------------------------------------------------   “Monthly Report”: Defined in Section 6.10(b). “Moody’s”: Moody’s Investors Service, Inc., and any successor thereto. “Mortgage”: The mortgage, deed of trust or other instrument creating a first or second Lien on an Interest in Real Property securing a Loan subject to this Agreement, including the Assignment of Leases and Rents related thereto. “Mortgaged Property”: The underlying Interests in Real Property which are subject to the Lien of a Mortgage that secures a Loan, consisting of Interests in Real Property in a parcel or parcels of land, at least one of which parcels is improved by a commercial building or facility, together with Interests in Real Property in such commercial building or facility and any personal property, fixtures, leases and other property or rights pertaining to such land, commercial building or facility which are subject to the related Mortgage. “Multiemployer Plan”: A “multiemployer plan” as defined in Section 4001(a)(3) of ERISA that is or was at any time during the current year or the immediately preceding five years contributed to by the Seller or any ERISA Affiliate on behalf of its employees. “NAICS Code” means the North American Industry Classification System Codes by at least four digits. “Net Proceeds of Capital Stock/Conversion of Debt”: Any and all proceeds (whether cash or non-cash) or other consideration received by CapitalSource Inc. and its Consolidated Subsidiaries, on a consolidated basis, in respect of the issuance of Capital Stock (including, without limitation, the aggregate amount of any and all Indebtedness converted into Capital Stock), after deducting therefrom all reasonable and customary costs and expenses incurred by CapitalSource Inc. and such Consolidated Subsidiary in connection with the issuance of such Capital Stock in each case to the extent classified as equity on the consolidated balance sheet of CapitalSource Inc. and its Consolidated Subsidiaries. “NOI”: With respect to any Mortgaged Property, as of the last day of any fiscal quarter, the amount determined for the period consisting of such fiscal quarter and each of the three immediately preceding fiscal quarters of the sum of all rents and other revenues received in the ordinary course from such Mortgaged Property minus all expenses paid related to the ownership, operation and maintenance of such Mortgaged Property. “Noteless Loan”: A Loan with respect to which the Underlying Instruments do not require the Obligor to execute and deliver a promissory note to evidence the indebtedness created under such Loan. “Obligor”: With respect to any Asset, as applicable, any Person or Persons obligated to make payments pursuant to or with respect to such Asset, including any guarantor thereof. For purposes of calculating any of the Pool Concentration Criteria only, all Assets included as part of the Collateral or to be transferred to the Collateral the Obligor of which is an Affiliate of another Obligor (excluding any Financial Sponsor or Obligors that are Affiliates solely because of common ownership or control by a Financial Sponsor) shall be aggregated with all Assets of such other Obligor; for example, if Corporation A is an Affiliate (other than because of a 40 --------------------------------------------------------------------------------   common Financial Sponsor) of Corporation B, and the sum of the Outstanding Asset Balances of all of Corporation A’s Loans included as part of the Collateral constitutes 10% of the Aggregate Outstanding Asset Balance and the sum of the Outstanding Asset Balances all of Corporation B’s Loans included as part of the Collateral constitutes 10% of the Aggregate Outstanding Asset Balance, the combined Obligor concentration for Corporation A and Corporation B would be 20%. “Officer’s Certificate”: A certificate signed by a Responsible Officer of the Seller or the Servicer, as the case may be, and delivered to the Collateral Custodian. “Opinion of Counsel”: A written opinion of counsel, which opinion and counsel are acceptable to the Administrative Agent in its sole discretion. “Optional Sale”: Defined in Section 2.19(a). “Optional Sale Date”: Any Business Day, provided 45 days written notice is given in accordance with Section 2.19(a). “Originator”: Defined in the Preamble of this Agreement. “Other Costs”: Defined in Section 13.09(c). “Outstanding Asset Balance”: With respect to any Asset at any time, the sum of (a) all future Scheduled Payments becoming due under or with respect to such Asset plus (b) any past due Scheduled Payments with respect to such Asset (other than with respect to those payments to the extent a Servicer Advance is outstanding with respect thereto); provided that notwithstanding anything to the contrary contained herein, for purposes of determining the Aggregate Outstanding Asset Balance, if any portion of an Asset is deemed to be “charged-off” in accordance with the provisions of the definition of Charged-Off Asset, then the entire Asset shall be deemed to have an Outstanding Asset Balance of zero, except for purposes of calculating the Average Pool Charged-Off Ratio or the Adjusted Pool Charged-Off Ratio. “Overcollateralization Amount”: As of any date of determination, an amount equal to the product of (i) the Overcollateralization Percentage on such date and (ii) the Borrowing Base on such date. “Overcollateralization Percentage”: As of any date of determination, the percentage equivalent of (a) one minus (b) a fraction (i) the numerator of which is equal to the Advances Outstanding on such date and (ii) the denominator of which is equal to the Aggregate Outstanding Asset Balance as of such date. “Overcollateralization Shortfall”: As of any date of determination, the positive difference, if any, of (a) the Minimum Overcollateralization Amount on such date minus (b) the Overcollateralization Amount on such date. “Participating Member State”: A member of the European Community that adopts or has adopted the Euro as its lawful currency in accordance with legislation of the European Economic Community relating to the Economic and Monetary Union. 41 --------------------------------------------------------------------------------   “Participation Loan”: A Loan to an Obligor, originated by the Originator and serviced by the Servicer in the ordinary course of its business, in which a participation interest has been granted to another Person in accordance with the Credit and Collection Policy and (i) such transaction has been fully consummated, pursuant to a participation agreement, (ii) such Loan (other than in the case of a Noteless Loan) is represented by a separate promissory note, and (iii) the Originator has the right to receive and collect payments directly in its own name, and to enforce its rights directly against the Obligor thereof including the right to proceed against collateral; provided that any such Loan shall exclude any Retained Interest. “Payment Date”: The 15th day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day. “Payment Duties”: Defined in Section 8.2(b). “Permitted Investments”: With respect to any Payment Date means negotiable instruments or securities or other investments maturing on or before such Payment Date (a) which, except in the case of demand or time deposits, investments in money market funds and Eligible Repurchase Obligations, are represented by instruments in bearer or registered form or ownership of which is represented by book entries by a Clearing Agency or by a Federal Reserve Bank in favor of depository institutions eligible to have an account with such Federal Reserve Bank who hold such investments on behalf of their customers, (b) that, as of any date of determination, mature by their terms on or prior to the Business Day immediately preceding the next Payment Date immediately following such date of determination, and (c) that evidence:      (1) direct obligations of, and obligations fully guaranteed as to full and timely payment by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States);      (2) demand deposits, time deposits or certificates of deposit of depository institutions or trust companies incorporated under the laws of the United States or any state thereof and subject to supervision and examination by federal or state banking or depository institution authorities; provided that at the time of the Seller’s investment or contractual commitment to invest therein, the commercial paper, if any, and short-term unsecured debt obligations (other than such obligation whose rating is based on the credit of a Person other than such institution or trust company) of such depository institution or trust company shall have a credit rating from Fitch and each Rating Agency in the Highest Required Investment Category granted by Fitch and such Rating Agency, which in the case of Fitch, shall be “F-1+”;      (3) commercial paper, or other short term obligations, having, at the time of the Seller’s investment or contractual commitment to invest therein, a rating in the Highest Required Investment Category granted by each Rating Agency, which in the case of Fitch, shall be “F-1+”;      (4) demand deposits, time deposits or certificates of deposit that are fully insured by the FDIC and either have a rating on their certificates of deposit or short- 42 --------------------------------------------------------------------------------   term deposits from Moody’s and S&P of “P-1” and “A-1”, respectively, and if rated by Fitch, from Fitch of “F-1+”;      (5) notes that are payable on demand or bankers’ acceptances issued by any depository institution or trust company referred to in clause (ii) above;      (6) investments in taxable money market funds or other regulated investment companies having, at the time of the Seller’s investment or contractual commitment to invest therein, a rating of the Highest Required Investment Category from Moody’s, S&P and Fitch (if rated by Fitch);      (7) time deposits (having maturities of not more than 90 days) by an entity the commercial paper of which has, at the time of the Seller’s investment or contractual commitment to invest therein, a rating of the Highest Required Investment Category granted by Fitch and each Rating Agency; or      (8) Eligible Repurchase Obligations with a rating acceptable to the Rating Agencies, which in the case of Fitch, shall be “F-1+” and in the case of S&P shall be “A-1”. The Collateral Custodian may pursuant to the direction of the Servicer or Administrative Agent, as applicable, purchase or sell to itself or an Affiliate, as principal or agent, the Permitted Investments described above. “Permitted Liens”: Any of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable, (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens, arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days, and (c) Liens granted pursuant to or by the Transaction Documents. “Permitted Securitization Transaction”: Any financing transaction undertaken by the Seller or an Affiliate of the Seller that is secured, directly or indirectly, by the Collateral or any portion thereof or any interest therein, including any sale, lease, whole loan sale, asset securitization, secured loan or other transfer. “Person”: An individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, sole proprietorship, joint venture, government (or any agency or political subdivision thereof) or other entity. “Pool Charged-Off Ratio”: As of any Determination Date, the product of (i) 12 and (ii) the percentage equivalent of a fraction, (a) the numerator of which is equal to the sum of the Outstanding Asset Balances of all Eligible Assets that became Charged-Off Assets (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date, and (b) the denominator of which is equal to the Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date. 43 --------------------------------------------------------------------------------   “Pool Concentration Criteria”: With respect to items (9), (10) and (13) below, on any day, and with respect to all other items below, on any day on and after the Concentrations Effective Date, each of the concentration limitations as set forth below, which concentration limitations (unless otherwise indicated) shall be measured on the basis of a percentage of the Adjusted Aggregate Outstanding Asset Balance and shall exclude from all calculations the Tandem Asset and the Obligor with respect to the Tandem Asset:      (1) the sum of the Outstanding Asset Balance of all Eligible Assets the Obligors of which are resident of the same state shall not exceed 20%, with the exception of the State of Florida, the State of California and the State of New York, which shall not exceed 30%;      (2) the sum of the Outstanding Asset Balances of all Eligible Assets that are Loans secured by Development Properties shall not exceed 20%; provided that condominium conversions shall not exceed 15%;      (3) the sum of the Outstanding Asset Balances of all Eligible Assets that are Senior Secured ABLs shall not exceed 35%;      (4) the sum of the Outstanding Asset Balances of all Eligible Assets that are B-Note Loans or Mezzanine Loans shall not exceed 20%;      (5) the sum of the Outstanding Asset Balances of all Eligible Assets that are CMBS Securities shall not exceed 15%      (6) the sum of the Outstanding Asset Balances of all Eligible Assets that are Loans secured by the same classification of Mortgaged Property shall not exceed 30% with the exception of Loans secured by Mortgaged Property classified as hotel property, which shall not exceed 20%;      (7) the sum of the Outstanding Asset Balances of all Eligible Assets that are Loans used to finance Land Development activities shall not exceed 10%;      (8) the sum of the Outstanding Asset Balances of all Eligible Assets that are Sale/Leaseback Loans shall not exceed 20%;      (9) the sum of the Outstanding Asset Balances of all Eligible Assets with a “Risk Rating 4”, a “Risk Rating 5” and a “Risk Rating 6” shall not exceed 20%, 10% and 0%, respectively;      (10) the sum of the Outstanding Asset Balances of all Eligible Assets to a single Obligor shall not exceed $50,000,000;      (11) the Adjusted Aggregate Outstanding Asset Balances of all Eligible Assets divided by the number of Obligors excluding the Obligor with respect to the Tandem Asset, (including Affiliates thereof) shall not exceed the greater of (a) 1.75% or (b) $15 million; 44 --------------------------------------------------------------------------------        (12) the sum of the Outstanding Asset Balances of all Eligible Assets that are Acquired Loans shall not exceed 25%;      (13) the sum of the Outstanding Asset Balances of all Eligible Assets which have been included as part of the Collateral for 18 months or more shall not exceed 20%;      (14) the sum of the Outstanding Asset Balances of all Eligible Assets where all or any portion of the Related Property is located outside of the United States and its territories and protectorates shall not exceed 15%;      (15) subject to the requirements of (1)(g) of the definition of Eligible Investment, the sum of the Outstanding Asset Balances of all Eligible Assets which provide for interest and principal payments in British Pounds Sterling, Euros or Canadian Dollars shall not exceed 10%; and      (16) the sum of the Outstanding Asset Balances of all Loans which provide for payments of interest on a semi-annual basis shall not exceed the lesser of (a) 5% and (b) $20,000,000. “Pool Rate”: As of any Determination Date, the annualized percentage equivalent of a fraction, (a) the numerator of which is equal to all Interest Collections on Assets included in the Aggregate Outstanding Asset Balance as of the first day of the Collection Period related to such Determination Date that are deposited into the Collection Account during such Collection Period, and (b) the denominator of which is equal to the Aggregate Outstanding Asset Balance as of the first day of such Collection Period. “Pool Yield”: On any day, the excess, if any, of (a) the Pool Rate on such day over (b) the sum of (i) the Interest Rate, (ii) the Program Fee Rate and (iii) the Servicing Fee Rate, in each case as of such day. “Portfolio Aggregate Outstanding Asset Balance”: With respect to all Portfolio Assets, on any day, the sum of the Portfolio Outstanding Asset Balances of such Portfolio Assets on such date. Notwithstanding anything to the contrary contained herein, for purposes of determining the Portfolio Aggregate Outstanding Asset Balance, if any portion of a Portfolio Asset is deemed to be “charged-off” in accordance with the provisions of the definition of Charged-Off Portfolio Asset, then the entire Portfolio Asset shall have a zero Outstanding Asset Balance, except for purposes of calculating the Average Portfolio Charged-Off Ratio. “Portfolio Asset”: Any asset owned or serviced by the Originator (including each Asset). For the avoidance of doubt, the term Portfolio Asset shall not include any asset owned and/or serviced solely by one or more Affiliates of the Originator (but not by the Originator); provided that (i) such asset shall not have been originated or acquired by the Originator and (ii) such asset shall not be included in the consolidated financial statements of the Originator. “Portfolio Charged-Off Ratio”: As of any Determination Date, the product of (i) 12 and (ii) the percentage equivalent of a fraction, (a) the numerator of which is equal to the sum of the Portfolio Outstanding Asset Balances of all Portfolio Assets (excluding equity and preferred 45 --------------------------------------------------------------------------------   stock investments) that became Charged-Off Portfolio Asset (net of Recoveries during such Collection Period) during the Collection Period related to such Determination Date and (b) the denominator of which is equal to the Portfolio Aggregate Outstanding Asset Balance (excluding equity and preferred stock investments) as of the first day of the Collection Period related to such Determination Date; provided that such calculation shall exclude the effects of any Liquid Real Estate Assets that are acquired and levered by the Originator solely to satisfy REIT asset and income tests. “Portfolio Delinquency Ratio”: As of any Determination Date, the percentage equivalent of a fraction, (i) the numerator of which is equal to the sum of the Portfolio Outstanding Asset Balances of all Delinquent Portfolio Assets on such date and (ii) the denominator of which is equal to the Portfolio Aggregate Outstanding Asset Balance on such date; provided that, such calculation shall exclude the effects of any Liquid Real Estate Assets that are acquired and levered by the Originator solely to satisfy REIT asset and income tests. “Portfolio Outstanding Asset Balance”: With respect to any Portfolio Asset, the sum of (i) the portion of all future Scheduled Payments becoming due under or with respect to such Portfolio Asset plus (ii) any past due Scheduled Payments with respect to such Portfolio Asset. “Prepaid Asset”: Any Asset (other than a Charged-Off Asset) that was terminated or has been prepaid in full or in part prior to its scheduled expiration date. “Prepayment Amount”: Defined in Section 6.4(b). “Prepayments”: Any and all (i) partial or full prepayments on or with respect to an Asset (including, with respect to any Asset and any Collection Period, any Scheduled Payment, Finance Charge or portion thereof that is due in a subsequent Collection Period that the Servicer has received, and pursuant to the terms of Section 6.4(b) expressly permitted the related Obligor to make, in advance of its scheduled due date, and that will be applied to such Scheduled Payment on such due date), (ii) Recoveries, and (iii) Insurance Proceeds. “Prime Rate”: (a) The rate announced by Citigroup Global Markets from time to time as its prime rate in the United States, such rate to change as and when such designated rate changes, or (b) with respect to any Additional Purchaser, as otherwise specified by or on behalf of such Additional Purchaser in the applicable Additional Purchaser Agreement. The Prime Rate is not intended to be the lowest rate of interest charged by Citigroup Global Markets or any other specified financial institution in connection with extensions of credit to debtors. “Principal Collections”: Any and all amounts received in respect of any principal due and payable from or on behalf of Obligors that are deposited into the Principal Collections Account, or received by or on behalf of the Seller by the Servicer or Originator in respect of Assets, in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment. “Principal Collections Account”: Defined in Section 6.4(f). “Proceeds”: With respect to any Collateral, whatever is receivable or received when such Collateral is sold, liquidated, foreclosed, exchanged, or otherwise disposed of, whether such 46 --------------------------------------------------------------------------------   disposition is voluntary or involuntary, and includes all rights to payment with respect to any insurance relating to such Collateral. “Program Fee”: (a) With respect to any Purchaser, as defined in the applicable Purchaser Fee Letter and (b) with respect to any Additional Purchaser, as defined in the applicable Additional Purchaser Fee Letter. “Program Fee Rate”: (a) With respect to any Purchaser, the rate set forth in such Purchaser’s Purchaser Fee Letter and (b) with respect to any Additional Purchaser, the rate set forth in the applicable Additional Agent Fee Letter as the “Program Fee Rate.” “Pro Rata Share”: (i) the percentage obtained by dividing each Purchaser’s, as applicable, Commitment (as determined under subsection (i)(a) of the definition of Commitment) by the aggregate Commitments of all the Purchasers (as determined under subsection (i)(a) of the definition of Commitment). “Purchaser”: (i) Citigroup and (ii) any Additional Purchaser, as the context requires; and “Purchasers” means collectively (a) Citigroup and (b) the Additional Purchasers. “Purchaser Agent”: The Citigroup Agent or any Additional Agent, as the context requires; and “Purchaser Agents” means collectively the Citigroup Agent and the Additional Agents. “Purchaser Fee Letter”: Each Fee Letter Agreement, dated as of the date hereof, by and among the Seller, the Servicer, and the applicable Purchaser Agent, as amended, modified, waived, supplemented, restated or replaced from time to time. “Qualified Institution”: Defined in Section 6.4(f). “Qualified Transferee”:      (a) The Seller, each Purchaser Agent, the Administrative Agent or any of their Affiliates; or      (b) any other Person which:      (i) has at least $50,000,000 in capital/statutory surplus or shareholders’ equity (except with respect to a pension advisory firm or similar fiduciary); and      (ii) is regularly engaged in the business of making or owning commercial real estate loans or operating commercial real estate properties; and      (iii) is one of the following: (I) an insurance company, bank, savings and loan association, investment bank, trust company, commercial credit corporation, pension plan, pension fund, pension fund advisory firm, mutual fund, real estate investment trust, governmental entity or plan; (II) an investment company, money management firm or a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, or an “institutional accredited investor” within the meaning of Regulation D under the Securities Act of 1933, as amended; or (III) the trustee, collateral 47 --------------------------------------------------------------------------------   agent or administrative agent in connection with (x) a securitization of the subject Asset through the creation of collateralized debt or loan obligations or (y) an asset-backed commercial paper transaction funded by a commercial paper conduit whose commercial paper notes are rated at least “A-1” by S&P or at least “P-1” by Moody’s, or (z) a repurchase transaction funded by an entity which would otherwise be a Qualified Transferee so long as the “equity interest” (other than any nominal or de minimis equity interest) in the special purpose entity that issues notes or certificates in connection with any such collateralized debt or loan obligation, asset-backed commercial paper funded transaction or repurchase transaction is owned by one or more entities that are Qualified Transferees under subclauses (A) or (B) above; or (IV) any entity Controlled (as defined below) by any of the entities described in subclauses (i), (ii) or (iii) above. For purposes of this definition only, “Control” means the ownership, directly or indirectly, in the aggregate of more than 50% of the beneficial ownership interests of an entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity, whether through the ability to exercise voting power, by contract or otherwise, and “Controlled” has the meaning correlative thereto. “Quarterly Determination Date”: March 31, June 30, September 30 and December 31 of each calendar year. “Rating Agency”: Each of S&P, Moody’s and any other rating agency that has been requested to issue a rating with respect to a Permitted Securitization Transaction. “Records”: All documents relating to the Assets, including books, records and other information (including without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) executed in connection with the origination or acquisition of the Collateral or maintained with respect to the Collateral and the related Obligors that the Seller, the Originator or the Servicer have generated, in which the Seller, the Originator or the Servicer have acquired an interest pursuant to the Sale Agreement or in which the Seller, the Originator or the Servicer have otherwise obtained an interest. “Recoveries”: As of the time any Related Property or any other related property is sold, discarded (after a determination by the Servicer that such Related Property or any other related property has little or no remaining value) or otherwise determined to be fully liquidated by the Servicer in accordance with the Credit and Collection Policy (or such similar policies and procedures utilized by the Servicer in servicing the Portfolio Assets) with respect to any Charged-Off Asset or Charged-Off Portfolio Asset, the proceeds from the sale of the Related Property or any other related property, the proceeds of any related Insurance Policy, any other recoveries with respect to such Charged-Off Asset or Charged-Off Portfolio Asset, the Related Property, any other related property, and amounts representing late fees and penalties, net of Liquidation Expenses and amounts, if any, received that are required under such Asset or Portfolio Asset, as applicable, to be refunded to the related Obligor. “Regulation U”: Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R. §221, or any successor regulation. 48 --------------------------------------------------------------------------------   “REIT”: A “real estate investment trust” as defined in Section 856(c)(5)(B) of the Code. “Rejectable Offer”: Defined in clause 3(f) of the definition of Eligible Asset. “Related Property”: With respect to an Asset, any property or other assets pledged as collateral to the Originator to secure repayment of such Asset including all Proceeds from any sale or other disposition of such property or other assets. “Related Security”: All of the Seller’s right, title and interest in and to:      (a) any Related Property securing an Asset and all Recoveries related thereto;      (b) all Required Asset Documents, Asset Files related to any Asset, Records, and the documents, agreements, and instruments included in the Asset File or Records, including without limitation, rights of recovery of the Seller against the Originator;      (c) all Insurance Policies with respect to any Asset;      (d) all security interests, liens, guaranties, warranties, letters of credit, accounts, bank accounts, mortgages or other encumbrances and property subject thereto from time to time purporting to secure or support payment of any Asset, together with all UCC financing statements or similar filings signed by an Obligor relating thereto;      (e) the Collection Account, the Excess Spread Account, each Lock Box and all Lock Box Accounts, the Securities Account together with all cash and investments in each of the foregoing other than amounts earned on investments therein;      (f) any Hedging Agreement and any payment from time to time due thereunder;      (g) the Sale Agreement and the assignment to the Administrative Agent of all UCC financing statements filed by the Seller against the Originator under or in connection with the Sale Agreement; and      (h) the proceeds of each of the foregoing. “Replaced Asset”: Defined in Section 2.18(a). “Reporting Date”: The date that is two Business Days prior to each Payment Date. “Required Advance Reduction Amount”: On any day, an amount equal to the positive difference, if any, of (a) Advances Outstanding on such day minus (b) the Maximum Availability on such day. “Required Asset Documents”: With respect to (i) any Noteless Loan identified as a Noteless Loan on the Asset Checklist, a copy of the related Loan Register (together with a certificate of a Responsible Officer of the Servicer certifying to the accuracy of such Loan Register as of the date such Loan is included as a part of the Collateral), (ii) all Loans other than Noteless Loans, the duly executed original of the promissory note and an assignment (which may be by 49 --------------------------------------------------------------------------------   endorsement or allonge) of each such promissory note to the Seller and then the Administrative Agent, signed by an officer of the Originator and the Seller, respectively, (iii) any Loan, any related loan agreement and the Asset Checklist together with, to the extent set forth on the Asset Checklist, duly executed (if applicable) originals or copies of each of any related participation agreement, acquisition agreement, subordination agreement, intercreditor agreement, security agreements or similar instruments, UCC financing statements, guarantee, or Insurance Policy (iv) for each Loan secured by real property, an Assignment of Mortgage and (v) for any Loan identified as an Assigned Loan on the Asset Checklist, the duly executed original assignment agreement; provided that with respect to any Assigned Loan, any of the foregoing documents, other than any related promissory notes in the case of Assigned Loans only, may be copies. “Required Equity Contribution”: On any day after the occurrence of a Termination Event or on the Termination Date and prior to the Collection Date when the Originator shall have received a Required Equity Contribution Notice, an amount equal to ten percent of the Aggregate Outstanding Asset Balance. “Required Equity Contribution Notice”: A written demand by the Administrative Agent to the Originator specifying an amount equal to any payment obligation of the Seller then due and owing under this Agreement or any other Transaction Document, whether arising in respect of the Seller’s obligation to make payment of Advances Outstanding, Required Equity Shortfall, Interest, indemnification, fees, expenses or otherwise. “Required Equity Shortfall”: On any day, the excess, if any, of the Required Equity Contribution over an amount equal to the excess, if any, of (a) the sum of (i) the Adjusted Borrowing Base on such day plus (ii) all Principal Collections on deposit in the Principal Collections Account (excluding principal collections received in respect of the Tandem Asset) and all deposits in the Excess Spread Account on such day, over (b) the Adjusted Advances Outstanding on such day. “Required Reports”: Collectively, the Monthly Report, the Servicer’s Certificate required pursuant to Section 6.10(c), the financial statements of the Servicer required pursuant to Section 6.10(d), the annual statements as to compliance required pursuant to Section 6.11, and the annual independent public accountant’s report required pursuant to Section 6.12. “Residential Mortgage Policies and Procedures”: The written residential mortgage policies and procedures manual of CapitalSource Inc. attached hereto as Schedule V as it may be amended or supplemented from time to time. “Responsible Officer”: With respect to any Person, any duly authorized officer of such Person with direct responsibility for the administration of this Agreement and also, with respect to a particular matter, any other duly authorized officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject. “Restricted Junior Payment”: (i) any dividend or other distribution, direct or indirect, on account of any class of membership interests of the Seller now or hereafter outstanding, except a dividend payment solely in interests of that class of membership interests or in any junior class of membership interests of the Seller; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any class of membership 50 --------------------------------------------------------------------------------   interest of the Seller now or hereafter outstanding, (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire membership interests of Seller now or hereafter outstanding, and (iv) any payment of management fees by the Seller (except for reasonable management fees to the Originator or its Affiliates in reimbursement of actual management services performed). “Retained Interest”: (A) With respect to any Revolving Loan or any Loan with an unfunded commitment on the part of the Originator that does not provide by its terms that funding thereunder is in Originator’s sole and absolute discretion and that is transferred by the Originator to the Seller and/or by the Seller to the Purchasers, all of the obligations, if any, to provide additional funding with respect to such Revolving Loan, and (B) with respect to any Assigned Loan, any Participation Loan or any Agented Loan that is transferred by the Originator to the Seller and/or by the Seller to the Purchasers, (i) all of the obligations, if any, of the agent(s) under the documentation evidencing such Assigned Loan, Participation Loan, or Agented Loan and (ii) the applicable portion of the interests, rights and obligations under the documentation evidencing such Assigned Loan, Participation Loan, or Agented Loan that relate to such portion(s) of the indebtedness that is owned by another lender or is being retained by the Originator pursuant to clause (A) of this definition. “Retransfer Date”: Defined in Section 4.6. “Revolving Loan”: A Loan that is a line of credit or contains an unfunded commitment arising from an extension of credit by the Originator to an Obligor, pursuant to the terms of which amounts borrowed may be repaid and subsequently reborrowed; provided that any such Loan shall exclude any Retained Interest. “Revolving Period”: The period commencing on the Closing Date and ending on the day immediately preceding the Termination Date. “S&P”: Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and any successor thereto. “Sale Agreement”: The Sale and Contribution Agreement, dated as of the date hereof, between the Originator and the Seller, as amended, modified, waived, supplemented, restated or replaced from time to time. “Sale/Leaseback Loan”: Any Loan by the Originator to an SPE Obligor that is collateralized by real estate and the SPE Obligor’s rights under a Lease with an Underlying Lessee. “Scheduled Payments”: With respect to any Asset, each monthly, quarterly, or annual payment of principal required to be made by the Obligor thereof under the terms of such Asset; in all cases, excluding any payment in the nature of, or constituting, interest. “Secured Party”: (i) each Purchaser, (ii) the Administrative Agent and each Purchaser Agent, and (iii) each Hedge Counterparty that is either a Purchaser or an Affiliate of the Citigroup Agent if that Affiliate is a Hedge Counterparty that executes a counterpart of this Agreement agreeing to be bound by the terms of this Agreement applicable to a Secured Party. 51 --------------------------------------------------------------------------------   “Securities Account”: Defined in Section 6.4(h). “Securities Intermediary”: Defined in Section 8.11(a). “Seller”: Defined in the Preamble of this Agreement. “Senior Secured ABL Loan”: Any Revolving Loan that (i) is secured by a first priority Lien on all of the Obligor’s assets constituting Related Property for the Loan, (ii) provides the related Obligor with the option to receive additional borrowings thereunder based on the value of its eligible accounts receivable, residential mortgage receivables, inventory (other than real estate property or land) or equipment, (iii) has a Loan-to-Liquidation Value of less than or equal to (a) 85% with respect to the Related Property which constitutes accounts receivable, (b) 90% with respect to the Related Property which constitutes residential mortgage receivables, (c) 50% with respect to the Related Property which constitutes inventory (other than real estate property or land), and (d) 80% with respect to the Related Property which constitutes equipment, and (iii) provides that the payment obligation of the Obligor on such Loan is either senior to, or pari passu with, all other loans or financings to such Obligor. “Senior Secured Loan”: Any Loan that (i) is secured by a first priority Lien on all of the Obligor’s assets constituting Related Property for the Loan, (ii) has a Loan-to-Value of not greater than 90%, and (iii) provides that the payment obligation of the Obligor on such Loan is either senior to, or pari passu with, all other loans or financings to such Obligor. “Servicer”: CSE Mortgage, and each successor (in the same capacity) appointed as Successor Servicer pursuant to Section 6.16(a). “Servicer Advance”: An advance of Scheduled Payments made by the Servicer pursuant to Section 6.5. “Servicer Default”: Defined in Section 6.15. “Servicer Termination Notice”: Defined in Section 6.15. “Servicer’s Certificate”: Defined in Section 6.10(c). “Servicing Fee”: Defined in Section 2.14(b). “Servicing Fee Rate”: 0.50% per annum for Eligible Assets which are not Workout Assets and 0.75% per annum for Workout Assets, without duplication. “Solvent”: As to any Person at any time, having a state of affairs such that all of the following conditions are met: (a) the fair value of the property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair salable value of the property of such Person in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and 52 --------------------------------------------------------------------------------   unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute unreasonably small capital. “SPE Obligor”: An Obligor that (a) is organized as a bankruptcy remote, special purpose entity (as evidenced by an Opinion of Counsel in form and substance satisfactory to the Administrative Agent) and is not an operating company and (b) has as its primary assets real property and rights under a Lease. “Subsidiary”: As to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person; provided that any joint ventures in which each party to the joint venture possesses 50% of the voting stock of such entity shall be expressly excluded from this definition. “Substitute Asset”: On any day, an Eligible Asset that meets each of the conditions for substitution set forth in Section 2.18. “Successor Servicer”: Defined in Section 6.16(a). “Tandem Advance”: Defined in Section 2.1(c). “Tandem Asset”: The Term Loan evidenced by the Term Loan and Security Agreement dated as of June 30, 2006 by and between Tandem Health Care Inc., FC-THC Acquisition LLC, the other parties identified on Exhibit C attached thereto, CSE Mortgage LLC as lender and CapitalSource Finance LLC, as administrative, payment and collateral agent (as amended, modified, supplemented, or restated from time to time). “Tandem Outstanding Asset Balance”: As of any date of determination, the Outstanding Asset Balance of the Tandem Asset. “Tape”: Defined in Section 7.2(b)(ii). “Taxes”: Any present or future taxes, levies, imposts, duties, charges, assessments or fees of any nature (including interest, penalties, and additions thereto) that are imposed by any Governmental Authority. “Termination Date”: The earliest of (a) the date of the termination of the Facility Amount or the Adjusted Facility Amount pursuant to Section 2.4, (b) the Business Day designated by the Seller to the Administrative Agent and each Purchaser Agent as the Termination Date at any time following two Business Days’ prior written notice thereof to the Administrative Agent and each Purchaser Agent, (c) June 29, 2007, (d) with respect to any Purchaser who is an Issuer the date any Liquidity Agreement shall cease to be in full force and effect, (d) the date of the declaration 53 --------------------------------------------------------------------------------   of the Termination Date pursuant to Section 10.2(a) or the date of the automatic occurrence of the Termination Date pursuant to Section 10.2(b), and (e) the second Business Day prior to the Facility Termination Date “Termination Event”: Defined in Section 10.1. “Term Loan”: A Loan that is a term loan that has been fully funded and does not contain any unfunded commitment on the part of the Originator arising from an extension of credit by the Originator to an Obligor. “Transaction”: Defined in Section 3.2. “Transaction Documents”: The Agreement, the Sale Agreement, each Hedging Agreement, the Hedge Guaranty, the Lock-Box Agreement, the Intercreditor Agreement, each Variable Funding Certificate, each Purchaser Fee Letter, any Additional Agent Fee Letters, any Additional Purchaser Agreements, the Backup Servicer Fee Letter, the Collateral Custodian Fee Letter, any UCC financing statements filed pursuant to the terms of this Agreement, and any additional document the execution of which is necessary or incidental to carrying out the terms of the foregoing documents. “Transferee Letter”: Defined in Section 13.16(a). “Transition Expenses”: The reasonable costs (including reasonable attorneys’ fees) of the Backup Servicer incurred in connection with the transferring the servicing obligations under this Agreement and amending this Agreement to reflect such transfer in an amount not to exceed $100,000. “UCC”: The Uniform Commercial Code as from time to time in effect in the applicable jurisdiction or jurisdictions. “Underlying Instruments”: The indenture, loan agreement, credit agreement or other agreement pursuant to which a Loan has been issued or created and each other agreement that governs the terms of or secures the obligations represented by such Loan or of which the holders of such Loan are the beneficiaries related thereto. “Underlying Lessee”: A lessee that is obligated on a Lease with an SPE Obligor. “United States”: The United States of America. “Unmatured Termination Event”: Any event that, with the giving of notice or the lapse of time, or both, would become a Termination Event. “Variable Funding Certificate”: Defined in Section 2.1. “Voting Stock”: With respect to any Person, capital stock or membership interests (in the case of a limited liability company) issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing 54 --------------------------------------------------------------------------------   similar functions) of such Person, even though the right so to vote has been suspended by the happening of such contingency. “Warranty Asset”: Any Asset that fails to satisfy any criteria of the definition of Eligible Asset; provided that notwithstanding the foregoing, for purposes of determining what is a Warranty Asset, the criteria set forth in clauses (1)(c), (1)(d), 1(l)(i), 1(s) (but solely to the extent the criteria in such clause 1(s) relates to any express representation and warranty that an Asset is an Eligible Asset), 1(w), 1(x), (1)(y) and clauses (2)(e) and 2(f) (but solely to the extent that the criteria in such clauses 2(e) and 2(f) would not be satisfied as a result of the operation of law or an effective court order in connection with an Insolvency Event) and clause (3)(i) of the definition of Eligible Asset and clauses (viii) and (x) in the definition of Eligible Obligor shall apply only as of the applicable Cut-Off Date of such Asset. “Warranty Event”: As to any Asset, the discovery that as of the related Cut-Off Date or Funding Date there had existed a breach of any representation or warranty relating to such Asset and the continuance of such breach through any applicable determination date or beyond any applicable cure period. “Weighted Average Advance Rate”: For any Advances Outstanding on any day, the weighted average of the Advance Rates applicable to the Eligible Assets backing such Advances on such day, weighted according to the proportion of the Aggregate Outstanding Asset Balance each type of Asset represents. “Workout Asset”: A Delinquent Asset or a Charged-Off Asset. “Zero-Coupon Bond”: A bond that, at the time of determination, does not make periodic payments of interest.      Section 1.2 Other Terms.      All accounting terms used but not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and used but not specifically defined herein, are used herein as defined in such Article 9.      Section 1.3 Computation of Time Periods.      Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.”      Section 1.4 Interpretation.      In each Transaction Document, unless a contrary intention appears:      (i) the singular number includes the plural number and vice versa; 55 --------------------------------------------------------------------------------        (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by the Transaction Documents;      (iii) reference to any gender includes each other gender;      (iv) reference to day or days without further qualification means calendar days;      (v) reference to any time means New York, New York time;      (vi) reference to any agreement (including any Transaction Document), document or instrument means such agreement, document or instrument as amended, modified, waived, supplemented, restated or replaced and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Transaction Documents, and reference to any promissory note includes any promissory note that is an extension or renewal thereof or a substitute or replacement therefor; and      (vii) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any Section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such Section or other provision.      Section 1.5 Special Provisions Relating to Alternative Currency Loans.      For purposes of (a) complying with any requirement of this Agreement stated in Dollars and (b) calculating any ratio or other test set forth in this Agreement, the amount of any Asset that is denominated in an Alternative Currency shall be deemed to be the Dollar Equivalent of such amount of Alternative Currency determined as of the date of such calculation including, without limitation, the following (together with any defined terms in which such defined terms are used): “Aggregate Outstanding Asset Balance”, “Borrowing Base”, “Pool Concentration Criteria”, “Hedge Percentage”, “Interest Collections”, “Outstanding Asset Balance”, “Permitted Investments”, “Portfolio Aggregate Outstanding Asset Balance”, “Portfolio Outstanding Asset Balance”, “Principal Collections”, “Scheduled Payment” and “Servicing Fee”. ARTICLE II PURCHASE OF THE VARIABLE FUNDING CERTIFICATES      Section 2.1 The Variable Funding Certificates.      (a) On the terms and conditions hereinafter set forth, Seller shall deliver a duly executed variable funding certificate (each such certificate, a “Variable Funding Certificate” or “VFC”), in substantially the form of Exhibit B-1 or B-2, as applicable, (i) on the Closing Date, to each Purchaser Agent at its address set forth on the signature pages of this Agreement, and (ii) on 56 --------------------------------------------------------------------------------   each date on which an Additional Purchaser purchases a Variable Funding Certificate, to the related Additional Agent at the address designated by such Additional Agent. Each Variable Funding Certificate shall evidence an undivided ownership interest (and the Seller does hereby sell, transfer, assign and convey such undivided ownership interest to the Purchasers) in the Collateral purchased by a Purchaser in an amount equal, at any time, to the percentage equivalent of a fraction (i) the numerator of which is the Advances outstanding under the applicable VFC on such day, and (ii) the denominator of which is the total aggregate Advances Outstanding on such day. Interest shall accrue, and each VFC shall be payable, as described herein; provided that (1) the aggregate amount outstanding under all VFCs at any one time shall not exceed the Facility Amount and (2) the aggregate amount outstanding under all VFCs at any one time, excluding the Tandem Advance, shall not exceed the Adjusted Facility Amount.      (b) On the terms and conditions hereinafter set forth, from the Closing Date to, but excluding the Termination Date, the Seller may, at its option, request the Purchasers to make advances of funds under the VFCs (each, an “Advance”) and the Purchasers shall make such Advance in an amount equal to their Pro Rata Share of such requested Advance; provided that in no event shall the Purchasers make any Advance if, after giving effect to such Advance either: (i) the aggregate Advances Outstanding hereunder would exceed the lesser of (x) the Facility Amount or (y) the Maximum Availability, or (ii) the aggregate Adjusted Advances Outstanding hereunder would exceed the lesser of (x) the Adjusted Facility Amount or (y) the Adjusted Maximum Availability. Notwithstanding anything contained in this Section 2.1 or elsewhere in this Agreement to the contrary, no Purchaser shall be obligated to provide its Purchaser Agent or the Seller with aggregate funds in connection with an Advance that would exceed such Purchaser’s unused Commitment then in effect. Each Advance made by the Purchasers hereunder is subject to the interests of the Hedge Counterparties under Section 2.9(a)(1) and Section 2.10(a)(2) of this Agreement.      (c) On the terms and conditions hereinafter set forth, on the Closing Date the Seller shall request the Purchasers to make a one-time advance of funds under the VFCs in an amount not to exceed $308,000,000, the proceeds of which will be applied by the Seller to acquire the Tandem Asset (such Advance, the “Tandem Advance”), and the Purchasers shall make such Tandem Advance in an amount equal to their Pro Rata Share of such requested Tandem Advance; provided that the Tandem Asset shall be an Eligible Asset so long as it is acquired with the proceeds of the Tandem Advance on the Closing Date.      (d) The Seller may, within 60 days but not less than 45 days prior to the expiration of any Liquidity Agreement or this Agreement, by written notice to each applicable Purchaser Agent and the Administrative Agent, make a request (i) for each applicable Liquidity Bank to extend the term of such Liquidity Agreement for an additional period of 364 days and (ii) for each applicable Purchaser Agent to extend the date set forth in clause (c) of the definition of Termination Date for an additional period of 364 days. Each applicable Purchaser Agent will give prompt notice to the applicable Purchaser and each applicable Liquidity Bank of its receipt of such request, and each Purchaser and each Liquidity Bank shall make a determination, in their sole discretion, not less than 45 days prior to the expiration of the date set forth in clause (c) of the definition of Termination Date or the expiration of any Liquidity Agreement (as applicable) as to whether or not it will agree to the extension requested. The failure of a Purchaser Agent or a Liquidity Bank to provide timely notice of its decision to the Seller shall be deemed to 57 --------------------------------------------------------------------------------   constitute a refusal by such Purchaser or such Liquidity Bank (as applicable) to extend the date set forth in clause (c) of the definition of Termination Date or the term of the Liquidity Agreement, respectively. In the event the term of any Liquidity Agreement or the date set forth in clause (c) of the definition of Termination Date is not extended for a period of up to 364 days, the Termination Date shall be extended with respect to and with the consent of each applicable Purchaser Agent (such consent not to be unreasonably withheld) for a period of 90 days and notice of such termination shall be provided by the Administrative Agent to the Collateral Custodian, the Originator, the Seller and the Servicer. Only one such 90 day extension of the Termination Date with respect to the applicable Purchaser, as described in this Section 2.1(d), may occur. The Seller confirms that each Liquidity Bank and each Purchaser, in their sole and absolute discretion, without regard to the value or performance of the Collateral or any other factor, may elect not to extend any Liquidity Agreement or the date set forth in clause (c) of the definition of Termination Date (as applicable).      (e) The Seller may, with the written consent of the Administrative Agent, request that an existing Purchaser increase its Commitment in connection with a corresponding increase in the Adjusted Facility Amount or, with the written consent of the Administrative Agent, add additional Persons as Purchasers; provided that: (i) if the addition of any Purchaser or the increase of any Purchaser’s Commitment would cause the aggregate Commitments of the Purchasers to exceed $900,000,000, such addition or increase may be effected only with the consent of the Administrative Agent and each Purchaser Agent and (ii) the Commitment of any Purchaser may only be increased with the prior written consent of such Purchaser. Each new Purchaser and Purchaser Agent shall become a party hereto by executing and delivering to the Administrative Agent and the Seller an Additional Purchaser Agreement.      (f) Notwithstanding anything to the contrary contained herein, this Agreement and the VFCs to be issued thereunder shall constitute a single revolving debt facility with a single maturity and in no event shall Seller effect a sale of any VFC to an existing Purchaser (or to an additional Purchaser) or take any other action under the Agreement that would cause Seller to have outstanding one or more debt obligations with two or more maturities hereunder. For purposes of this section, debt obligations have “two or more maturities” if they have different stated maturities or if the holders of the debt obligations possess different rights concerning the acceleration of or delay in the maturities of the obligations.      Section 2.2 [Reserved].      Section 2.3 Procedures for Advances by Purchasers.      (a) Each Advance from a Purchaser hereunder shall be effected by the Seller (or the Servicer on its behalf) delivering to the Administrative Agent and each Purchaser Agent (with a copy to the Collateral Custodian and the Backup Servicer) a duly completed Borrowing Notice (along with a Borrowing Base Certificate) no later than 2:00 p.m. (New York City, New York time) at least one Business Day prior to the proposed Funding Date. Each Borrowing Notice (along with a Borrowing Base Certificate) shall (i) specify the desired amount of such Advance, which amount must be at least equal to $250,000, (ii) specify the date of such Advance, (iii) 58 --------------------------------------------------------------------------------   specify the Assets to be financed on such Funding Date (including the appropriate file number and Outstanding Asset Balance for each Asset (or, in the case of the Tandem Asset, the Tandem Outstanding Asset Balance), and identifying each CMBS Security or Loan by type and whether such Loan is a Senior Secured ABL Loan, Senior Secured Loan, B-Note Loan, Mezzanine Loan, Acquired Loan, Assigned Loan, or Participation Loan) and (iv) include a representation that all conditions precedent for an Advance described in Article III hereof have been met. Each Borrowing Notice shall be irrevocable.      (b) On the date of each Advance, each Purchaser shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Seller in same day funds, at such bank or other location reasonably designated by Seller in its Borrowing Notice given pursuant to this Section 2.3, an amount equal to its Pro Rata Share of, the least of (i) the amount requested by the Seller for such Advance, (ii) an amount equal to, in the case of the initial Funding Date, the Availability and on any Funding Date thereafter, the Adjusted Availability on such Funding Date or (iii) in the case of the initial Funding Date, the Facility Amount and on any Funding Date thereafter, the Adjusted Facility Amount.      (c) On each Funding Date, the obligation of each Purchaser to remit its Pro Rata Share of each Advance shall be several from that of each other Purchaser and the failure of any Purchaser to so make such amount available to the Seller shall not relieve any other Purchaser of its obligation hereunder.      Section 2.4 Reduction of the Facility Amount; Mandatory and Optional Repayments.      (a) The Seller may, upon at least 20 Business Days’ prior written notice (such notice to be received by the Administrative Agent and each Purchaser Agent no later than 5:00 p.m. (New York City, New York time) on such day) to the Administrative Agent and each Purchaser Agent, terminate in whole or reduce in part the portion of the Facility Amount that exceeds the sum of the Advances Outstanding, accrued Interest, Breakage Costs and Hedge Breakage Costs; provided that each partial reduction of the Facility Amount shall be in an aggregate amount equal to at least $1,000,000. Each notice of reduction or termination pursuant to this Section 2.4(a) shall be irrevocable.      (b) The Seller may, upon one Business Days’ prior written notice (such notice to be received by the Administrative Agent, each Hedge Counterparty and each Purchaser Agent no later than 2:00 p.m. (New York City, New York time) on such day) to the Administrative Agent and each Purchaser Agent, reduce the Advances Outstanding by remitting, in accordance with their Pro Rata Share, to each Purchaser Agent, for payment to the respective Purchasers, (i) cash and (ii) instructions to reduce such Advances Outstanding, related accrued Interest, Breakage Costs and Hedge Breakage Costs; provided that no such reduction shall be given effect (1) unless the Seller has complied with the terms of any Hedging Agreement requiring that one or more Hedge Transactions be terminated in whole or in part as the result of any such reduction of the Advances Outstanding, and Seller has paid all Hedge Breakage Costs and any payments owing to the relevant Hedge Counterparty for any such termination (2) if a Termination Event or Unmatured Termination Event has occurred, is continuing or would result from such reduction. Any reduction of the Advances Outstanding shall be in a minimum amount of $250,000. Any 59 --------------------------------------------------------------------------------   such reduction will occur only if sufficient funds have been remitted to pay all such amounts in the succeeding sentence in full. Upon receipt of such amounts, the Purchaser Agents shall apply such amounts first to the pro rata reduction of the Advances Outstanding, second to the payment of related accrued Interest on the amount of the Advances Outstanding to be repaid by paying such amounts to the respective Purchasers, and third to the payment of any Breakage Costs and Hedge Breakage Costs and any other payments owing to the applicable Hedge Counterparty in respect of the termination of any Hedge Transaction. Any notice relating to any prepayment pursuant to this Section 2.4(b) shall be irrevocable.      (c) If on any day (i) the Administrative Agent, as agent for the Secured Parties, does not own or have a valid and perfected first priority security interest in any of the Collateral or (ii) any Asset which has been represented by the Seller to be an Eligible Asset is later determined not to have been an Eligible Asset as of the related Cut-Off Date, upon the earlier of the Seller’s receipt of notice from the Administrative Agent or the Seller becoming aware thereof and the Seller’s failure to cure such breach within 30 days, the Seller shall be deemed to have received on such day a collection (a “Deemed Collection”) of such Asset in full and shall on such day pay to the Administrative Agent, on behalf of the Purchasers and each Hedge Counterparty, an amount equal to (x) (1) the Outstanding Asset Balance of the Asset (or, in the case of the Tandem Asset, the Tandem Outstanding Asset Balance) to be applied to the pro rata reduction of the principal of each VFC plus (y) any Breakage Costs and Hedge Breakage Costs and any other payments owing to the applicable Hedge Counterparty in respect of the termination of any Hedge Transaction required as a result of the Deemed Collection and retransfer of the related Asset contemplated by this Section 2.4(c). In connection with any such Deemed Collection, the Administrative Agent, as agent for the Secured Parties, shall automatically and without further action, be deemed to transfer to the Seller, free and clear of any Lien created by the Administrative Agent, all of the right, title and interest of the Administrative Agent, as agent for the Secured Parties, in, to, and under the Asset with respect to which the Administrative Agent has received such Deemed Collection, but without any other representation and warranty of any kind, express or implied.      Section 2.5 Determination of Interest.      (a) Each Purchaser Agent shall determine such Purchaser’s CP Rate and the Interest (including unpaid Interest, if any, due and payable on a prior Payment Date) to be paid by the Seller with respect to each Advance, as applicable, on each Payment Date for the related Accrual Period and shall advise the Servicer thereof on or before the third Business Day prior to such Payment Date.      (b) Each Additional Agent shall determine such Additional Purchaser’s CP Rate and Interest (including unpaid Interest related to such CP Rate, if any, due and payable to a prior Payment Date) to be paid by the Seller with respect to each Advance on each Payment Date for the related Accrual Period and shall advise the Servicer thereof on or before the third Business Day prior to such Payment Date. 60 --------------------------------------------------------------------------------        Section 2.6 Percentage Evidenced by each Variable Funding Certificate.      The variable percentage ownership interest in the Collateral represented by each VFC shall be initially computed on its date of purchase. Thereafter, until the Termination Date, each VFC shall be automatically recomputed (or deemed to be recomputed) on each day prior to the Termination Date. The variable percentage ownership interest in the Collateral represented by each VFC as computed (or deemed to be recomputed) as of the close of business on the day immediately preceding the Termination Date shall remain constant at all times on and after the Termination Date. The variable percentage ownership interest in the Collateral represented by each VFC shall become zero when its Advances and Interest have been indefeasibly paid in full.      Section 2.7 [Reserved].      Section 2.8 Notations on Variable Funding Certificates.      Each Purchaser Agent is hereby authorized to enter on a schedule attached to the VFC a notation (which may be computer generated) with respect to each Advance under the VFC made by the related Purchaser of: (a) the date and principal amount thereof, and (b) each repayment of principal thereof, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. The failure of any Purchaser Agent to make any such notation on the schedule attached to the VFC shall not limit or otherwise affect the obligation of the Seller to repay the Advances in accordance with their respective terms as set forth herein.      Section 2.9 Settlement Procedures During the Revolving Period.      (a) On each Payment Date during the Revolving Period, the Servicer shall direct the Collateral Custodian to pay pursuant to the Monthly Report to the following Persons, from (1) the Collection Account, to the extent of Available Funds, and (2) Servicer Advances received with respect to the immediately preceding Collection Period that ended on the last day of the calendar month immediately preceding the calendar month in which such Payment Date occurs, the following amounts in the following order of priority:      (1) pro rata to each Hedge Counterparty, any amounts, (other than any Hedge Breakage Costs and any payments due in respect of the termination of any Hedging Transaction), owing to that Hedge Counterparty under its respective Hedging Agreement in respect of any Hedge Transaction(s), for the payment thereof;      (2) to the Servicer, in an amount equal to any unreimbursed Servicer Advances, for the payment thereof;      (3) to the Servicer, in an amount equal to any accrued and unpaid Servicing Fees to the end of the preceding Collection Period, for the payment thereof;      (4) to the extent not paid for by the Originator, pro rata to the Backup Servicer and the Collateral Custodian, in an amount equal to any accrued and unpaid Backup Servicing Fees, Collateral Custodian Fees and Transition Expenses, for the payment thereof; 61 --------------------------------------------------------------------------------        (5) to each Purchaser Agent, pro rata in accordance with the amount of Advances Outstanding hereunder for the account of the applicable Purchaser, in an amount equal to any accrued and unpaid Interest, Program Fee, Commitment Fee and Breakage Costs, for the payment thereof;      (6) to each Purchaser Agent, if either the Required Advance Reduction Amount or Adjusted Required Advance Reduction Amount is greater than zero, an amount necessary to reduce the Required Advance Reduction Amount or Adjusted Required Advance Reduction Amount, as applicable, to zero, pro rata in accordance with the amount of Adjusted Advances Outstanding hereunder for the account of the applicable Purchaser, for the payment thereof;      (7) pro rata to each Hedge Counterparty, any Hedge Breakage Costs and payments due in termination of any Hedge Transaction, owing to that Hedge Counterparty under its respective Hedging Agreement, for the payment thereof;      (8) to the Administrative Agent, each Purchaser Agent, the applicable Purchaser, the Backup Servicer, the Collateral Custodian, the Affected Parties, the Indemnified Parties or the Secured Parties, pro rata in accordance with the amount owed to such Person under this clause (8), all other amounts, including Increased Costs but other than Advances Outstanding, then due under this Agreement, for the payment thereof; and      (9) any remaining amount shall be distributed to the Seller.      (b) On the terms and conditions hereinafter set forth, from time to time during the Revolving Period, the Servicer may, to the extent of any Principal Collections on deposit in the Principal Collections Account, withdraw such funds for the purpose of reinvesting in additional Eligible Assets, provided the following conditions are satisfied:      (i) all conditions precedent set forth in Section 3.2(b) have been satisfied;      (ii) the Servicer provides same day written notice to the Administrative Agent and Collateral Custodian by facsimile (to be received no later than 2:00 p.m. (New York City, New York time) on such day) of the request to withdraw Principal Collections and the amount thereof;      (iii) the notice required in clause (ii) above shall be accompanied by a Borrowing Notice in the form of Exhibit A-2 and a Borrowing Base Certificate and the same are executed by the Seller and at least one Responsible Officer of the Servicer;      (iv) the Collateral Custodian provides to the Administrative Agent by facsimile (to be received no later than 2:00 p.m. (New York City, New York time) on that same date) a statement reflecting the total amount on deposit on such day in the Principal Collections Account; and      (v) upon the satisfaction of the conditions set forth in clauses (i) through (iv) above, and the Administrative Agent’s confirmation of available funds, the 62 --------------------------------------------------------------------------------   Administrative Agent will instruct the Collateral Custodian by facsimile on such day to release funds from the Principal Collections Account to the Servicer in an amount not to exceed the lesser of (A) the amount requested by the Servicer and (B) the amount on deposit in the Principal Collections Account on such day.      Section 2.10 Settlement Procedures During the Amortization Period.      (a) On each Payment Date during the Amortization Period, the Servicer shall direct the Collateral Custodian to pay pursuant to the Monthly Report to the following Persons, (i) from the Collection Account, to the extent of Available Funds, (ii) in the case of payments solely for purposes of clause (6), from the Excess Spread Account to the extent of any amounts on deposit therein, and (iii) from Servicer Advances received with respect to the immediately preceding Collection Period, the following amounts in the following order of priority:      (1) pro rata to each Hedge Counterparty, any amounts, (including any Hedge Breakage Costs and any payments due in respect of the termination of any Hedge Transaction in an amount not to exceed $250,000 in the aggregate for all Hedging Agreements), owing to that Hedge Counterparty under its respective Hedging Agreement in respect of any Hedge Transaction(s), for the payment thereof;      (2) to the Servicer, in an amount equal to any unreimbursed Servicer Advances, for the payment thereof;      (3) to the Servicer, in an amount equal to any accrued and unpaid Servicing Fees to the end of the preceding Collection Period, for the payment thereof;      (4) to the extent not paid for by the Originator, pro rata to the Backup Servicer and the Collateral Custodian, in an amount equal to any accrued and unpaid Backup Servicing Fees, Collateral Custodian Fees and Transition Expenses, for the payment thereof;      (5) to each Purchaser Agent, pro rata in accordance with the amount of Advances Outstanding hereunder for the account of the applicable Purchaser, in an amount equal to any accrued and unpaid Interest, Program Fee, Commitment Fee and Breakage Costs, for the payment thereof;      (6) to each Purchaser Agent, pro rata in accordance with the amount of Advances Outstanding hereunder for the account of the applicable Purchaser, in an amount necessary to reduce the Advances Outstanding and all other Aggregate Unpaids to zero, for the payment thereof;      (7) pro rata to each Hedge Counterparty, any Hedge Breakage Costs and payments due in termination of any Hedge Transaction, owing to that Hedge Counterparty under its respective Hedging Agreement to the extent not reimbursed pursuant to clause (1) above, for the payment thereof;      (8) to the Administrative Agent, each Purchaser Agent, the applicable Purchaser, the Backup Servicer, the Collateral Custodian, the Affected Parties, the 63 --------------------------------------------------------------------------------   Indemnified Parties or the Secured Parties, pro rata in accordance with the amount owed to such Person under this clause (8), all other amounts, including Increased Costs but other than Advances Outstanding, then due under this Agreement, for the payment thereof; and      (9) any remaining amount shall be distributed to the Seller.      Section 2.11 Collections and Allocations.      (a) Collections. The Servicer shall promptly identify any collections received as being on account of Interest Collections, Principal Collections or other Collections and shall transfer, or cause to be transferred, all Collections received directly by it or on deposit in the form of available funds in the Lock-Box Accounts to the Collection Account by the close of business on the second Business Day after such Collections are received. In transferring Collections to the Collection Account, the Servicer shall segregate Principal Collections and transfer the same to the corresponding Principal Collections Account. The Servicer shall make such deposits or payments on the date indicated therein by wire transfer, in immediately available funds. The Servicer shall further include a statement as to the amount of Principal Collections and Interest Collections on deposit in the Collection Account on each Reporting Date in the Monthly Report delivered pursuant to Section 6.10(b).      (b) Initial Deposits. On the Closing Date and on each Addition Date thereafter, the Servicer will deposit (in immediately available funds) into the Collection Account all Collections received after the applicable Cut-Off Date and through and including the Closing Date or Addition Date, as the case may be, in respect of Eligible Assets being transferred to and included as part of the Collateral on such date.      (c) Excluded Amounts. With the prior written consent of the Administrative Agent and each Purchaser Agent, which consent shall not be unreasonably withheld (a copy of which will be provided by the Servicer to the Backup Servicer), the Servicer may withdraw from the Collection Account any deposits thereto constituting Excluded Amounts if the Servicer has, prior to such withdrawal and consent, delivered to the Administrative Agent and each Purchaser Agent a report setting forth the calculation of such Excluded Amounts in a format satisfactory to the Administrative Agent and each Purchaser Agent in their sole discretion.      (d) Investment of Funds. Until the occurrence of a Termination Event, to the extent there are uninvested amounts deposited in the Collection Account, all amounts shall be invested in Permitted Investments selected by the Servicer that mature no later than the Business Day immediately preceding the next Payment Date; from and after the occurrence of a Termination Event, to the extent there are uninvested amounts in the Collection Account (net of losses and investment expenses), all amounts may be invested in Permitted Investments selected by the Administrative Agent that mature no later than the Business Day immediately preceding the next Payment Date. All earnings (net of losses and investment expenses) thereon shall be retained or deposited into the Collection Account and shall be applied pursuant to the provisions of Section 2.9 and Section 2.10. 64 --------------------------------------------------------------------------------        Section 2.12 Payments, Computations, Etc.      (a) Unless otherwise expressly provided herein, all amounts to be paid or deposited by the Seller or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof no later than 2:00 p.m. (New York City, New York time) on the day when due in lawful money of the United States in immediately available funds to the applicable Purchaser Agent’s Account and if not received before such time shall be deemed received on the next Business Day. The Seller shall, to the extent permitted by law, pay to the Secured Parties interest on all amounts not paid or deposited when due hereunder at 2.0% per annum above the Base Rate, payable on demand; provided that such interest rate shall not at any time exceed the maximum rate permitted by Applicable Law. Such interest shall be for the account of, and distributed to, each applicable Purchaser. All computations of interest and all computations of Interest and other fees hereunder shall be made on the basis of a year consisting of 360 days (other than calculations with respect to the Base Rate which shall be based on a year consisting of 365 or 366 days, as applicable) for the actual number of days (including the first but excluding the last day) elapsed.      (b) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of Interest or any fee payable hereunder, as the case may be. For avoidance of doubt, to the extent that Available Funds are insufficient on any Payment Date to satisfy the full amount of any Increased Costs pursuant to Section 2.9(a)(8) or Section 2.10(a)(8), such unpaid amounts shall remain due and owing and shall accrue Interest until repaid in full.      (c) If any Advance requested by the Seller and approved by the applicable Purchaser and the Purchaser Agents, pursuant to Section 2.3 is not, for any reason made or effectuated, as the case may be, on the date specified therefor, the Seller shall indemnify the applicable Purchaser against any reasonable loss, cost or expense incurred by the applicable Purchaser including, without limitation, any loss (including loss of anticipated profits, net of anticipated profits in the reemployment of such funds in the manner determined by each Purchaser), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the applicable Purchaser to fund or maintain such Advance.      Section 2.13 Optional Repurchase.      At any time following the Termination Date when the Borrowing Base is less than 15% percent of the Borrowing Base as of the Termination Date, the Seller may notify the Administrative Agent and each Purchaser Agent in writing of its intention to purchase all remaining Collateral; provided that all Hedge Transactions have been terminated in accordance with their terms. On the Payment Date next succeeding any such notice, the Seller shall purchase all such Collateral for a price equal to the Aggregate Unpaids and the proceeds of such purchase will be deposited into the Collection Account and paid in accordance with Section 2.10. 65 --------------------------------------------------------------------------------        Section 2.14 Fees.      (a) The Servicer on behalf of the Seller shall pay in accordance with Section 2.9(a)(5) and Section 2.10(a)(5), as applicable, to the applicable Purchaser Agent from the Collection Account to the extent funds are available on each Payment Date, monthly in arrears, the applicable Program Fee and the applicable Commitment Fee agreed to between the Seller and such Purchaser Agent in the relevant Purchaser Fee Letter and the relevant Additional Agent Fee Letter, as applicable.      (b) The Servicer shall be entitled to receive a fee (the “Servicing Fee”), monthly in arrears in accordance with Section 2.9(a)(3) and Section 2.10(a)(3), as applicable, which fee shall be equal to the sum of (a) the product of (i) the Servicing Fee Rate applicable to Eligible Assets which are not Workout Assets, (ii) the Aggregate Outstanding Asset Balance (excluding Workout Assets), as of the first day of the immediately preceding Collection Period and (iii) the actual number of days in such Collection Period divided by 360, and (b) the product of (i) the Servicing Fee Rate applicable to Workout Assets, (ii) the sum of the Outstanding Asset Balances of all Workout Assets, as of the first day of the immediately preceding Collection Period and (iii) the actual number of days in such Collection Period divided by 360.      (c) The Backup Servicer shall be entitled to receive the Backup Servicing Fee in accordance with Section 2.9(a)(4) and Section 2.10(a)(4), as applicable.      (d) The Collateral Custodian shall be entitled to receive the Collateral Custodian Fee in accordance with Section 2.9(a)(4) and Section 2.10(a)(4), as applicable.      (e) The Seller shall pay to Dechert LLP as counsel to the Administrative Agent, on the Closing Date, its reasonable estimated fees and out-of-pocket expenses in immediately available funds and shall pay all additional reasonable fees and out-of-pocket expenses of Dechert LLP within 30 Business Days after receiving an invoice for such amounts.      Section 2.15 Increased Costs; Capital Adequacy; Illegality.      (a) If either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation or (ii) the compliance by an Affected Party with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), shall (a) subject an Affected Party to any Tax (except for Taxes on the overall net income of such Affected Party), duty or other charge with respect to any ownership interest in the Collateral, or any right to make Advances hereunder, or on any payment made hereunder, (b) impose, modify or deem applicable any reserve requirement (including, without limitation, any reserve requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve requirement, if any, included in the determination of Interest), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Affected Party or (c) impose any other condition affecting the ownership interest in the Collateral conveyed to the Purchasers hereunder or the Purchasers’ rights hereunder, the result of which is to increase the cost to any Affected Party or to reduce the amount of any sum received or receivable by an Affected Party under this Agreement, then within ten days after demand by 66 --------------------------------------------------------------------------------   such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Servicer shall pay (and to the extent the Servicer does not make such payment the Seller shall pay) directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost incurred or such reduction suffered.      (b) If either (i) the introduction of or any change in or in the interpretation of any law, guideline, rule, regulation, directive or request or (ii) compliance by any Affected Party with any law, guideline, rule, regulation, directive or request from any central bank or other governmental authority or agency (whether or not having the force of law), including, without limitation, compliance by an Affected Party with any request or directive regarding capital adequacy, has or would have the effect of reducing the rate of return on the capital of any Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which any such Affected Party could have achieved but for such introduction, change or compliance (taking into consideration the policies of such Affected Party with respect to capital adequacy) by an amount deemed by such Affected Party to be material, then from time to time, within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Servicer shall pay (and to the extent the Servicer does not make such payment the Seller shall pay) directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such reduction. For the avoidance of doubt, if the issuance of Interpretation No. 46 by the Financial Accounting Standards Board or any other change in accounting standards or the issuance of any other pronouncement, release or interpretation, causes or requires the consolidation of all or a portion of the assets and liabilities of the Originator or Seller with the assets and liabilities of the Administrative Agent, any Purchaser Agent, any Purchaser or any Liquidity Bank, such event shall constitute a circumstance on which such Affected Party may base a claim for reimbursement under this Section 2.15.      (c) If as a result of any event or circumstance similar to those described in clause (a) or (b) of this Section 2.15, any Affected Party is required to compensate a bank or other financial institution providing liquidity support, credit enhancement or other similar support to such Affected Party in connection with this Agreement or the funding or maintenance of Advances hereunder, then within ten days after demand by such Affected Party, the Servicer shall pay (or to the extent the Servicer does not make such payment the Seller shall pay) to such Affected Party such additional amount or amounts as may be necessary to reimburse such Affected Party for any amounts payable or paid by it.      (d) In determining any amount provided for in this Section 2.15, the Affected Party may use any reasonable averaging and attribution methods. Any Affected Party making a claim under this Section 2.15 shall submit to the Servicer a written description as to such additional or increased cost or reduction and the calculation thereof, which written description shall be conclusive absent demonstrable error.      (e) If the applicable Purchaser shall notify their respective Purchaser Agent that a Eurodollar Disruption Event as described in clause (a) of the definition of “Eurodollar Disruption Event” has occurred, the applicable Purchaser Agent shall in turn so notify the Seller, whereupon all Advances Outstanding of the affected Purchaser in respect of which Interest accrues at the 67 --------------------------------------------------------------------------------   Adjusted Eurodollar Rate shall immediately be converted into Advances Outstanding in respect of which Interest accrues at the Base Rate.      Section 2.16 Taxes.      (a) All payments made by an Obligor in respect of an Asset and all payments made by the Seller or the Servicer under this Agreement will be made free and clear of and without deduction or withholding for or on account of any Taxes. If any Taxes are required to be withheld from any amounts payable to the Administrative Agent, the Purchaser Agents, any Affected Party or any Secured Party, then the amount payable to such Person will be increased (such increase, the “Additional Amount”) such that every net payment made under this Agreement after withholding for or on account of any Taxes (including, without limitation, any Taxes on such increase) is not less than the amount that would have been paid had no such deduction or withholding been deducted or withheld. The foregoing obligation to pay Additional Amounts, however, will not apply with respect to net income or franchise taxes imposed on the Purchasers, any Affected Party, the Administrative Agent or the Purchaser Agents, respectively, with respect to payments required to be made by the Seller or Servicer under this Agreement, by a taxing jurisdiction in which the Purchasers, any Affected Party, the Administrative Agent or the Purchaser Agents, are organized, conducts business or is paying taxes (as the case may be).      (b) The Servicer will indemnify (and to the extent the indemnification provided by the Servicer is insufficient the Seller will indemnify) each Affected Party for the full amount of Taxes payable by such Person in respect of Additional Amounts and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. All payments in respect of this indemnification shall be made within ten days from the date a written invoice therefor is delivered to the Seller.      (c) Within 30 days after the date of any payment by the Seller and the Servicer of any Taxes, the Seller and the Servicer will furnish to the Administrative Agent and each of the Purchaser Agents at its address set forth under its name on the signature pages hereof, appropriate evidence of payment thereof.      (d) If a Purchaser is not created or organized under the laws of the United States or a political subdivision thereof, such Purchaser shall deliver to the Seller, with a copy to the Administrative Agent, (i) within 15 days after the date hereof, two (or such other number as may from time to time be prescribed by Applicable Laws) duly completed copies of IRS Form W-8BEN or Form W-8ECI (or any successor forms or other certificates or statements that may be required from time to time by the relevant United States taxing authorities or Applicable Laws), as appropriate, to permit the Seller to make payments hereunder for the account of such Purchaser without deduction or withholding of United States federal income or similar Taxes and (ii) upon the obsolescence of or after the occurrence of any event requiring a change in, any form or certificate previously delivered pursuant to this Section 2.16(d), copies (in such numbers as may from time to time be prescribed by Applicable Laws or regulations) of such additional, amended or successor forms, certificates or statements as may be required under Applicable Laws or regulations to permit the Seller and the Servicer to make payments hereunder for the account of such Purchaser without deduction or withholding of United States federal income or similar Taxes. 68 --------------------------------------------------------------------------------        (e) If, in connection with an agreement or other document providing liquidity support, credit enhancement or other similar support to the Purchasers in connection with this Agreement or the funding or maintenance of Advances hereunder, the Purchasers are required to compensate a bank or other financial institution in respect of Taxes under circumstances similar to those described in this Section 2.16, then, within ten days after demand by the Purchasers, the Servicer shall pay (or to the extent the Servicer does not make such payment the Seller shall pay) to the Purchasers such additional amount or amounts as may be necessary to reimburse the Purchasers for any amounts paid by them.      (f) Without prejudice to the survival of any other agreement of the Seller and the Servicer hereunder, the agreements and obligations of the Seller and the Servicer contained in this Section 2.16 shall survive the termination of this Agreement.      Section 2.17 Assignment of the Sale Agreement.      The Seller hereby assigns to the Administrative Agent, for the ratable benefit of the Secured Parties hereunder, all of the Seller’s right, title and interest in and to, but none of its obligations under, the Sale Agreement and any UCC financing statements filed under or in connection therewith. In furtherance and not in limitation of the foregoing, the Seller hereby assigns to the Administrative Agent for the benefit of the Secured Parties its right to indemnification under Article VIII of the Sale Agreement. The Seller confirms that the Administrative Agent on behalf of the Secured Parties shall have the sole right to enforce the Seller’s rights and remedies under the Sale Agreement and any UCC financing statements filed under or in connection therewith for the benefit of the Secured Parties.      Section 2.18 Substitution of Assets.      On any day prior to the occurrence of a Termination Event (and after the Termination Date at the discretion of the Administrative Agent with the consent of the Purchaser Agents), the Seller may, subject to the conditions set forth in this Section 2.18 and subject to the other restrictions contained herein, replace any Asset other than the Tandem Asset with one or more Eligible Assets (each, a “Substitute Asset”); provided that no such replacement shall occur unless each of the following conditions is satisfied as of the date of such replacement and substitution:      (a) the Seller has recommended to the Administrative Agent (with a copy to the Collateral Custodian) in writing that the Asset to be replaced should be replaced (each a “Replaced Asset”);      (b) each Substitute Asset is an Eligible Asset on the date of substitution;      (c) after giving effect to any such substitution, the Adjusted Advances Outstanding do not exceed the lesser of (i) the Adjusted Facility Amount and (ii) the Adjusted Maximum Availability;      (d) for purposes only of substitutions pursuant to Section 4.6 undertaken because an Asset has become a Warranty Asset, the aggregate Outstanding Asset Balance of such Substitute Assets shall be equal to or greater than the aggregate Outstanding Asset Balances of the Replaced Assets; 69 --------------------------------------------------------------------------------        (e) for purposes only of substitutions pursuant to Section 4.6 undertaken because an Asset has become a Warranty Asset, such Substitute Assets, at the time of substitution by the Seller, shall have no greater weighted average life than the Replaced Asset;      (f) all representations and warranties of the Seller contained in Section 4.1 and Section 4.2 shall be true and correct as of the date of substitution of any such Substitute Asset;      (g) the substitution of any Substitute Asset does not cause a Termination Event or Unmatured Termination Event to occur;      (h) the sum of the Outstanding Asset Balance of all Assets that are Substitute Assets does not exceed 20% of the Adjusted Facility Amount, calculated on an annualized basis commencing with the Closing Date;      (i) the sum of the Outstanding Asset Balance of all Substitute Assets substituted for Delinquent Assets, Charged-Off Assets and Warranty Assets shall not exceed 10% of the Adjusted Facility Amount, calculated on an annualized basis commencing with the Closing Date; and      (j) the Seller shall deliver to the Administrative Agent on the date of such substitution a certificate of a Responsible Officer certifying that each of the foregoing is true and correct as of such date.      In addition, the Seller shall in connection with such substitution deliver to the Collateral Custodian the related Required Asset Documents. In connection with any such substitution, the Administrative Agent, as agent for the Secured Parties, shall, automatically and without further action, be deemed to transfer to the Seller, free and clear of any Lien created pursuant to this Agreement, all of the right, title and interest of the Administrative Agent, as agent for the Secured Parties, in, to and under such Replaced Asset, but without any representation and warranty of any kind, express or implied.      Section 2.19 Optional Sales.      (a) On any Optional Sale Date, the Seller shall have the right to prepay all or a portion of the Advances Outstanding in connection with the sale and assignment to the Seller by the Administrative Agent, on behalf of the Secured Parties, of the Collateral (each, an “Optional Sale”), subject to the following terms and conditions:      (i) The Seller shall have given the Administrative Agent at least ten Business Days’ prior written notice of its intent to effect an Optional Sale, unless such notice is waived or reduced by the Administrative Agent;      (ii) Any Optional Sale shall be in connection with a Permitted Securitization Transaction;      (iii) Unless an Optional Sale is to be effected on a Payment Date (in which case the relevant calculations with respect to such Optional Sale shall be reflected on the applicable Monthly Report), the Servicer shall deliver to the Administrative Agent a 70 --------------------------------------------------------------------------------   certificate and evidence to the reasonable satisfaction of the Administrative Agent (which evidence may consist solely of a certificate from the Servicer) that the Seller shall have sufficient funds on the related Optional Sale Date to effect the contemplated Optional Sale in accordance with this Agreement. In effecting an Optional Sale, the Seller may use the Proceeds of sales of the Collateral;      (iv) After giving effect to the Optional Sale and the assignment to the Seller of the Collateral on any Optional Sale Date, (a) the remaining Advances Outstanding shall not exceed the lesser of the Facility Amount and the Maximum Availability, (b) the remaining Adjusted Advances Outstanding shall not exceed the lesser of the Adjusted Facility Amount and the Adjusted Maximum Availability, (c) the representations and warranties contained in Section 4.1 hereof shall continue to be correct in all material respects, except to the extent relating to an earlier date, (d) the eligibility of any Asset remaining as part of the Collateral after the Optional Sale will be redetermined as of the Optional Sale Date, (e) the Pool Concentration Criteria will be redetermined as of the Optional Sale Date, and (f) neither an Unmatured Termination Event nor a Termination Event shall have resulted;      (v) On the related Optional Sale Date, the Administrative Agent, each Purchaser Agent, on behalf of the applicable Purchaser and the Hedge Counterparties, shall have received, as applicable, in immediately available funds, an amount equal to the sum of (a) the portion of the Advances Outstanding, to be prepaid plus (b) an amount equal to all unpaid Interest to the extent reasonably determined by the Administrative Agent and the Purchaser Agents to be attributable to that portion of the Advances Outstanding, to be paid in connection with the Optional Sale plus (c) an aggregate amount equal to the sum of all other amounts due and owing to the Administrative Agent, the Collateral Custodian, the Backup Servicer, the Purchaser Agents, the applicable Purchaser, the Affected Parties and the Hedge Counterparties, as applicable, under this Agreement and the other Transaction Documents, to the extent accrued to such date and to accrue thereafter (including, without limitation, Breakage Costs, Hedge Breakage Costs and any other payments owing to the applicable Hedge Counterparty in respect of the termination of any Hedge Transaction); provided that the Administrative Agent and each Purchaser Agent shall have the right to determine whether the amount paid (or proposed to be paid) by the Seller on the Optional Sale Date is sufficient to satisfy the requirements of clauses (iii), (iv) and (v) and is sufficient to reduce the Advances Outstanding, to the extent requested by the Seller in connection with the Optional Sale; and      (vi) On or prior to each Optional Sale Date, the Seller shall have delivered to the Administrative Agent a list specifying all Assets to be sold and assigned pursuant to such Optional Sale.      (b) In connection with any Optional Sale, following receipt by the Purchaser Agents of the amounts referred to in clause (v) above, there shall be sold and assigned to the Seller without recourse, representation or warranty all of the right, title and interest of the Administrative Agent, the Purchaser Agents, the Purchasers and the Secured Parties in, to and under the portion of the Collateral so retransferred and such portion of the Collateral so 71 --------------------------------------------------------------------------------   retransferred shall be released from the Lien of this Agreement (subject to the requirements of clause (iv) above).      (c) The Seller hereby agrees to pay the reasonable legal fees and expenses of the Administrative Agent, each Purchaser Agent and the Secured Parties in connection with any Optional Sale (including, but not limited to, expenses incurred in connection with the release of the Lien of the Administrative Agent, the Secured Parties and any other party having an interest in the Collateral in connection with such Optional Sale).      (d) In connection with any Optional Sale, on the related Optional Sale Date, the Administrative Agent, on behalf of the Secured Parties, shall, at the expense of the Seller (i) execute such instruments of release with respect to the portion of the Collateral to be retransferred to the Seller, in recordable form if necessary, in favor of the Seller as the Seller may reasonably request, (ii) deliver any portion of the Collateral to be retransferred to the Seller in its possession to the Seller and (iii) otherwise take such actions, and cause or permit the Collateral Custodian to take such actions, as are necessary and appropriate to release the Lien of the Administrative Agent and the Secured Parties on the portion of the Collateral to be retransferred to the Seller and release and deliver to the Seller such portion of the Collateral to be retransferred to the Seller.      Section 2.20 Discretionary Sales.      Prior to the occurrence of an Unmatured Termination Event or a Termination Event, on any Discretionary Sale Date, the Seller shall have the right to prepay all or a portion of the Advances Outstanding, in connection with the transfer and assignment to the Seller by the Administrative Agent, on behalf of the Secured Parties, of the Collateral (each, a “Discretionary Sale”), subject to the following terms and conditions:      (a) At least one Business Day prior to each Discretionary Sale Date, the Servicer, on behalf of the Seller, shall have given the Administrative Agent and each Hedge Counterparty written notice of its intent to effect a Discretionary Sale (each such notice a “Discretionary Sale Notice”), specifying the Discretionary Sale Date and including a list of all Assets to be sold and assigned pursuant to such Discretionary Sale, and a revised Borrowing Base Certificate;      (b) Any Discretionary Sale shall be made by the Servicer, on behalf of the Seller, to an unaffiliated third party purchaser in a transaction (i) reflecting arms-length market terms and (ii) in which the Seller makes no representations, warranties or covenants for the benefit of any other party to the Discretionary Sale and provides no indemnification for the benefit of any other party to the Discretionary Sale;      (c) After giving effect to the Discretionary Sale and the assignment to the Seller of the Collateral on any Discretionary Sale Date, (a) the Availability is greater than or equal to zero, (b) the representations and warranties contained in Section 4.1 hereof shall continue to be correct in all material respects, except to the extent relating to an earlier date and (c) neither an Unmatured Termination Event nor a Termination Event shall have resulted;      (d) On the related Discretionary Sale Date, the Administrative Agent, each Purchaser Agent, on behalf of the applicable Purchaser, the Hedge Counterparties, the Collateral Custodian 72 --------------------------------------------------------------------------------   and the Backup Servicer, as applicable, shall have received, as applicable, in immediately available funds, an amount equal to the sum of (a) an amount sufficient to reduce the Advances Outstanding such that, after giving effect to the transfer of the Assets that are the subject of such Discretionary Sale, each of the Availability and the Adjusted Availability will be equal to or greater than $0 plus (b) an amount equal to all unpaid Interest to the extent reasonably determined by the Administrative Agent and the Purchaser Agents to be attributable to that portion of the Advances Outstanding or Adjusted Advances Outstanding to be repaid in connection with the Discretionary Sale plus (c) an aggregate amount equal to the sum of all other Aggregate Unpaids due and owing to the Administrative Agent, the Purchaser Agents, each applicable Purchaser, the Affected Parties, the Indemnified Parties and the Hedge Counterparties, as applicable, under this Agreement and the other Transaction Documents, to the extent accrued to such date; provided that the Administrative Agent and each Purchaser Agent shall have the right to determine whether the amount paid (or proposed to be paid) by the Seller on the Discretionary Sale Date is sufficient to satisfy the requirements of clauses (a) through (c) and is sufficient to reduce the Advances Outstanding to the extent requested by the Seller in connection with the Discretionary Sale;      (e) The Outstanding Asset Balance of the Asset(s) which are the subject of the proposed Discretionary Sale, together with the Outstanding Asset Balance of the Asset(s) sold in all other Discretionary Sales made in the preceding 12 month period, shall not exceed 20% of the Adjusted Facility Amount;      (f) On the related Discretionary Sale Date, the proceeds from such Discretionary Sale have been sent directly into the Collection Account;      (g) The Seller hereby agrees to pay the reasonable legal fees and expenses of the Administrative Agent, each Purchaser Agent and the Secured Parties in connection with any Discretionary Sale (including, but not limited to, expenses incurred in connection with the release of the Lien of the Administrative Agent, the Secured Parties and any other party having an interest in the Collateral in connection with such Discretionary Sale); and      (h) In connection with any Discretionary Sale, on the related Discretionary Sale Date, the Administrative Agent, on behalf of the Secured Parties, shall, at the expense of the Seller (i) execute such instruments of release with respect to the portion of the Collateral to be retransferred to the Seller, in recordable form if necessary, in favor of the Seller as the Seller may reasonably request, (ii) deliver any portion of the Collateral to be retransferred to the Seller in its possession to the Seller and (iii) otherwise take such actions, and cause or permit the Collateral Custodian to take such actions, as are necessary and appropriate to release the Lien of the Administrative Agent and the Secured Parties on the portion of the Collateral to be retransferred to the Seller and release and deliver to the Seller such portion of the Collateral to be retransferred to the Seller.      Section 2.21 Required Equity Requirements.      The Originator hereby agrees, upon receipt of a Required Equity Contribution Notice delivered pursuant to and in accordance with the terms of this Agreement, to deposit into the Excess Spread Account or to otherwise cure within two Business Days the related Required 73 --------------------------------------------------------------------------------   Equity Shortfall as provided in the Required Equity Contribution Notice after giving effect to any deposits to the Excess Spread Account made by the Seller pursuant to Section 6.4(g). The Originator further agrees to pay any and all reasonable expenses (including reasonable counsel fees and expenses) incurred by the Administrative Agent, the Purchaser Agents and the Secured Parties in enforcing any rights under this Section 2.21. In the event that the Originator shall fail to pay the Required Equity Shortfall when required to be paid pursuant to the terms hereof, the Originator shall indemnify and hold harmless the Administrative Agent, the Purchaser Agents and each Secured Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including attorney’s fees and disbursements awarded against or incurred by them or any of them as a result of such failure of the Originator. Notwithstanding anything herein to the contrary, the maximum amount of payments (other than indemnification ) made by the Originator pursuant to this Section 2.21 shall not exceed ten percent of the Aggregate Outstanding Asset Balance in the aggregate regardless of the number of such payments made hereunder. ARTICLE III CONDITIONS TO ADVANCES      Section 3.1 Conditions to Closing and Initial Advance.      The Purchasers shall not be obligated to make any Advance hereunder on the occasion of the Initial Advance, nor shall any Purchaser, Administrative Agent, the Purchaser Agents, the Backup Servicer and the Collateral Custodian be obligated to take, fulfill or perform any other action hereunder, until the following conditions have been satisfied, in the sole discretion of, or waived in writing by, the Administrative Agent and each Purchaser Agent:      (a) Each Transaction Document (excluding any Hedge Agreement) shall have been duly executed by, and delivered to, the parties thereto, and the Administrative Agent and each Purchaser Agent shall have received such other documents, instruments, agreements and legal opinions as the Administrative Agent and each Purchaser Agent shall reasonably request in connection with the transactions contemplated by this Agreement, including, without limitation, all those specified in the Schedule of Documents attached hereto as Schedule I, each in form and substance satisfactory to the Administrative Agent and each Purchaser Agent;      (b) The Administrative Agent and each Purchaser Agent shall have received (i) satisfactory evidence that the Seller and the Servicer have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Transaction Documents to which each is a party and the consummation of the transactions contemplated hereby or thereby or (ii) an Officer’s Certificate from each of the Seller and the Servicer in form and substance reasonably satisfactory to the Administrative Agent and each Purchaser Agent affirming that no such consents or approvals are required; it being understood that the acceptance of such evidence or officer’s certificate shall in no way limit the recourse of the Administrative Agent, each Purchaser Agent or any Secured Party against the Originator or the Seller for a breach of the Originator’s and the Seller’s representation or warranty that all such consents and approvals have, in fact, been obtained; 74 --------------------------------------------------------------------------------        (c) The Seller, the Servicer and the Originator shall each be in compliance in all material respects with all Applicable Laws and shall have delivered to the Administrative Agent and each Purchaser Agent as to this and other closing matters certification in the form of Exhibits F-1 and F-2;      (d) The Seller and the Servicer shall have delivered to the Administrative Agent and each Purchaser Agent duly executed Powers of Attorney in the form of Exhibits G-1 and G-2; and      (e) The Seller and the Servicer shall each have delivered to the Administrative Agent and each Purchaser Agent a certificate as to Solvency in the form of Exhibits E-1 and E-2 and a perfection certificate in form reasonably acceptable to the Administrative Agent.      Section 3.2 Conditions Precedent to All Advances.      Each Advance to the Seller by the applicable Purchaser (each, a “Transaction”) shall be subject to the further conditions precedent that:      (a) (i) With respect to any Advance (including the Initial Advance), the Servicer shall have delivered to the Administrative Agent and each Purchaser Agent (with a copy to the Collateral Custodian and the Backup Servicer), in the case of an Advance, no later than 2:00 p.m. (New York City, New York time), one Business Day prior to the related Funding Date in a form and substance satisfactory to the Administrative Agent and each Purchaser Agent, (1) a Borrowing Notice (Exhibit A-1), Borrowing Base Certificate (Exhibit A-3), Asset List and Monthly Report, if applicable, and (2) a Certificate of Assignment (Exhibit A to the Sale Agreement including Schedule I, thereto) and containing such additional information as may be reasonably requested by the Administrative Agent and each Purchaser Agent, and (ii) with respect to any reduction in Advances Outstanding pursuant to Section 2.4(b) or any reinvestment of Principal Collections permitted by Section 2.9(b), the Servicer shall have delivered to the Administrative Agent and each Purchaser Agent (with a copy to the Backup Servicer) at least one Business Day prior to any reduction of Advances Outstanding or same day notice no later than 2:00 p.m. (New York City, New York time) on such day for any reinvestment of Principal Collections a Borrowing Notice (Exhibit A-2) and a Borrowing Base Certificate (Exhibit A-3) executed by the Servicer and the Seller;      (b) On the date of such Transaction the following statements shall be true, and the Seller shall be deemed to have certified that:      (i) The representations and warranties contained in Section 4.1, Section 4.2 and Section 4.3 are true and correct on and as of such day as though made on and as of such day and shall be deemed to have been made on such day;      (ii) No event has occurred and is continuing, or would result from such Transaction, that constitutes a Termination Event or Unmatured Termination Event;      (iii) On and as of such day, after giving effect to such Transaction, (1) the Advances Outstanding shall not exceed the lesser of (x) the Facility Amount and (y) the 75 --------------------------------------------------------------------------------   Maximum Availability and (2) the Adjusted Advances Outstanding shall not exceed the lesser of (x) the Adjusted Facility Amount and (y) the Adjusted Maximum Availability;      (iv) On and as of such day, the Seller and the Servicer each has performed all of the covenants and agreements contained in this Agreement to be performed by such person at or prior to such day; and      (v) No law or regulation shall prohibit, and no order, judgment or decree of any federal, state or local court or governmental body, agency or instrumentality shall prohibit or enjoin, the making of such Advance or incremental Advance by the Purchaser in accordance with the provisions hereof, the reduction of Advances Outstanding, the reinvestment of Principal Collections or any other transaction contemplated herein;      (c) The Seller shall have delivered to the Collateral Custodian (with a copy to the Backup Servicer and the Administrative Agent) in the case of an Advance, no later than 2:00 p.m. (New York City, New York time) one Business Day prior to any Funding Date a faxed copy of the duly executed original promissory notes, master purchase agreement and purchase statements or a copy of the Loan Register, as applicable, for the Loans, and, if any Assets are closed in escrow, a certificate (in the form of Exhibit L) from the counsel to the Originator or the Obligor of such Assets certifying the possession of the Required Asset Documents, provided that notwithstanding the foregoing, the Required Asset Documents (including any UCCs included in the Required Asset Documents) shall be in the possession of the Collateral Custodian within two Business Days of any related Funding Date as to any Additional Assets;      (d) The Seller shall have delivered such information as is required by the Collateral Custodian to facilitate a trade of any CMBS Securities in book-entry form no later than 5:00 p.m. (New York City, New York time) on the Business Day prior to the applicable Funding Date;      (e) The Seller shall have delivered to the Collateral Custodian, no later than 5:00 p.m. (New York City, New York time) the Business Day following the applicable Funding Date, any CMBS Securities constituting certificated securities indorsed in blank; provided that the Seller shall deliver to the Collateral Custodian no later than 5:00 p.m. the Business Day prior to the applicable Funding Date a faxed copy of such certificated security, to the extent available;      (f) The Seller shall not have requested the Termination Date to occur;      (g) The Facility Termination Date shall not have occurred;      (h) On the date of such Transaction, the Administrative Agent and each Purchaser Agent shall have received such other approvals, opinions or documents as the Administrative Agent and each Purchaser Agent may reasonably require;      (i) The Required Equity Contribution, if any, shall have been made to the Seller;      (j) The Administrative Agent shall have received from the Seller any required Hedging Agreement and related hedging confirms required in connection with the Transaction; 76 --------------------------------------------------------------------------------        (k) The Seller and Servicer shall have delivered to the Administrative Agent and each Purchaser Agent all reports required to be delivered as of the date of such Transaction including, without limitation, all deliveries required by Section 2.3;      (l) With respect to any Acquired Loan acquired from an Affiliate of the Originator, the Administrative Agent has received a satisfactory legal opinion concerning the acquisition of such Loan by the Originator in a true sale transaction;      (m) The Seller shall have paid all fees required to be paid, including all fees required hereunder and under the Purchaser Fee Letters and any Additional Agent Fee Letter and shall have reimbursed the Purchasers, the Administrative Agent and each Purchaser Agent for all fees, costs and expenses of closing the transactions contemplated hereunder and under the other Transaction Documents, including the reasonable attorney fees and any other legal and document preparation costs incurred by the Purchasers, the Administrative Agent and each Purchaser Agent; and      (n) The Seller shall have delivered to the Administrative Agent and each Purchaser Agent an Officer’s Certificate (which may be part of the Borrowing Notice) in form and substance reasonably satisfactory to the Administrative Agent and each Purchaser Agent certifying that each of the foregoing conditions precedent has been satisfied.      The failure of the Seller to satisfy any of the foregoing conditions precedent in respect of any Advance shall give rise to a right of the Administrative Agent and the applicable Purchaser Agent, which right may be exercised at any time on the demand of the applicable Purchaser Agent, to rescind the related Advance and direct the Seller to pay to the Administrative Agent for the benefit of the applicable Purchaser an amount equal to the Advances made during any such time that any of the foregoing conditions precedent were not satisfied. ARTICLE IV REPRESENTATIONS AND WARRANTIES      Section 4.1 Representations and Warranties of the Seller.      The Seller represents and warrants as follows:      (a) Organization and Good Standing. The Seller has been duly organized, and is validly existing as a limited liability company in good standing, under the laws of the State of Delaware, with all requisite company power and authority to own or lease its properties and conduct its business as such business is presently conducted, and had at all relevant times, and now has all necessary power, authority and legal right to acquire, own and sell the Collateral.      (b) Due Qualification. The Seller is duly qualified to do business and is in good standing as a limited liability company, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals. 77 --------------------------------------------------------------------------------        (c) Power and Authority; Due Authorization; Execution and Delivery. The Seller (i) has all necessary power, authority and legal right to (a) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (b) carry out the terms of the Transaction Documents to which it is a party, (c) sell and assign an ownership interest in the Collateral, and (d) receive Advances and sell the Collateral on the terms and conditions provided herein and (ii) has duly authorized by all necessary company action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the sale and assignment of an ownership interest in the Collateral on the terms and conditions herein provided. This Agreement and each other Transaction Document to which the Seller is a party have been duly executed and delivered by the Seller.      (d) Binding Obligation. This Agreement and each other Transaction Document to which the Seller is a party constitutes a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its respective terms, except as such enforceability may be limited by Insolvency Laws and by general principles of equity (whether considered in a suit at law or in equity).      (e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Seller’s operating agreement or any Contractual Obligation of the Seller, (ii) result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the Seller’s properties pursuant to the terms of any such Contractual Obligation, other than this Agreement, or (iii) violate any Applicable Law.      (f) No Proceedings. There is no litigation, proceeding or investigation pending or, to the best knowledge of the Seller, threatened against the Seller, before any Governmental Authority (i) asserting the legality, invalidity or enforceability of this Agreement or any other Transaction Document to which the Seller is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document to which the Seller is a party or (iii) seeking any determination or ruling that could reasonably be expected to have Material Adverse Effect.      (g) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any Governmental Authority (if any) required for the due execution, delivery and performance by the Seller of this Agreement and any other Transaction Document to which the Seller is a party have been obtained.      (h) Bulk Sales. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not require compliance with any “bulk sales” act or similar law by Seller.      (i) Solvency. The Seller is not the subject of any Insolvency Proceedings or Insolvency Event. The transactions under this Agreement and any other Transaction Document to which the Seller is a party do not and will not render the Seller not Solvent and the Seller shall 78 --------------------------------------------------------------------------------   deliver to the Administrative Agent and each Purchaser Agent on the Closing Date a certification in the form of Exhibit E-1.      (j) Selection Procedures. No procedures believed by the Seller to be adverse to the interests of the Purchaser were utilized by the Seller in identifying and/or selecting the Assets in the Collateral. In addition, each Asset shall have been underwritten in accordance with and satisfy the standards of any Credit and Collection Policy that has been established by the Seller or the Originator and is then in effect.      (k) Taxes. The Seller has filed or caused to be filed all tax returns that are required to be filed by it. The Seller has paid or made adequate provisions for the payment of all Taxes and all assessments made against it or any of its property (other than any amount of Tax the validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Seller), and no tax lien has been filed and, to the Seller’s knowledge, no claim is being asserted, with respect to any such Tax, fee or other charge.      (l) Exchange Act Compliance; Regulations T, U and X. None of the transactions contemplated herein (including, without limitation, the use of the proceeds from the sale of the Collateral) will violate or result in a violation of Section 7 of the Securities Exchange Act, or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Seller does not own or intend to carry or purchase, and no proceeds from the Advances will be used to carry or purchase, any “margin stock” within the meaning of Regulation U or to extend “purpose credit” within the meaning of Regulation U.      (m) Security Interest.      (i) This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Collateral in favor of the Administrative Agent, on behalf of the Secured Parties, which security interest is prior to all other Liens (except for Permitted Liens), and is enforceable as such against creditors of and purchasers from the Seller;      (ii) each of the Assets, along with the related Asset Files, constitutes a “general intangible,” an “instrument,” an “account,” or “chattel paper,” within the meaning of the applicable UCC;      (iii) the Seller owns and has good and marketable title to the Collateral free and clear of any Lien (other than Permitted Liens), claim or encumbrance of any Person;      (iv) the Seller has received all consents and approvals required by the terms of any Asset to the sale and granting of a security interest in the Assets hereunder to the Administrative Agent, on behalf of the Secured Parties;      (v) the Seller has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under Applicable Law in order to 79 --------------------------------------------------------------------------------   perfect the security interest in the Collateral granted to the Administrative Agent, on behalf of the Secured Parties, under this Agreement;      (vi) other than the security interest granted to the Administrative Agent, on behalf of the Secured Parties, pursuant to this Agreement, the Seller has not pledged, assigned, sold, granted a security interest in or otherwise conveyed any of the Collateral. The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that include a description of collateral covering the Collateral other than any financing statement (A) relating to the security interest granted to the Seller under the Sale Agreement, or (B) that have been terminated. The Seller is not aware of the filing of any judgment or tax lien filings against the Seller;      (vii) all original executed copies of each underlying promissory note or copies of each Loan Register, as applicable, that constitute or evidence each Loan has been, or subject to the delivery requirements contained herein, will be delivered to the Collateral Custodian;      (viii) the Seller has received a written acknowledgment from the Collateral Custodian that the Collateral Custodian or its bailee is holding the underlying promissory notes (if any), the copies of the Loan Registers that constitute or evidence the Assets solely on behalf of and for the benefit of the Secured Parties;      (ix) none of the underlying promissory notes or Loan Registers, as applicable, that constitute or evidence the Assets has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Administrative Agent, on behalf of the Secured Parties;      (x) none of the Collateral has been pledged or otherwise made subject to a Lien; and      (xi) with respect to (1) any Asset comprising “financial assets” within the meaning of the UCC, such Assets have been delivered to and are being held in a “securities account” within the meaning of the UCC that is maintained in the name of, and under the control and direction of the Collateral Custodian or another institution that for the purposes of the UCC is a “securities intermediary” whose “jurisdiction” with respect to the Collateral is the State of New York, the terms of which account treat the Collateral Custodian as entitled to exercise the rights that comprise any financial assets credited to such account solely on behalf of and for the benefit of the Secured Parties and (2) any Asset comprising certificated securities within the meaning of the UCC, such Assets have been delivered to the Collateral Custodian and indorsed in blank to the Collateral Custodian solely on behalf of and for the benefit of the Secured Parties.      (n) Reports Accurate. All Monthly Reports (if prepared by the Seller, or to the extent that information contained therein is supplied by the Seller), information, exhibits, financial statements, documents, books, records or reports furnished or to be furnished by the Seller to the Administrative Agent, each Purchaser Agent or any Purchaser in connection with this Agreement are true, complete and correct. 80 --------------------------------------------------------------------------------        (o) Location of Offices. The Seller’s location (within the meaning of Article 9 of the UCC) is Delaware. The office where the Seller keeps all the Records is at the address of the Seller referred to in Section 13.2 hereof (or at such other locations as to which the notice and other requirements specified in Section 5.2(g) shall have been satisfied). The Seller’s Federal Employee Identification Number is 20-3991764. The Seller has not changed its name, whether by amendment of its certificate of formation, by reorganization or otherwise, and has not changed its location within the four months preceding the Closing Date.      (p) Lock-Boxes. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts of the Seller at such Lock-Box Banks and the names, addresses and account numbers of all accounts to which Collections of the Collateral outstanding before the Initial Advance hereunder have been sent, are specified in Schedule II (which shall be deemed to be amended in respect of terminating or adding any Lock-Box Account or Lock-Box Bank upon satisfaction of the notice and other requirements specified in Section 5.2(k)). The Seller has not granted any Person other than the Administrative Agent and Collateral Custodian an interest in any Lock-Box Account at a future time or upon the occurrence of a future event subject to the Intercreditor Agreement.      (q) Tradenames. The Seller has no trade names, fictitious names, assumed names or “doing business as” names or other names under which it has done or is doing business.      (r) Sale Agreement. The Sale Agreement is the only agreement pursuant to which the Seller purchases Collateral.      (s) Value Given. The Seller shall have given reasonably equivalent value to the Originator in consideration for the transfer to the Seller of the Collateral under the Sale Agreement, no such transfer shall have been made for or on account of an antecedent debt owed by the Originator to the Seller, and no such transfer is or may be voidable or subject to avoidance under any section of the Bankruptcy Code.      (t) Accounting. The Seller accounts for the transfers to it from the Originator of interests in Collateral under the Sale Agreement as financings of such Collateral for consolidated accounting purposes (with a notation that it is treating the transfers as a sale for legal and all other purposes on its books, records and financial statements, in each case consistent with GAAP and with the requirements set forth herein).      (u) Special Purpose Entity. The Seller has not and shall not:      (i) engage in any business or activity other than the purchase and receipt of Collateral and related assets from the Originator under the Sale Agreement, the sale of Collateral under the Transaction Documents, and such other activities as are incidental thereto;      (ii) acquire or own any material assets other than (a) the Collateral and related assets from the Originator under the Sale Agreement and (b) incidental property as may be necessary for the operation of the Seller; 81 --------------------------------------------------------------------------------        (iii) merge into or consolidate with any Person or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case first obtaining the consent of the Administrative Agent and each Purchaser Agent;      (iv) fail to preserve its existence as an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or formation, or without the prior written consent of the Administrative Agent and each Purchaser Agent, amend, modify, terminate or fail to comply with the provisions of its operating agreement, or fail to observe limited liability company formalities;      (v) own any Subsidiary or make any investment in any Person without the consent of the Administrative Agent and each Purchaser Agent;      (vi) except as permitted by this Agreement and the Lock-Box Agreement, commingle its assets with the assets of any of its Affiliates, or of any other Person;      (vii) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than indebtedness to the Secured Parties hereunder or in conjunction with a repayment of all Advances owed to the Purchasers, except for trade payables in the ordinary course of its business; provided that such debt is not evidenced by a note and is paid when due;      (viii) become insolvent or fail to pay its debts and liabilities from its assets as the same shall become due;      (ix) fail to maintain its records, books of account and bank accounts separate and apart from those of any other Person;      (x) enter into any contract or agreement with any Person, except upon terms and conditions that are commercially reasonable and intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than such Person;      (xi) seek its dissolution or winding up in whole or in part;      (xii) fail to correct any known misunderstandings regarding the separate identity of Seller and the Originator or any principal or Affiliate thereof or any other Person;      (xiii) guarantee, become obligated for, or hold itself out to be responsible for the indebtedness of another Person;      (xiv) make any loan or advances to any third party, including any principal or Affiliate, or hold evidence of indebtedness issued by any other Person (other than cash and investment-grade securities); 82 --------------------------------------------------------------------------------        (xv) fail to file its own separate tax return, or file a consolidated federal income tax return with any other Person, except as may be required by the Internal Revenue Code and regulations;      (xvi) fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name in order not (a) to mislead others as to the identity with which such other party is transacting business, or (b) to suggest that it is responsible for the indebtedness of any third party (including any of its principals or Affiliates);      (xvii) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;      (xviii) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors;      (xix) except as may be required by the Internal Revenue Code and regulations, share any common logo with or hold itself out as or be considered as a department or division of (a) any of its principals or affiliates, (b) any Affiliate of a principal or (c) any other Person;      (xx) permit any transfer (whether in one or more transactions) of any direct or indirect ownership interest in the Seller to the extent it has the ability to control the same, unless the Seller delivers to the Administrative Agent and each Purchaser Agent an acceptable non-consolidation opinion and the Administrative Agent consents to such transfer;      (xxi) fail to maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person;      (xxii) fail to pay its own liabilities and expenses only out of its own funds;      (xxiii) fail to pay the salaries of its own employees in light of its contemplated business operations;      (xxiv) acquire the obligations or securities of its Affiliates or stockholders;      (xxv) fail to allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, including paying for office space and services performed by any employee of an Affiliate;      (xxvi) fail to use separate invoices and checks bearing its own name;      (xxvii) pledge its assets for the benefit of any other Person, other than with respect to payment of the indebtedness to the Secured Parties hereunder; 83 --------------------------------------------------------------------------------        (xxviii) fail at any time to have at least one independent director who is not and has not been for at least five years a director, officer, employee, trade credit or shareholder (or spouse, parent, sibling or child of the foregoing) of (a) the Servicer, (b) the Seller, (c) any principal of the Servicer, (d) any Affiliate of the Servicer, or (e) any Affiliate of any principal of the Servicer (an “Independent Director”); provided that such Independent Director may be an independent director of another special purpose entity affiliated with the Servicer or its Affiliates or fail to ensure that all limited liability company action relating to the selection, maintenance or replacement of the Independent Director are duly authorized by the unanimous vote of the board of directors (including the Independent Director);      (xxix) to provide that the unanimous consent of all directors (including the consent of the Independent Director) is required for the Seller to (a) dissolve or liquidate, in whole or part, or institute proceedings to be adjudicated bankrupt or insolvent, (b) institute or consent to the institution of bankruptcy or insolvency proceedings against it, (c) file a petition seeking or consent to reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, (d) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for the Seller, (e) make any assignment for the benefit of the Seller’s creditors, (f) admit in writing its inability to pay its debts generally as they become due, or (g) take any action in furtherance of any of the foregoing; and      (xxx) take or refrain from taking, as applicable, each of the activities specified in the non-consolidation opinion of Patton Boggs LLP, dated as of the date hereof.      (v) Confirmation from the Originator. The Seller has received in writing from the Originator confirmation that the Originator will not cause the Seller to file a voluntary petition under the Bankruptcy Code or Insolvency Laws. Each of the Seller and the Originator is aware that in light of the circumstances described in the preceding sentence and other relevant facts, the filing of a voluntary petition under the Bankruptcy Code for the purpose of making any Collateral or any other assets of the Seller available to satisfy claims of the creditors of the Originator would not result in making such assets available to satisfy such creditors under the Bankruptcy Code.      (w) Investment Company Act. The Seller is not, and is not controlled by, an “investment company” within the meaning of the 1940 Act, as amended, or is exempt from the provisions of the 1940 Act.      (x) ERISA. The present value of all benefits vested under all “employee pension benefit plans,” as such term is defined in Section 3 of ERISA, maintained by the Seller, or in which employees of the Seller are entitled to participate, as from time to time in effect (herein called the “Pension Plans”), does not exceed the value of the assets of the Pension Plan allocable to such vested benefits (based on the value of such assets as of the last annual valuation date). No prohibited transactions, accumulated funding deficiencies, withdrawals or reportable events have occurred with respect to any Pension Plans that, in the aggregate, could subject the Seller to any material tax, penalty or other liability. No notice of intent to terminate a Pension Plan has been billed, nor has any Pension Plan been terminated under Section 4041(f) of ERISA, nor has 84 --------------------------------------------------------------------------------   the Pension Benefit Guaranty Corporation instituted proceedings to terminate, or appoint a trustee to administer a Pension Plan and no event has occurred or condition exists that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan.      (y) Compliance with Law. The Seller has complied in all respects with all Applicable Laws to which it may be subject, and no item of Collateral contravenes any Applicable Laws (including, without limitation, all applicable predatory and abusive lending laws and all laws, rules and regulations relating to licensing, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, and privacy).      (z) Credit and Collection Policy. The Seller has complied in all material respects with the Credit and Collection Policy with respect to all of the Collateral.      (aa) Collections. The Seller acknowledges that all Collections received by it or its Affiliates with respect to the Collateral sold hereunder are held and shall be held in trust for the benefit of the Secured Parties until deposited into the Collection Account within two Business Days from receipt as required herein.      (bb) Set-Off, etc. Other than B-Note Loans or Mezzanine Loans, no Collateral has been compromised, adjusted, extended, satisfied, subordinated, rescinded, set-off or modified by the Seller, the Originator or the Obligor thereof, and no Collateral is subject to compromise, adjustment, extension, satisfaction, subordination, rescission, set-off, counterclaim, defense, abatement, suspension, deferment, deduction, reduction, termination or modification, whether arising out of transactions concerning the Collateral or otherwise, by the Seller, the Originator or the Obligor with respect thereto, except as otherwise permitted under Section 6.4(a) of this Agreement and in accordance with the Credit and Collection Policy.      (cc) Full Payment. The Seller has no knowledge of any fact which should lead it to expect that any Collateral will not be paid in full.      (dd) Accuracy of Representations and Warranties. Each representation or warranty by the Seller contained herein or in any certificate or other document furnished by the Seller pursuant hereto or in connection herewith is true and correct in all material respects.      (ee) Representations and Warranties in Sale Agreement. The representations and warranties made by the Originator to the Seller in the Sale Agreement are hereby remade by the Seller on each date to which they speak in the Sale Agreement as if such representations and warranties were set forth herein. For purposes of this Section 4.1(ff), such representations and warranties are incorporated herein by reference as if made by the Seller to the Administrative Agent, each Purchaser Agent and each of the Secured Parties under the terms hereof mutatis mutandis.      (ff) Reaffirmation of Representations and Warranties by the Seller. On each day that any Advance is made hereunder, the Seller shall be deemed to have certified that all representations and warranties described in Section 4.1 hereof are correct on and as of such day as though made on and as of such day. 85 --------------------------------------------------------------------------------        (gg) Participation, Acquired and Assigned Loans. The participations created with respect to the Participation Loans and the sale to the Originator with respect to the Acquired and Assigned Loans do not violate any provisions of the underlying Required Asset Documents and such documents do not contain any express or implied prohibitions on participations or sales of such Loans.      (hh) Environmental.      (i) Each item of the Related Property is in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to such Related Property and there are no conditions relating to such Related Property that could give rise to liability under any applicable Environmental Laws.      (ii) None of the Related Property contains, or has previously contained, any Materials of Environmental Concern at, on or under the Related Property in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws.      (iii) None of the Seller, the Originator nor the Servicer has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Related Property, nor does any such Person have knowledge or reason to believe that any such notice will be received or is being threatened.      (iv) Materials of Environmental Concern have not been transported or disposed of from the Related Property, or generated, treated, stored or disposed of at, on or under any of the Related Property or any other location, in each case by or on behalf of the Seller, the Originator and/or the Servicer in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law.      (v) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of the Seller, the Originator and/or the Servicer, threatened, under any Environmental Law to which any of the Seller, the Originator and/or the Servicer is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements, outstanding under any Environmental Law with respect to any of the Seller, the Originator, the Servicer or the Related Property.      (vi) There has been no release or threat of release of Materials of Environmental Concern at or from any of the Related Property, or arising from or related to the operations (including, without limitation, disposal) of any of the Seller, the Originator and/or the Servicer in connection with the Related Property in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws.      (ii) USA PATRIOT Act. Neither the Seller nor any Affiliate of the Seller is (i) a country, territory, organization, person or entity named on an Office of Foreign Asset Control (OFAC) list, (ii) a Person that resides or has a place of business in a country or territory named 86 --------------------------------------------------------------------------------   on such lists or which is designated as a “Non-Cooperative Jurisdiction” by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.      (jj) Material Adverse Effect. The Seller represents and warrants that (i) since March 31, 2006 and (ii) as of the most recent Addition Date there has been no Material Adverse Effect.      The representations and warranties in Section 4.1(m) shall survive the termination of this Agreement.      Section 4.2 Representations and Warranties of the Seller Relating to the Agreement and the Collateral.      The Seller hereby represents and warrants, (i) with respect to clauses (a) through (c) below, as of the Closing Date and as of each Addition Date and (ii) with respect to clause (d) below, since March 31, 2006 and as of the most recent Addition Date:      (a) Binding Obligation, Valid Transfer and Security Interest.      (i) This Agreement and each other Transaction Document to which the Seller is a party each constitute a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its respective terms, except as such enforceability may be limited by Insolvency Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity).      (ii) This Agreement constitutes a valid transfer to the Administrative Agent, as agent for the Secured Parties, of all right, title and interest of the Seller in, to and under all of the Collateral, free and clear of any Lien of any Person claiming through or under the Seller or its Affiliates, except for Permitted Liens. If the conveyances contemplated by this Agreement are determined to be transfer for security, then this Agreement constitutes a grant of a security interest in all of the Collateral to the Administrative Agent, as agent for the Secured Parties, which upon the delivery of the Required Asset Documents to the Collateral Custodian and the filing of the financing statements described in Section 4.1(m) and, in the case of Additional Assets on the applicable Addition Date, shall be a first priority perfected security interest in all Collateral, subject only to Permitted Liens. Neither the Seller nor any Person claiming through or under Seller shall have any claim to or interest in the Collection Account and, if this Agreement constitutes the grant of a security interest in such property, except for the interest of Seller in such property as a debtor for purposes of the UCC.      (b) Eligibility of Collateral. As of the Closing Date and each Addition Date, (i) the Asset List and the information contained in the Borrowing Notice delivered pursuant to Section 87 --------------------------------------------------------------------------------   2.3 is an accurate and complete listing in all material respects of all Collateral as of the Cut-Off Date and the information contained therein with respect to the identity of such Collateral and the amounts owing thereunder is true and correct in all material respects as of the related Cut-Off Date, (ii) each such Asset that is part of the Borrowing Base is an Eligible Asset as of such date, (iii) each such item of Collateral is free and clear of any Lien of any Person (other than Permitted Liens) and in compliance with all Applicable Laws, (iv) with respect to each such item of Collateral, all consents, licenses, approvals or authorizations of or registrations or declarations of any Governmental Authority required to be obtained, effected or given by the Seller in connection with the transfer of an ownership interest in such Collateral to the Administrative Agent as agent for the Secured Parties have been duly obtained, effected or given and are in full force and effect, and (v) the representations and warranties set forth in Section 4.2(a) are true and correct with respect to each item of Collateral.      (c) No Fraud. Each Asset was originated without any fraud or material misrepresentation by the Originator or, to the best of the Seller’s knowledge, on the part of the Obligor.      (d) Material Adverse Effect. There has been no Material Adverse Effect.      Section 4.3 Representations and Warranties of the Servicer.      The Servicer represents and warrants as follows:      (a) Organization and Good Standing. The Servicer has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with all requisite company power and authority to own or lease its properties and to conduct its business as such business is presently conducted and to enter into and perform its obligations pursuant to this Agreement.      (b) Due Qualification. The Servicer is duly qualified to do business as a limited liability company and is in good standing as a limited liability company, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property and or the conduct of its business requires such qualification, licenses or approvals.      (c) Power and Authority; Due Authorization; Execution and Delivery. The Servicer (i) has all necessary power, authority and legal right to (a) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (b) carry out the terms of the Transaction Documents to which it is a party, and (ii) has duly authorized by all necessary company action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. This Agreement and each other Transaction Document to which the Servicer is a party have been duly executed and delivered by the Servicer.      (d) Binding Obligation. This Agreement and each other Transaction Document to which the Servicer is a party constitutes a legal, valid and binding obligation of the Servicer enforceable against the Servicer in accordance with its respective terms, except as such enforceability may be limited by Insolvency Laws and general principles of equity (whether considered in a suit at law or in equity). 88 --------------------------------------------------------------------------------        (e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Servicer’s operating agreement or any Contractual Obligation of the Servicer, (ii) result in the creation or imposition of any Lien upon any of the Servicer’s properties pursuant to the terms of any such Contractual Obligation, other than this Agreement, or (iii) violate any Applicable Law.      (f) No Proceedings. There is no litigation, proceedings or investigations pending or, to the best knowledge of the Servicer, threatened against the Servicer, before any Governmental Authority (i) asserting the legality, invalidity or enforceability of this Agreement or any other Transaction Document to which the Servicer is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document to which the Servicer is a party or (iii) seeking any determination or ruling that could reasonably be expected to have Material Adverse Effect.      (g) All Consents Required. All approvals, authorizations, consents, orders, licenses or other actions of any Person or of any Governmental Authority (if any) required for the due execution, delivery and performance by the Servicer of this Agreement and any other Transaction Document to which the Servicer is a party have been obtained.      (h) Reports Accurate. All Servicer Certificates and other written and electronic information, exhibits, financial statements, documents, books, records or reports furnished by the Servicer to the Administrative Agent, each Purchaser Agent or any Purchaser in connection with this Agreement are accurate, true and correct.      (i) Credit and Collection Policy. The Servicer has complied in all material respects with the Credit and Collection Policy with regard to the origination, underwriting and servicing of the Assets.      (j) Collections. The Servicer acknowledges that all Collections received by it or its Affiliates with respect to the Collateral sold hereunder are held and shall be held in trust for the benefit of the Secured Parties until deposited into the Collection Account within two Business Days from receipt as required herein.      (k) Bulk Sales. The execution, delivery and performance of this Agreement do not require compliance with any “bulk sales” act or similar law by the Servicer.      (l) Solvency. The Servicer is not the subject of any Insolvency Proceedings or Insolvency Event. The transactions under this Agreement and any other Transaction Document to which the Servicer is a party do not and will not render the Servicer not Solvent and the Servicer shall deliver to the Administrative Agent and each Purchaser Agent on the Closing Date a certification in the form of Exhibit E-2.      (m) Taxes. The Servicer has filed or caused to be filed all tax returns that are required to be filed by it. The Servicer has paid or made adequate provisions for the payment of all Taxes and all assessments made against it or any of its property (other than any amount of Tax the validity of which is currently being contested in good faith by appropriate proceedings and with 89 --------------------------------------------------------------------------------   respect to which reserves in accordance with GAAP have been provided on the books of the Servicer), and no tax lien has been filed and, to the Servicer’s knowledge, no claim is being asserted, with respect to any such Tax, fee or other charge.      (n) Exchange Act Compliance; Regulations T, U and X. None of the transactions contemplated herein (including, without limitation, the use of the Proceeds from the sale of the Collateral) will violate or result in a violation of Section 7 of the Securities Exchange Act, or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Servicer does not own or intend to carry or purchase, and no proceeds from the Advances will be used to carry or purchase, any “margin stock” within the meaning of Regulation U or to extend “purpose credit” within the meaning of Regulation U.      (o) Security Interest. The Servicer will take all steps necessary to ensure that the Seller has granted a security interest (as defined in the UCC) to the Administrative Agent, as agent for the Secured Parties, in the Collateral, which is enforceable in accordance with Applicable Law upon execution and delivery of this Agreement. Upon the filing of UCC-1 financing statements naming the Administrative Agent as secured party and the Seller as debtor, the Administrative Agent, as agent for the Secured Parties, shall have a first priority perfected security interest in the Collateral (except for any Permitted Liens). All filings (including, without limitation, such UCC filings) as are necessary for the perfection of the Secured Parties’ security interest in the Collateral have been (or prior to the date of the applicable will be) made.      (p) ERISA. The present value of all benefits vested under all “employee pension benefit plans,” as such term is defined in Section 3 of ERISA, maintained by the Servicer, or in which employees of the Servicer are entitled to participate, as from time to time in effect (herein called the “Pension Plans”), does not exceed the value of the assets of the Pension Plan allocable to such vested benefits (based on the value of such assets as of the last annual valuation date). No prohibited transactions, accumulated funding deficiencies, withdrawals or reportable events have occurred with respect to any Pension Plans that, in the aggregate, could subject the Servicer to any material tax, penalty or other liability. No notice of intent to terminate a Pension Plan has been billed, nor has any Pension Plan been terminated under Section 4041(f) of ERISA, nor has the Pension Benefit Guaranty Corporation instituted proceedings to terminate, or appoint a trustee to administer, a Pension Plan and no event has occurred or condition exists that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan.      (q) Investment Company Act. The Servicer is not, and is not controlled by, an “investment company” within the meaning of the 1940 Act, as amended, or is exempt from the provisions of the 1940 Act.      (r) USA PATRIOT Act. Neither the Servicer nor any Affiliate of the Servicer is (i) a country, territory, organization, person or entity named on an OFAC list, (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a “Non-Cooperative Jurisdiction” by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank 90 --------------------------------------------------------------------------------   that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.      (s) Material Adverse Effect. The Servicer represents and warrants that (i) since March 31, 2006 there has been no Material Adverse Effect.      Section 4.4 Representations and Warranties of the Backup Servicer.      The Backup Servicer in its individual capacity and as Backup Servicer represents and warrants as follows:      (a) Organization and Corporate Power. It is a duly organized and validly existing national banking association in good standing under the laws of the United States. It has full corporate power, authority and legal right to execute, deliver and perform its obligations as Backup Servicer under this Agreement.      (b) Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions provided for herein have been duly authorized by all necessary association action on its part, either in its individual capacity or as Backup Servicer, as the case may be.      (c) No Conflict. The execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the fulfillment of the terms hereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Backup Servicer is a party or by which it or any of its property is bound.      (d) No Violation. The execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the fulfillment of the terms hereof will not conflict with or violate, in any material respect, any Applicable Law.      (e) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or Governmental Authority applicable to the Backup Servicer, required in connection with the execution and delivery of this Agreement, the performance by the Backup Servicer of the transactions contemplated hereby and the fulfillment by the Backup Servicer of the terms hereof have been obtained.      (f) Validity, Etc. This Agreement constitutes the legal, valid and binding obligation of the Backup Servicer, enforceable against the Backup Servicer in accordance with its terms, except as such enforceability may be limited by applicable Insolvency Laws or general principles of equity (whether considered in a suit at law or in equity). 91 --------------------------------------------------------------------------------        Section 4.5 Representations and Warranties of the Collateral Custodian.      The Collateral Custodian in its individual capacity and as Collateral Custodian represents and warrants as follows:      (a) Organization and Corporate Power. It is a duly organized and validly existing national banking association in good standing under the laws of the United States. It has full corporate power, authority and legal right to execute, deliver and perform its obligations as Collateral Custodian under this Agreement.      (b) Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions provided for herein have been duly authorized by all necessary association action on its part, either in its individual capacity or as Collateral Custodian, as the case may be.      (c) No Conflict. The execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the fulfillment of the terms hereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Collateral Custodian is a party or by which it or any of its property is bound.      (d) No Violation. The execution and delivery of this Agreement, the performance of the Transactions contemplated hereby and the fulfillment of the terms hereof will not conflict with or violate, in any material respect, any Applicable Law.      (e) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or Governmental Authority applicable to the Collateral Custodian, required in connection with the execution and delivery of this Agreement, the performance by the Collateral Custodian of the transactions contemplated hereby and the fulfillment by the Collateral Custodian of the terms hereof have been obtained.      (f) Validity, Etc. The Agreement constitutes the legal, valid and binding obligation of the Collateral Custodian, enforceable against the Collateral Custodian in accordance with its terms, except as such enforceability may be limited by applicable Insolvency Laws and general principles of equity (whether considered in a suit at law or in equity).      Section 4.6 Breach of Certain Representations and Warranties.      If on any day an Asset is (or becomes) a Warranty Asset, no later than two Business Days following the earlier of knowledge by the Seller of such Asset becoming a Warranty Asset or receipt by the Seller from the Administrative Agent or the Servicer of written notice thereof, the Seller shall either: (a) make a deposit to the Collection Account (for allocation pursuant to Section 2.9 or Section 2.10, as applicable) in immediately available funds in an amount equal to the sum of (i) the amount which, if deposited to the Collection Account on such date, would cause the Availability as of such date (after giving effect to such Warranty Asset) to be greater than or equal to zero, (ii) any outstanding Servicer Advances thereon, (iii) any accrued and unpaid interest, (iv) all Hedge Breakage Costs owed to the relevant Hedge Counterparty for any 92 --------------------------------------------------------------------------------   termination of one or more Hedge Transactions, in whole or in part, as required by the terms of any Hedging Agreement and (v) in the case of a Loan, any costs and damages incurred in connection with any violation by such Loan of any predatory- or abusive-lending law; or (b) subject to the satisfaction of the conditions in Section 2.18, substitute for such Warranty Asset a Substitute Asset. In either of the foregoing instances, the Seller may (in its discretion) accept retransfer of each such Warranty Asset and any Related Security and the Borrowing Base shall be reduced by the Outstanding Asset Balance of each such Warranty Asset and, if applicable, increased by the Outstanding Asset Balance of each Substitute Asset. Upon confirmation of the deposit of such Retransfer Price into the Collection Account or the delivery by the Seller of a Substitute Asset for each Warranty Asset (the “Retransfer Date”), such Warranty Asset shall not be included in the Borrowing Base (and, if and when the Seller elects to accept the retransfer of such Warranty Asset, the Collateral) and, as applicable, the Substitute Asset shall be included in the Collateral. Upon the Retransfer Date of each Warranty Asset, the Administrative Agent, as agent for the Secured Parties, shall (if and when the Seller elects to accept the retransfer of such Warranty Asset) automatically and without further action be deemed to transfer, assign and set-over to the Seller, without recourse, representation or warranty, all the right, title and interest of the Administrative Agent, as agent for the Secured Parties in, to and under such Warranty Asset and all future monies due or to become due with respect thereto, the Related Security, all Proceeds of such Warranty Asset, Recoveries and Insurance Proceeds relating thereto, all rights to security for any such Warranty Asset, and all Proceeds and products of the foregoing. The Administrative Agent, as agent for the Secured Parties, shall (if and when the Seller elects to accept the retransfer of such Warranty Asset), at the sole expense of the Servicer, execute such documents and instruments of transfer as may be prepared by the Servicer on behalf of the Seller and take other such actions as shall reasonably be requested by the Seller to effect the transfer of such Warranty Asset pursuant to this Section 4.6. ARTICLE V GENERAL COVENANTS      Section 5.1 Affirmative Covenants of the Seller.      From the date hereof until the Collection Date:      (a) Compliance with Laws. The Seller will comply in all material respects with all Applicable Laws, including those with respect to the Collateral or any part thereof.      (b) Preservation of Company Existence. The Seller will preserve and maintain its company existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a limited liability company in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification has had, or could reasonably be expected to have, a Material Adverse Effect.      (c) Performance and Compliance with Collateral. The Seller will, at its expense, timely and fully perform and comply (or direct the Originator to perform and comply pursuant to the Sale Agreement) with all provisions, covenants and other promises required to be observed by it under the Collateral and all other agreements related to such Collateral. 93 --------------------------------------------------------------------------------        (d) Keeping of Records and Books of Account. The Seller will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Collateral in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all or any portion of the Collateral.      (e) Originator’s Collateral. With respect to the Collateral acquired by the Seller, the Seller will (i) acquire such Collateral pursuant to and in accordance with the terms of the Sale Agreement, (ii) (at the Servicer’s expense) take all action necessary to perfect, protect and more fully evidence the Seller’s ownership of such Collateral free and clear of any Lien other than the Lien created hereunder and Permitted Liens, including, without limitation, (a) filing and maintaining (at the Servicer’s expense), effective financing statements against the Originator in all necessary or appropriate filing offices, and filing continuation statements, amendments or assignments with respect thereto in such filing offices, and (b) executing or causing to be executed such other instruments or notices as may be necessary or appropriate, (iii) permit the Administrative Agent, each Purchaser Agent or their respective agents or representatives to visit the offices of the Seller during normal office hours and upon reasonable notice examine and make copies of all documents, books, records and other information concerning the Collateral and discuss matters related thereto with any of the officers or employees of the Seller having knowledge of such matters, and (iv) take all additional action that the Administrative Agent or any Purchaser Agent may reasonably request to perfect, protect and more fully evidence the respective interests of the parties to this Agreement in the Collateral.      (f) Delivery of Collections. The Seller will pay to the Servicer promptly (but in no event later than two Business Days after receipt) all Collections received by Seller in respect of the Collateral and cause the same to be promptly deposited into the Collection Account by the Servicer in accordance with Section 5.4(l).      (g) Separate Limited Liability Company Existence. The Seller shall be in compliance with the Special Purpose Entity requirements set forth in Section 4.1(u).      (h) Credit and Collection Policy. The Seller will (a) comply in all material respects with the Credit and Collection Policy in regard to the Collateral, and (b) furnish to the Administrative Agent and each Purchaser Agent, prior to its effective date, prompt notice of any material changes in the Credit and Collection Policy. The Seller will not agree to or otherwise permit to occur any material change in the Credit and Collection Policy, which change would impair the collectibility of any of the Collateral or otherwise adversely affect the interests or remedies of the Administrative Agent, each Purchaser Agent or the Secured Parties under this Agreement or any other Transaction Document, without the prior consent of the Administrative Agent and each Purchaser Agent (which consent shall not be unreasonably withheld).      (i) Termination Events. The Seller will provide the Administrative Agent and each Purchaser Agent with immediate written notice of the occurrence of each Termination Event and each Unmatured Termination Event of which the Seller has knowledge or has received notice. In addition, no later than two Business Days following the Seller’s knowledge or notice of the occurrence of any Termination Event or Unmatured Termination Event, the Seller will provide to the Administrative Agent and each Purchaser Agent a written statement of the chief financial 94 --------------------------------------------------------------------------------   officer or chief accounting officer of Seller setting forth the details of such event and the action that the Seller proposes to take with respect thereto.      (j) Taxes. The Seller will file and pay any and all Taxes required to meet the obligations of the Transaction Documents.      (k) Use of Proceeds. The Seller will use the proceeds of the Advances only to acquire Collateral or to make distributions to its members in accordance with the terms hereof.      (l) Obligor Notification Forms. The Seller shall furnish the Administrative Agent with an appropriate power of attorney to send (at the Administrative Agent’s discretion after the occurrence of a Termination Event or an Unmatured Termination Event) Obligor notification forms to give notice to the Obligors of the Secured Parties’ interest in the Collateral and the obligation to make payments as directed by the Administrative Agent.      (m) Adverse Claims. The Seller will not create, or participate in the creation of, or permit to exist, any Liens in relation to each Lock-Box Account other than as disclosed to the Administrative Agent and each Purchaser Agent.      (n) Seller’s Collateral. With respect to each item of Collateral acquired by the Secured Parties, the Seller will (i) take all action necessary to perfect, protect and more fully evidence the Secured Parties’ ownership of such Collateral, including, without limitation, (a) filing and maintaining (at the Servicer’s expense), effective financing statements against the Seller in all necessary or appropriate filing offices, and filing continuation statements, amendments or assignments with respect thereto in such filing offices, and (b) executing or causing to be executed such other instruments or notices as may be necessary or appropriate and (ii) take all additional action that the Administrative Agent may reasonably request to perfect, protect and more fully evidence the respective interests of the parties to this Agreement in such Collateral.      (o) Notices. The Seller will furnish to the Administrative Agent and each Purchaser Agent:      (i) Income Tax Liability. Within ten Business Days after the receipt of revenue agent reports or other written proposals, determinations or assessments of the Internal Revenue Service or any other taxing authority which propose, determine or otherwise set forth positive adjustments to the Tax liability of any Affiliated group (within the meaning of Section 1504(a)(l) of the Internal Revenue Code of 1986 (as amended from time to time)) which equal or exceed $1,000,000 in the aggregate, telephonic, telex or telecopy notice (confirmed in writing within five Business Days) specifying the nature of the items giving rise to such adjustments and the amounts thereof;      (ii) Auditors’ Management Letters. Promptly after the receipt thereof, any auditors’ management letters that are received by the Seller or by its accountants;      (iii) Representations. Forthwith upon receiving knowledge of same, the Seller shall notify the Administrative Agent and each Purchaser Agent if any 95 --------------------------------------------------------------------------------   representation or warranty set forth in Section 4.1 was incorrect at the time it was given or deemed to have been given and at the same time deliver to the Administrative Agent and each Purchaser Agent a written notice setting forth in reasonable detail the nature of such facts and circumstances. In particular, but without limiting the foregoing, the Seller shall notify the Administrative Agent and each Purchaser Agent in the manner set forth in the preceding sentence before any Funding Date of any facts or circumstances within the knowledge of the Seller which would render any of the said representations and warranties untrue at the date when such representations and warranties were made or deemed to have been made;      (iv) ERISA. Promptly after receiving notice of any “reportable event” (as defined in Title IV of ERISA) with respect to the Seller (or any ERISA Affiliate thereof), a copy of such notice;      (v) Proceedings. As soon as possible and in any event within three Business Days after any executive officer of the Seller receives notice or obtains knowledge thereof, of any settlement of, material judgment (including a material judgment with respect to the liability phase of a bifurcated trial) in or commencement of any material labor controversy, material litigation, material action, material suit or material proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Collateral, the Transaction Documents, the Secured Parties’ interest in the Collateral, or the Seller, the Servicer or the Originator or any other Subsidiary of CapitalSource Inc.; provided that notwithstanding the foregoing, any settlement, judgment, labor controversy, litigation, action, suit or proceeding affecting the Collateral, the Transaction Documents, the Secured Parties’ interest in the Collateral, or the Seller, the Servicer or the Originator or any other Subsidiary of CapitalSource Inc. in excess of $2,500,000 or more shall be deemed to be material for purposes of this Section 5.1(o); and      (vi) Notice of Material Events. Promptly upon becoming aware thereof, notice of any other event or circumstances that, in the reasonable judgment of the Seller, is likely to have a Material Adverse Effect.      (p) Other. The Seller will furnish to the Administrative Agent and each Purchaser Agent promptly, from time to time, such other information, documents, records or reports respecting the Collateral or the condition or operations, financial or otherwise, of Seller or Originator as the Administrative Agent and each Purchaser Agent may from time to time reasonably request in order to protect the interests of the Administrative Agent, each Purchaser Agent or the Secured Parties under or as contemplated by this Agreement.      Section 5.2 Negative Covenants of the Seller.      From the date hereof until the Collection Date:      (a) Other Business. Seller will not (i) engage in any business other than the transactions contemplated by the Transaction Documents, (ii) incur any Indebtedness, obligation, liability or contingent obligation of any kind other than pursuant to this Agreement or under any 96 --------------------------------------------------------------------------------   Hedging Agreement required by Section 5.3(a), or (iii) form any Subsidiary or make any Investments in any other Person.      (b) Collateral Not to be Evidenced by Instruments. The Seller will take no action to cause any Collateral that is not, as of the Closing Date or the related Addition Date, as the case may be, evidenced by an Instrument, to be so evidenced except in connection with the enforcement or collection of such Collateral.      (c) Security Interests. Except as otherwise permitted herein and in respect of any Optional Sale, Discretionary Sale and Permitted Securitization Transaction, the Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Collateral, whether now existing or hereafter transferred hereunder, or any interest therein, and the Seller will not sell, pledge, assign or suffer to exist any Lien on its interest, if any, hereunder. The Seller will promptly notify the Administrative Agent and each Purchaser Agent of the existence of any Lien on any Collateral and the Seller shall defend the right, title and interest of the Administrative Agent as agent for the Secured Parties in, to and under the Collateral against all claims of third parties; provided that nothing in this Section 5.2(c) shall prevent or be deemed to prohibit the Seller from suffering to exist Permitted Liens upon any of the Collateral.      (d) Mergers, Acquisitions, Sales, etc. The Seller will not be a party to any merger or consolidation, or purchase or otherwise acquire any of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or sell, transfer, convey or lease any of its assets, or sell or assign with or without recourse any Collateral or any interest therein (other than pursuant hereto or to the Sale Agreement).      (e) Deposits to Special Accounts. Except as otherwise provided in the Lock-Box Agreement, the Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections in respect of the Collateral.      (f) Restricted Payments. The Seller shall not make any Restricted Junior Payment, except that, so long as no Termination Event or Unmatured Termination Event has occurred and is continuing or would result therefrom, the Seller may declare and make distributions to its members on their membership interests.      (g) Change of Name or Location of Loan Files. The Seller shall not (x) change its name, move the location of its principal place of business and chief executive office, change the offices where it keeps the records from the location referred to in Section 13.2, or change the jurisdiction of its formation, or (y) move, or consent to the Collateral Custodian or Servicer moving, the Required Asset Documents and the Asset Files from the location thereof on the Closing Date, unless the Seller has given at least 30 days’ written notice to the Administrative Agent and has taken all actions required under the UCC of each relevant jurisdiction in order to continue the first priority perfected security interest of the Administrative Agent, as agent for the Secured Parties, in the Collateral. 97 --------------------------------------------------------------------------------        (h) Accounting of Purchases. Other than for tax and consolidated accounting purposes, the Seller will not account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than as a sale of the Collateral by the Seller to the Secured Parties. Other than for consolidated tax and accounting purposes, the Seller will not account for or treat (whether in financial statements or otherwise) the transactions contemplated by the Sale Agreement in any manner other than as a sale of the Collateral by the Originator to the Seller.      (i) ERISA Matters. The Seller will not (a) engage or permit any ERISA Affiliate to engage in any prohibited transaction for which an exemption is not available or has not previously been obtained from the United States Department of Labor, (b) permit to exist any accumulated funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of the Code, or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan, (c) fail to make any payments to a Multiemployer Plan that the Seller or any ERISA Affiliate may be required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto, (d) terminate any Benefit Plan so as to result in any liability, or (e) permit to exist any occurrence of any reportable event described in Title IV of ERISA.      (j) Operating Agreement; Sale Agreement. The Seller will not amend, modify, waive or terminate any provision of its operating agreement or the Sale Agreement without the prior written consent of the Administrative Agent and each Purchaser Agent.      (k) Changes in Payment Instructions to Obligors. The Seller will not add or terminate any bank as a Lock-Box Bank or any Lock-Box Account from those listed in Schedule II or make any change, or permit Servicer to make any change, in its instructions to Obligors regarding payments to be made to Seller or Servicer or payments to be made to any Lock-Box Bank, unless the Administrative Agent has consented to such addition, termination or change (which consent shall not be unreasonably withheld) and has received duly executed copies of Lock-Box Agreements with each new Lock-Box Bank or with respect to each new Lock-Box Account, as the case may be.      (l) Extension or Amendment of Collateral. The Seller will not, except as otherwise permitted in Section 6.4(a), waive, extend, amend or otherwise modify, or permit the Servicer to extend, amend or otherwise modify, the terms of any Collateral (including the Related Security); provided that no waiver, extension, modification or alteration otherwise permitted under Section 6.4(a) shall (i) alter the status of any Asset as a Delinquent Asset or Charged-Off Asset, (ii) in the reasonable judgment of the Administrative Agent, prevent or delay any Asset from becoming a Delinquent Asset or Charged-Off Asset, or (iii) limit and/or impair the rights of the Administrative Agent or the Secured Parties under this Agreement.      (m) Credit and Collection Policy. The Seller will not materially amend, modify, restate or replace, in whole or in part, the Credit and Collection Policy, which amendment, modification, restatement or replacement would impair the collectibility of any of the Collateral or otherwise adversely affect the interests or remedies of the Administrative Agent, each Purchaser Agent or the Secured Parties under this Agreement or any other Transaction Document, without the prior written consent of the Administrative Agent and each Purchaser Agent (which consent will not be unreasonably withheld). 98 --------------------------------------------------------------------------------        (n) Other Indebtedness. The Seller will not issue or extend any class or type of Indebtedness whether senior, pari passu or subordinated to the Indebtedness arising under this Agreement, unless an opinion of special tax counsel is first rendered to the effect that such issuance of additional Indebtedness will not cause the Seller to be treated as a taxable mortgage pool.      Section 5.3 Covenants of the Seller Relating to the Hedging of Assets.      (a) On or prior to each Funding Date, as applicable, the Seller shall enter into one or more Hedge Transactions for that Advance; provided that each such Hedge Transaction shall:      (i) be entered into with a Hedge Counterparty and governed by a Hedging Agreement;      (ii) have a schedule of monthly calculation periods the first of which commences on the Funding Date of that Advance and the last of which ends on the last Scheduled Payment due to occur under or with respect to the Assets included in the Aggregate Outstanding Asset Balance to which that Advance relates;      (iii) have an amortizing notional amount such that the Hedge Notional Amount shall be at least equal to the product of the Hedge Percentage and the portion of the Hedge Amount represented by such Advance; and      (iv) provide for two series of monthly payments to be netted against each other, one such series being payments to be made by the Seller to a Hedge Counterparty (solely on a net basis) by reference to a fixed rate for that Advance, and the other such series being payments to be made by such Hedge Counterparty to the Administrative Agent (solely on a net basis) at a floating rate equal to “USD-LIBOR-BBA” (as defined in the ISDA Definitions), the net amount of which shall be paid into the Collection Account (if payable by such Hedge Counterparty) or from the Collection Account to the extent funds are available under Section 2.9(a)(1) and Section 2.10(a)(1) (if payable by the Seller);      (b) As additional security hereunder, Seller hereby assigns to the Administrative Agent, as agent for the Secured Parties, all right, title and interest but none of the obligations of the Seller in each Hedging Agreement, each Hedge Transaction, and all present and future amounts payable by a Hedge Counterparty to Seller under or in connection with the respective Hedging Agreement and Hedge Transaction(s) with that Hedge Counterparty (“Hedge Collateral”), and grants a security interest to the Administrative Agent, as agent for the Secured Parties, in the Hedge Collateral. Seller acknowledges that, as a result of that assignment, Seller may not, without the prior written consent of the Administrative Agent, exercise any rights under any Hedging Agreement or Hedge Transaction, except for Seller’s right under any Hedging Agreement to enter into Hedge Transactions in order to meet the Seller’s obligations under Section 5.3(a) hereof. Nothing herein shall have the effect of releasing the Seller from any of its obligations under any Hedging Agreement or any Hedge Transaction, nor be construed as requiring the consent of the Administrative Agent or any Secured Party for the performance by Seller of any such obligations. 99 --------------------------------------------------------------------------------        Section 5.4 Affirmative Covenants of the Servicer.      From the date hereof until the Collection Date:      (a) Compliance with Law. The Servicer will comply in all material respects with all Applicable Laws, including those with respect to the Collateral or any part thereof.      (b) Preservation of Company Existence. The Servicer will preserve and maintain its company existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a limited liability company in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification has had, or could reasonably be expected to have, a Material Adverse Effect.      (c) Obligations and Compliance with Collateral. The Servicer will duly fulfill and comply with all obligations on the part of the Seller to be fulfilled or complied with under or in connection with each Collateral and will do nothing to impair the rights of the Administrative Agent, as agent for the Secured Parties, or of the Secured Parties in, to and under the Collateral.      (d) Keeping of Records and Books of Account.      (i) The Servicer will maintain and implement administrative and operating procedures (including without limitation, an ability to recreate records evidencing Collateral in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Collateral and the identification of the Collateral.      (ii) The Servicer shall permit the Administrative Agent, each Purchaser Agent or their respective agents or representatives, to visit the offices of the Servicer during normal office hours and upon reasonable notice and examine and make copies of all documents, books, records and other information concerning the Collateral and discuss matters related thereto with any of the officers or employees of the Servicer having knowledge of such matters.      (iii) The Servicer will on or prior to the date hereof, mark its master data processing records and other books and records relating to the Collateral with a legend, acceptable to the Administrative Agent and each Purchaser Agent, describing the sale of the Collateral (A) from the Originator to the Seller, and (B) from the Seller to the Purchaser.      (e) Preservation of Security Interest. The Servicer (at its own expense) will execute and file such financing and continuation statements and any other documents that may be required by any law or regulation of any Governmental Authority to preserve and protect fully the security interest of the Administrative Agent as agent for the Secured Parties in, to and under the Collateral.      (f) Credit and Collection Policy. The Servicer will (i) comply in all material respects with the Credit and Collection Policy in regard to the Collateral, and (ii) furnish to the Administrative Agent and each Purchaser Agent, prior to its effective date, prompt notice of any 100 --------------------------------------------------------------------------------   proposed material change in the Credit and Collection Policy. Without the prior written consent of the Administrative Agent and each Purchaser Agent (which consent will not be unreasonably withheld), the Servicer will not agree to or otherwise permit to occur any material change in the Credit and Collection Policy, which change would impair the collectibility of any of the Collateral or otherwise adversely affect the interests or remedies of the Administrative Agent, each Purchaser Agent or the Secured Parties under this Agreement or any other Transaction Document.      (g) Termination Events. The Servicer will provide the Administrative Agent and each Purchaser Agent with immediate written notice of the occurrence of each Termination Event and each Unmatured Termination Event of which the Servicer has knowledge or has received notice. In addition, no later than two Business Days following the Servicer’s knowledge or notice of the occurrence of any Termination Event or Unmatured Termination Event, the Servicer will provide to the Administrative Agent and each Purchaser Agent a written statement of the chief financial officer or chief accounting officer of the Servicer setting forth the details of such event and the action that the Servicer proposes to take with respect thereto.      (h) Taxes. The Servicer will file and pay any and all Taxes required to meet the obligations of the Seller and the Servicer under the Transaction Documents.      (i) Other. The Servicer will promptly furnish to the Administrative Agent and each Purchaser Agent such other information, documents, records or reports respecting the Collateral or the condition or operations, financial or otherwise, of the Seller or the Servicer as the Administrative Agent and each Purchaser Agent may from time to time reasonably request in order to protect the interests of the Administrative Agent, each Purchaser Agent or Secured Parties under or as contemplated by this Agreement.      (j) Proceedings. As soon as possible and in any event within three Business Days after any executive officer of the Servicer receives notice or obtains knowledge thereof, of any settlement of, material judgment (including a material judgment with respect to the liability phase of a bifurcated trial) in or commencement of any material labor controversy, material litigation, material action, material suit or material proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Collateral, the Transaction Documents, the Secured Parties’ interest in the Collateral, or the Seller, the Servicer or the Originator or any other Subsidiary of CapitalSource Inc.; provided that notwithstanding the foregoing, any settlement, judgment, labor controversy, litigation, action, suit or proceeding affecting the Collateral, the Transaction Documents, the Secured Parties’ interest in the Collateral, or the Seller, the Servicer or the Originator or any other Subsidiary of CapitalSource Inc. in excess of $2,500,000 or more shall be deemed to be material for purposes of this Section 5.4(j).      (k) Deposit of Collections. The Servicer shall promptly (but in no event later than two Business Days after receipt) deposit into the Collection Account any and all Collections received by the Seller, the Servicer or any of their Affiliates.      (l) Servicing of Participation, Acquired and Assigned Loans. With respect to Participation Loans, Acquired Loans and Assigned Loans, the Servicer shall: (i) segregate all 101 --------------------------------------------------------------------------------   Loan Files with respect to such Loans; (ii) keep separate records with respect to such Loans; and (iii) identify each such Type of Loan on the Servicing Reports required hereunder with respect to such Loans.      (m) Change-in-Control. Upon the occurrence of a Change-in-Control, the Servicer shall provide the Administrative Agent, each Purchaser Agent and the Hedge Counterparties with notice of such Change-in-Control within 30 days after completion of the same.      (n) Loan Register.      (i) The Servicer shall maintain with respect to each Noteless Loan a register (each, a “Loan Register”) in which it will record (v) the amount of such Loan, (w) the amount of any principal or interest due and payable or to become due and payable from the Obligor thereunder, (x) the amount of any sum in respect of such Loan received from the Obligor and each Purchaser’s share thereof, (y) the date of origination of such Loan and (z) the maturity date of such Loan. The entries made in each Loan Register maintained pursuant to this Section 5.04(n) shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided that the failure of the Servicer to maintain any such Loan Register or any error therein shall not in any manner affect the obligations of the Obligor to repay the related Loans in accordance with their terms or any Purchaser’s interest therein.      (ii) At any time a Noteless Loan is included as part of the Collateral pursuant to this Agreement, the Servicer shall deliver to the Collateral Custodian a copy of the related Loan Register, together with a certificate of a Responsible Officer of the Servicer certifying to the accuracy of such Loan Register as of the date such Loan is included as part of the Collateral.      Section 5.5 Negative Covenants of the Servicer.      From the date hereof until the Collection Date.      (a) Deposits to Special Accounts. Except as otherwise provided in the Lock-Box Agreement, the Servicer will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections in respect of the Collateral.      (b) Mergers, Acquisition, Sales, etc. The Servicer will not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless the Servicer is the surviving entity and unless:      (i) the Servicer has delivered to the Administrative Agent and each Purchaser Agent an Officer’s Certificate and an Opinion of Counsel each stating that any consolidation, merger, conveyance or transfer complies with this Section 5.5 and that all conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, is legal, valid and binding with respect to the Servicer and such other matters as the Administrative Agent may reasonably request; 102 --------------------------------------------------------------------------------        (ii) the Servicer shall have delivered notice of such consolidation, merger, conveyance or transfer to the Administrative Agent and each Purchaser Agent;      (iii) after giving effect thereto, no Termination Event or Servicer Default or event that with notice or lapse of time would constitute either a Termination Event or a Servicer Default shall have occurred; and      (iv) the Administrative Agent and each Purchaser Agent have consented in writing to such consolidation, merger, conveyance or transfer.      (c) Change of Name or Location of Loan Files. The Servicer shall not (x) change its name, move the location of its principal place of business and chief executive office, change the offices where it keeps records concerning the Collateral from the location referred to in Section 13.2, or change the jurisdiction of its formation, or (y) move, or consent to the Collateral Custodian moving, the Required Asset Documents and Asset Files from the location thereof on the Closing Date, unless the Servicer has given at least 30 days’ written notice to the Administrative Agent and has taken all actions required under the UCC of each relevant jurisdiction in order to continue the first priority perfected security interest of the Administrative Agent as agent for the Secured Parties in the Collateral.      (d) Change in Payment Instructions to Obligors. The Servicer will not add or terminate any bank as a Lock-Box Bank or any Lock-Box Account from those listed in Schedule II or make any change in its instructions to Obligors regarding payments to be made to the Seller or the Servicer or payments to be made to any Lock-Box Bank, unless the Administrative Agent has consented to such addition, termination or change (which consent shall not be unreasonably withheld) and has received duly executed copies of Lock-Box Agreements with each new Lock-Box Bank or with respect to each new Lock-Box Account, as the case may be.      (e) Extension or Amendment of Assets. The Servicer will not, except as otherwise permitted in Section 6.4(a), extend, amend or otherwise modify the terms of any Assets; provided that no waiver, extension, modification or alteration otherwise permitted under Section 6.4(a) shall (i) alter the status of any Asset as a Delinquent Asset or Charged-Off Asset, (ii) in the reasonable judgment of the Administrative Agent, prevent or delay any Asset from becoming a Delinquent Asset or Charged-Off Asset, or (iii) limit and/or impair the rights of the Administrative Agent or the Secured Parties under this Agreement.      Section 5.6 Affirmative Covenants of the Backup Servicer.      From the date hereof until the Collection Date:      (a) Compliance with Law. The Backup Servicer will comply in all material respects with all Applicable Laws.      (b) Preservation of Existence. The Backup Servicer will preserve and maintain its existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification has had, or could reasonably be expected to have, a Material Adverse Effect. 103 --------------------------------------------------------------------------------        Section 5.7 Negative Covenants of the Backup Servicer.      From the date hereof until the Collection Date:      No Changes in Backup Servicer Fee. The Backup Servicer will not make any changes to the Backup Servicer Fee set forth in the Backup Servicer Fee Letter without the prior written approval of the Administrative Agent and each Purchaser Agent.      Section 5.8 Affirmative Covenants of the Collateral Custodian.      From the date hereof until the Collection Date:      (a) Compliance with Law. The Collateral Custodian will comply in all material respects with all Applicable Laws.      (b) Preservation of Existence. The Collateral Custodian will preserve and maintain its existence, rights, franchises and privileges in the jurisdiction of its formation and qualify and remain qualified in good standing in each jurisdiction where failure to preserve and maintain such existence, rights, franchises, privileges and qualification has had, or could reasonably be expected to have, a Material Adverse Effect.      (c) Location of Required Asset Documents. The Required Asset Documents shall remain at all times in the possession of the Collateral Custodian at the address set forth herein unless notice of a different address is given in accordance with the terms hereof or unless the Administrative Agent agrees to allow certain Required Asset Documents to be released to the Servicer on a temporary basis in accordance with the terms hereof.      Section 5.9 Negative Covenants of the Collateral Custodian.      From the date hereof until the Collection Date:      (a) Required Asset Documents. The Collateral Custodian will not dispose of any documents constituting the Required Asset Documents in any manner that is inconsistent with the performance of its obligations as the Collateral Custodian pursuant to this Agreement and will not dispose of any Collateral except as contemplated by this Agreement.      (b) No Changes in Collateral Custodian Fee. The Collateral Custodian will not make any changes to the Collateral Custodian Fee set forth in the Collateral Custodian Fee Letter without the prior written approval of the Administrative Agent and each Purchaser Agent. ARTICLE VI ADMINISTRATION AND SERVICING OF ASSETS      Section 6.1 Designation of the Servicer.      (a) Initial Servicer. The servicing, administering and collection of the Collateral shall be conducted by the Person designated as the Servicer hereunder from time to time in accordance 104 --------------------------------------------------------------------------------   with this Section 6.1. Until the Administrative Agent gives to the Originator a Servicer Termination Notice, the Originator is hereby designated as, and hereby agrees to perform the duties and responsibilities of, the Servicer pursuant to the terms hereof.      (b) Successor Servicer. Upon the Servicer’s receipt of a Servicer Termination Notice (with a copy to the Backup Servicer) from the Administrative Agent pursuant to the terms of Section 6.15, the Servicer agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrative Agent reasonably believes will facilitate the transition of the performance of such activities to a successor Servicer, and the successor Servicer shall assume each and all of the Servicer’s obligations to service and administer the Collateral, on the terms and subject to the conditions herein set forth, and the Servicer shall use its best reasonable efforts to assist the successor Servicer in assuming such obligations.      (c) Subcontracts. The Servicer may, with the prior consent of the Administrative Agent, subcontract with any other Person for servicing, administering or collecting the Collateral; provided that the Servicer shall remain liable for the performance of the duties and obligations of the Servicer pursuant to the terms hereof and that any such subcontract may be terminated upon the occurrence of a Servicer Default.      (d) Servicing Programs. In the event that the Servicer uses any software program in servicing the Collateral that it licenses from a third party, the Servicer shall use its best reasonable efforts to obtain, either before the Closing Date or as soon as possible thereafter, whatever licenses or approvals are necessary to allow the Administrative Agent or the Servicer to use such program.      Section 6.2 Duties of the Servicer.      (a) Appointment. The Seller hereby appoints the Servicer as its agent, as from time to time designated pursuant to Section 6.1, to service the Collateral and enforce its respective rights in and under such Collateral. The Servicer hereby accepts such appointment and agrees to perform the duties and obligations with respect thereto as set forth herein. The Servicer and the Seller hereby acknowledge that the Administrative Agent, each Purchaser Agent and the Secured Parties are third party beneficiaries of the obligations undertaken by the Servicer hereunder.      (b) Duties. The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect on the Collateral from time to time, all in accordance with Applicable Laws, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. Without limiting the foregoing, the duties of the Servicer shall include the following:      (i) preparing and submitting of claims to, and post-billing liaison with, Obligors on each Asset;      (ii) maintaining all necessary servicing records with respect to the Collateral and providing such reports to the Administrative Agent and each Purchaser Agent in respect of the servicing of the Collateral (including information relating to its performance under this Agreement) as may be required hereunder or as the Administrative Agent and each Purchaser Agent may reasonably request; 105 --------------------------------------------------------------------------------        (iii) maintaining and implementing administrative and operating procedures (including, without limitation, an ability to recreate servicing records evidencing the Collateral in the event of the destruction of the originals thereof) and keeping and maintaining all documents, books, records and other information reasonably necessary or advisable for the collection of the Collateral;      (iv) promptly delivering to the Administrative Agent, each Purchaser Agent or the Collateral Custodian, from time to time, such information and servicing records (including information relating to its performance under this Agreement) as the Administrative Agent, each Purchaser Agent or the Collateral Custodian may from time to time reasonably request;      (v) identifying each Asset clearly and unambiguously in its servicing records to reflect that such Asset is owned by the Seller and that the Seller is selling an undivided ownership interest therein to the Secured Parties pursuant to this Agreement;      (vi) notifying the Administrative Agent and each Purchaser Agent of any material action, suit, proceeding, dispute, offset, deduction, defense or counterclaim (1) that is or is threatened to be asserted by an Obligor with respect to any Asset (or portion thereof) of which it has knowledge or has received notice; or (2) that is reasonably expected to have a Material Adverse Effect;      (vii) notifying the Administrative Agent and each Purchaser Agent of any proposed change in the Credit and Collection Policy that could have an adverse effect on the collectibility of the Collateral, on the Seller or on the interests of the Administrative Agent, each Purchaser Agent or any Secured Party;      (viii) using its reasonable best efforts to maintain the perfected security interest of the Administrative Agent, as agent for the Secured Parties, in the Collateral;      (ix) maintaining in the same manner as the Collateral Custodian holds the Required Asset Documents, the Asset File (other than Required Asset Documents) with respect to each Asset included as part of the Collateral; and      (x) the Servicer shall make payments pursuant to the terms of the Monthly Report in accordance with Section 2.9 and Section 2.10.      (c) Notwithstanding anything to the contrary contained herein, the exercise by the Administrative Agent, each Purchaser Agent and the Secured Parties of their rights hereunder shall not release the Servicer, the Originator or the Seller from any of their duties or responsibilities with respect to the Collateral. The Secured Parties, the Administrative Agent, each Purchaser Agent and the Collateral Custodian (except in the role of Backup Servicer) shall not have any obligation or liability with respect to any Collateral, nor shall any of them be obligated to perform any of the obligations of the Servicer hereunder.      (d) Any payment by an Obligor in respect of any Indebtedness owed by it to the Originator or the Seller shall, except as otherwise specified by such Obligor or otherwise required by contract or Applicable Law and unless otherwise instructed by the Administrative 106 --------------------------------------------------------------------------------   Agent, be applied as a Collection of an item of Collateral of such Obligor (starting with the oldest such Collateral) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor.      Section 6.3 Authorization of the Servicer.      (a) Each of the Seller, the Administrative Agent, each Purchaser Agent, each Purchaser and each Hedge Counterparty hereby authorizes the Servicer (including any successor thereto) to take any and all reasonable steps in its name and on its behalf necessary or desirable and not inconsistent with the sale of the Collateral to the Purchasers and each Hedge Counterparty, in the determination of the Servicer, to collect all amounts due under any and all Collateral, including, without limitation, endorsing any of their names on checks and other instruments representing Collections, executing and delivering any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Collateral and, after the delinquency of any Collateral and to the extent permitted under and in compliance with Applicable Law, to commence proceedings with respect to enforcing payment thereof, to the same extent as the Originator could have done if it had continued to own such Collateral. The Originator, the Seller and the Administrative Agent on behalf of the Secured Parties and each Hedge Counterparty shall furnish the Servicer (and any successors thereto) with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder, and shall cooperate with the Servicer to the fullest extent in order to ensure the collectibility of the Collateral. In no event shall the Servicer be entitled to make the Secured Parties, any Hedge Counterparty, the Collateral Custodian, the Administrative Agent or the Purchaser Agents a party to any litigation without such party’s express prior written consent, or to make the Seller a party to any litigation (other than any routine foreclosure or similar collection procedure) without the Administrative Agent’s and each Purchaser Agent’s consent.      (b) After a Termination Event has occurred and is continuing, at the direction the Administrative Agent, the Servicer shall take such action as the Administrative Agent may deem necessary or advisable to enforce collection of the Collateral; provided that the Administrative Agent may, at any time that a Termination Event or Unmatured Termination Event has occurred and is continuing, notify any Obligor with respect to any Collateral of the assignment of such Collateral to the Administrative Agent and direct that payments of all amounts due or to become due be made directly to the Administrative Agent and each Purchaser Agent or any servicer, collection agent or lock-box or other account designated by the Administrative Agent and each Purchaser Agent and, upon such notification and at the expense of the Seller, the Administrative Agent may enforce collection of any such Collateral, and adjust, settle or compromise the amount or payment thereof.      Section 6.4 Collection of Payments.      (a) Collection Efforts, Modification of Collateral. The Servicer will use its reasonable best efforts to collect all payments called for under the terms and provisions of the Assets included in the Collateral as and when the same become due in accordance with the Credit and Collection Policy, and will follow those collection procedures that it follows with respect to all comparable Collateral that it services for itself or others. The Servicer may not 107 --------------------------------------------------------------------------------   waive, modify or otherwise vary any provision of an item of Collateral in a manner that, in its reasonable judgment, would impair the collectibility of the Collateral or in any manner contrary to the Credit and Collection Policy. The Servicer may otherwise amend or modify the underlying documents related to any item of Collateral in compliance with the Credit and Collection Policy.      (b) Prepaid Asset. Prior to a Termination Event, upon any Asset becoming a Prepaid Asset, the Servicer shall either (x) provide a Substitute Asset in accordance with Section 2.18 or (y) deposit to the Collection Account (in addition to all amounts received from the related Obligor upon the prepayment of such Asset) an amount equal to the excess, if any, of the sum of (a) the Outstanding Asset Balance on the date of such payment, (b) any outstanding Servicer Advances thereon, (c) any accrued and unpaid interest, and (d) all Hedge Breakage Costs owing to the relevant Hedge Counterparty for any termination of one or more Hedge Transactions, in whole or in part, as required by the terms of any Hedging Agreement as the result of any such Asset becoming a Prepaid Asset, over the amount received from the related Obligor upon such prepayment (such excess, the “Prepayment Amount”), in each case, only to the extent necessary to cause the Availability as of such date (after giving effect to such substitution or deposit, as applicable) to be greater than or equal to zero. After a Termination Event has occurred, upon any Asset becoming a Prepaid Asset, the Servicer shall deposit to the Collection Account all amounts received from the related Obligor upon the prepayment of such Asset plus the Prepayment Amount, if any.      (c) Acceleration. If required by the Credit and Collection Policy, the Servicer shall accelerate the maturity of all or any Scheduled Payments and other amounts due under any Asset in which a default under the terms thereof has occurred and is continuing (after the lapse of any applicable grace period) promptly after such Asset becomes a Charged-Off Asset.      (d) Taxes and other Amounts. To the extent provided for in any Asset, the Servicer will use its reasonable best efforts to collect all payments with respect to amounts due for taxes, assessments and insurance premiums relating to such Asset and remit such amounts to the appropriate Governmental Authority or insurer on or prior to the date such payments are due.      (e) Payments to Lock-Box Account. Subject to Section 5.1(p), on or before the applicable Cut-Off Date, the Servicer shall have instructed all Obligors to make all payments in respect of the Collateral to the Lock-Box or directly to the Lock-Box Account.      (f) Establishment of the Collection Account. The Servicer shall cause to be established, on or before the Closing Date, with the Collateral Custodian, and maintained in the name of the Administrative Agent as agent for the Secured Parties, with an office or branch of a depository institution or trust company a segregated corporate trust account entitled Collection Account for Citigroup Global Markets Realty Corp., as Administrative Agent for the Secured Parties (the “Collection Account”), and the Servicer shall further maintain a subaccount within the Collection Account for the purpose of segregating, within two Business Days of the receipt of any Collections, Principal Collections (the “Principal Collections Account”), over which the Collateral Custodian as agent for the Secured Parties shall have control and from which neither the Originator, Servicer nor the Seller shall have any right of withdrawal except in accordance with Section 2.9(b); provided that at all times such depository institution or trust company shall 108 --------------------------------------------------------------------------------   be acceptable to the Administrative Agent and a depository institution organized under the laws of the United States of America or any one of the States thereof or the District of Columbia (or any domestic branch of a foreign bank), (i) (a) that has either (1) a long-term unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P or “P-1” or better by Moody’s, (b) the parent corporation of which has either (1) a long-term unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P and “P-1” or better by Moody’s or (c) is otherwise acceptable to the Administrative Agent and (ii) whose deposits are insured by the Federal Deposit Insurance Corporation (any such depository institution or trust company, a “Qualified Institution”).      (g) Establishment of the Excess Spread Account. The Seller or the Servicer on its behalf shall establish, on or before the Closing Date, with the Collateral Custodian, and cause to be maintained in the name of the Seller and assigned to the Administrative Agent, with a Qualified Institution an account into which all amounts paid by the Originator pursuant to Section 2.21 of this Agreement shall be deposited (the “Excess Spread Account”). Upon receipt of the Required Equity Contribution Notice the Seller shall deposit within the timeframe set forth in Section 2.21 an amount of cash into the Excess Spread Account equal to the Required Equity Shortfall. To the extent that, on any Payment Date during the Amortization Period, there are funds on deposit in the Excess Spread Account, such funds shall be applied on such Payment Date in accordance with Section 2.10.      (h) Establishment of the Securities Account. The Seller or the Servicer on its behalf shall establish, on or before the date any CMBS Security becomes a part of the Collateral, an account with the Securities Intermediary to which financial assets may be credited (the “Securities Account”) pursuant to Section 8.11. Upon receipt of any Collections to the Securities Account the Servicer shall cause the transfer of such Collections to the Collection Account by the close of business on the Business Day after such Collections are so received into the Securities Account.      (i) Adjustments. If (i) the Servicer makes a deposit into the Collection Account in respect of a Collection of an item of Collateral and such Collection was received by the Servicer in the form of a check that is not honored for any reason or (ii) the Servicer makes a mistake with respect to the amount of any Collection and deposits an amount that is less than or more than the actual amount of such Collection, the Servicer shall appropriately adjust the amount subsequently deposited into the Collection Account to reflect such dishonored check or mistake. Any Scheduled Payment in respect of which a dishonored check is received shall be deemed not to have been paid.      Section 6.5 Servicer Advances.      For each Collection Period, if the Servicer determines that any Scheduled Payment (or portion thereof) that was due and payable pursuant to an Asset during such Collection Period was not received prior to the last day of such Collection Period, the Servicer may (in its sole and absolute discretion) make an advance in an amount up to the amount of such delinquent Scheduled Payment. The Servicer will deposit any Servicer Advances into the Collection 109 --------------------------------------------------------------------------------   Account on or prior to 9:00 a.m. (New York City, New York time) on the Business Day prior to the related Payment Date, in immediately available funds. Notwithstanding anything to the contrary contained herein, no Successor Servicer shall have any responsibility to make Servicer Advances.      Section 6.6 Realization Upon Charged-Off Assets.      The Servicer will use reasonable efforts to repossess or otherwise comparably convert the ownership of any Related Property relating to a Charged-Off Asset and will act as sales and processing agent for Related Property that it repossesses. The Servicer will follow such other practices and procedures as it deems necessary or advisable and as are customary and usual in its servicing of contracts and other actions by the Servicer in order to realize upon such Related Property, which practices and procedures may include reasonable efforts to enforce all obligations of Obligors and repossessing and selling such Related Property at public or private sale in circumstances other than those described in the preceding sentence. Without limiting the generality of the foregoing, unless the Administrative Agent has specifically given instruction to the contrary, the Servicer may sell any such Related Property to the Servicer or its Affiliates for a purchase price equal to the then fair market value thereof, any such sale to be evidenced by a certificate of a Responsible Officer of the Servicer delivered to the Administrative Agent setting forth the Asset, the Related Property, the sale price of the Related Property and certifying that such sale price is the fair market value of such Related Property. In any case in which any such Related Property has suffered damage, the Servicer will not expend funds in connection with any repair or toward the repossession of such Related Property unless it reasonably determines that such repair and/or repossession will increase the Recoveries by an amount greater than the amount of such expenses. The Servicer will remit to the Collection Account the Recoveries received in connection with the sale or disposition of Related Property relating to a Charged-Off Asset.      Section 6.7 Maintenance of Insurance Policies.      The Servicer will use its reasonable best efforts to ensure that each Obligor maintains an Insurance Policy with respect to any Related Property (other than accounts receivable) in an amount at least equal to the Servicer’s good faith and commercially reasonable estimate of the value of the real property, inventory, and/or equipment constituting such Related Property and shall ensure that each such Insurance Policy names the Servicer as loss payee and as an insured thereunder and all of the Seller’s right, title and interest therein is fully assigned to the Administrative Agent, as agent for the Secured Parties. Additionally, the Servicer will require that each Obligor maintain property damage liability insurance during the term of each Asset in amounts and against risks customarily insured against by the Obligor on property owned by it. If an Obligor fails to maintain property damage insurance, the Servicer may in its discretion purchase and maintain such insurance on behalf of, and at the expense of, the Obligor. In connection with its activities as Servicer, the Servicer agrees to present, on behalf of the Administrative Agent, claims to the insurer under each Insurance Policy and any such liability policy, and to settle, adjust and compromise such claims, in each case, consistent with the terms of each Asset. The Servicer’s Insurance Policies with respect to the Related Property will insure against liability for physical damage relating to such Related Property in accordance with the requirements of the Credit and Collection Policy. The Servicer hereby disclaims any and all 110 --------------------------------------------------------------------------------   right, title and interest in and to any Insurance Policy and Insurance Proceeds with respect to any Related Property, including any Insurance Policy with respect to which it is named as loss payee and as an insured, and agrees that it has no equitable, beneficial or other interest in the Insurance Polices and Insurance Proceeds other than being named as loss payee and as an insured. The Servicer acknowledges that with respect to the Insurance Policies and Insurance Proceeds thereof that it is acting solely in the capacity as agent for the Administrative Agent, as agent for the Secured Parties.      Section 6.8 Servicing Compensation.      As compensation for its servicing activities hereunder and reimbursement for its expenses, the Servicer shall be entitled to receive the Servicing Fee to the extent of funds available therefor pursuant to the provisions of Section 2.9(a)(3) or Section 2.10(a)(3), as applicable.      Section 6.9 Payment of Certain Expenses by Servicer.      The Servicer will be required to pay all expenses incurred by it in connection with its activities under this Agreement, including fees and disbursements of independent accountants, Taxes imposed on the Servicer, expenses incurred in connection with payments and reports pursuant to this Agreement, and all other fees and expenses not expressly stated under this Agreement for the account of the Seller, but excluding Liquidation Expenses incurred as a result of activities contemplated by Section 6.6; provided that for avoidance of doubt, to the extent Liquidation Expenses relate to a Loan and a Retained Interest such Liquidation Expenses shall be allocated pro rata. The Servicer will be required to pay all reasonable fees and expenses owing to any bank or trust company in connection with the maintenance of the Collection Account and the Lock-Box Account. The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Servicing Fee.      Section 6.10 Reports.      (a) Borrowing Notice. On each Funding Date, on each reduction of Advances Outstanding pursuant to Section 2.4(b) and on each reinvestment of Principal Collections pursuant to Section 2.9(b), the Seller (and the Servicer on its behalf) will provide a Borrowing Notice, updated as of such date, to the Administrative Agent and each Purchaser Agent (with a copy to the Collateral Custodian).      (b) Monthly Report. On each Reporting Date, the Servicer will provide to the Seller, the Administrative Agent, each Purchaser Agent, the Backup Servicer and any Liquidity Bank, a monthly statement including a Borrowing Base calculated as of the most recent Determination Date, with respect to the related Collection Period signed by a Responsible Officer of the Servicer and the Seller and substantially in the form of Exhibit C (a “Monthly Report”).      (c) Servicer’s Certificate. Together with each Monthly Report, the Servicer shall submit to the Administrative Agent, each Purchaser Agent and any Liquidity Bank a certificate (a "Servicer’s Certificate”), signed by a Responsible Officer of the Servicer and substantially in the form of Exhibit J. 111 --------------------------------------------------------------------------------        (d) Financial Statements. The Servicer will submit to the Administrative Agent, each Purchaser Agent, each Purchaser, the Backup Servicer and any Liquidity Bank, (i) within 45 days after the end of each of its first three fiscal quarters, commencing with the fiscal quarter ending June 30, 2006, a copy of the quarterly report on Form 10-Q of CapitalSource Inc. for the most recent fiscal quarter and unaudited consolidating statements, and (ii) within 90 days after the end of each fiscal year, commencing with the fiscal year ending December 31, 2006, a copy of the annual report on Form 10-K of CapitalSource Inc., in each case in the form as filed with the Securities and Exchange Commission and unaudited consolidating statements.      (e) Tax Returns. Upon demand by the Administrative Agent, each Purchaser Agent and any Liquidity Bank, copies of all federal, state and local Tax returns and reports filed by the Seller and Servicer, or in which the Seller or Servicer was included on a consolidated or combined basis (excluding sales, use and like taxes).      (f) Financial Statements of Obligors. Upon demand by the Administrative Agent, each Purchaser Agent and any Liquidity Bank, the Servicer will provide to such party the financial statements of any Obligor.      (g) Other Reports. The Servicer will provide any other reports requested by the Administrative Agent and reasonably acceptable to the Originator.      Section 6.11 Annual Statement as to Compliance.      The Servicer will provide to the Administrative Agent and each Purchaser Agent, within 90 days following the end of each fiscal year of the Servicer, commencing with the fiscal year ending on December 31, 2006, a fiscal report signed by a Responsible Officer of the Servicer certifying that (a) a review of the activities of the Servicer, and the Servicer’s performance pursuant to this Agreement, for the fiscal period ending on the last day of such fiscal year has been made under such Person’s supervision and (b) the Servicer has performed or has caused to be performed in all material respects all of its obligations under this Agreement throughout such year and no Servicer Default has occurred and is continuing.      Section 6.12 Annual Independent Public Accountant’s Servicing Reports.      The Servicer will cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer) to furnish to the Administrative Agent, each Purchaser Agent, the Collateral Custodian and the Backup Servicer, within 90 days following the end of each fiscal year of the Servicer, commencing with the fiscal year ending on December 31, 2006: (i) a report relating to such fiscal year to the effect that (a) such firm has reviewed certain documents and records relating to the servicing of the Collateral, and (b) based on such examination, such firm is of the opinion that the Monthly Reports for such year were prepared in compliance with this Agreement, except for such exceptions as it believes to be immaterial and such other exceptions as will be set forth in such firm’s report and (ii) a report covering such fiscal year to the effect that such accountants have applied certain agreed-upon procedures (which procedures shall have been approved by the Administrative Agent and each Purchaser Agent) to certain documents and records relating to the Collateral under any Transaction Document, compared the information contained in the Monthly Reports and the Servicer’s 112 --------------------------------------------------------------------------------   Certificates delivered during the period covered by such report with such documents and records and that no matters came to the attention of such accountants that caused them to believe that such servicing was not conducted in compliance with this Article VI, except for such exceptions as such accountants shall believe to be immaterial and such other exception as shall be set forth in such statement.      Section 6.13 Limitation on Liability of the Servicer and Others      Except as provided herein, the Servicer shall not be under any liability to the Administrative Agent, each Purchaser Agent, the Secured Parties or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether arising from express or implied duties under this Agreement; provided that notwithstanding anything to the contrary contained herein nothing shall protect the Servicer against any liability that would otherwise be imposed by reason of its willful misfeasance, bad faith or negligence in the performance of duties or by reason of its willful misconduct hereunder.      Section 6.14 The Servicer Not to Resign.      The Servicer shall not resign from the obligations and duties hereby imposed on it except upon the Servicer’s determination that (i) the performance of its duties hereunder is or becomes impermissible under Applicable Law and (ii) there is no reasonable action that the Servicer could take to make the performance of its duties hereunder permissible under Applicable Law. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Administrative Agent, each Purchaser Agent and the Backup Servicer. No such resignation shall become effective until a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 6.2.      Section 6.15 Servicer Defaults.      If any one of the following events (a “Servicer Default”) shall occur and be continuing:      (a) any failure by the Servicer to make any payment, transfer or deposit (including without limitation with respect to Collections) as required by this Agreement which continues unremedied for a period of one Business Day;      (b) any failure by the Servicer to give instructions or notice to the Administrative Agent and each Purchaser Agent as required by this Agreement, or to deliver any required Monthly Report or other Required Reports hereunder on or before the date occurring two Business Days after the date such instruction, notice or report is required to be made or given, as the case may be, under the terms of this Agreement;      (c) any failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or the other Transaction Documents to which the Servicer is a party and the same continues unremedied for a period of 30 days after the earlier to occur of (i) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Administrative Agent and each Purchaser Agent and (ii) the date on which the Servicer becomes aware thereof; 113 --------------------------------------------------------------------------------        (d) any representation, warranty or certification made by the Servicer in any Transaction Document or in any certificate delivered pursuant to any Transaction Document shall prove to have been incorrect when made, which has a Material Adverse Effect on the Administrative Agent, any Purchaser Agent or the Secured Parties and which continues to be unremedied for a period of 30 days after the earlier to occur of (i) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Servicer by the Administrative Agent or any Purchaser Agent and (ii) the date on which the Servicer becomes aware thereof;      (e) an Insolvency Event shall occur with respect to the Servicer;      (f) any material delegation of the Servicer’s duties that is not permitted by Section 6.1;      (g) any financial or other information reasonably requested by the Administrative Agent, any Purchaser Agent or any Purchaser is not provided as requested within a reasonable amount of time following such request;      (h) the rendering against the Servicer of one or more final judgments, decrees or orders for the payment of money in excess of $10,000,000, individually or in the aggregate, and the continuance of such judgment, decree or order unsatisfied and in effect for any period of more than 60 consecutive days without a stay of execution;      (i) the failure of the Servicer to make any payment due with respect to any recourse debt or other obligations, which debt or other obligations are in excess of $10,000,000, individually or in the aggregate, or the occurrence of any event or condition that would permit acceleration of such recourse debt or other obligations whether or not waived;      (j) CapitalSource Inc.’s Consolidated Tangible Net Worth is less than (i) $1,015,000,000 plus (ii) 70% of the cumulative Net Proceeds of Capital Stock/Conversion of Debt received at any time after December 31, 2005;      (k) [Reserved];      (l) the Servicer fails in any material respect to comply with the Credit and Collection Policy regarding the servicing of the Collateral; or      (m) the Servicer consents or agrees to, or otherwise permits to occur, any amendment, modification, change, supplement or rescission of or to the Credit and Collection Policy (after the adoption of same) in whole or in part that could be reasonably expected to have a Material Adverse Effect upon the Collateral, the Administrative Agent, any Purchaser Agent or the Secured Parties, without the prior written consent of the Administrative Agent and each Purchaser Agent. then notwithstanding anything herein to the contrary, so long as any such Servicer Default shall not have been remedied within any applicable cure period prior to the date of the Servicer Termination Notice (defined below), the Administrative Agent, by written notice to the Servicer 114 --------------------------------------------------------------------------------   (with a copy to the Backup Servicer) (a “Servicer Termination Notice”), may terminate all of the rights and obligations of the Servicer as Servicer under this Agreement.      Section 6.16 Appointment of Successor Servicer.      (a) On and after the receipt by the Servicer of a Servicer Termination Notice pursuant to Section 6.15, the Servicer shall continue to perform all servicing functions under this Agreement until the date specified in the Servicer Termination Notice or otherwise specified by the Administrative Agent in writing or, if no such date is specified in such Servicer Termination Notice or otherwise specified by the Administrative Agent, until a date mutually agreed upon by the Servicer and the Administrative Agent. The Administrative Agent may at the time described in the immediately preceding sentence in its sole discretion, appoint the Backup Servicer as the Servicer hereunder, and the Backup Servicer shall on such date assume all obligations of the Servicer hereunder, and all authority and power of the Servicer under this Agreement shall pass to and be vested in the Backup Servicer. As compensation therefor, the Backup Servicer shall be entitled to the Servicing Fee, together with other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided herein; including, without limitation, Transition Expenses. In the event that the Administrative Agent does not so appoint the Backup Servicer, there is no Backup Servicer or the Backup Servicer is unable to assume such obligations on such date, the Administrative Agent shall as promptly as possible appoint a successor servicer (the "Successor Servicer”), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Administrative Agent and each Purchaser Agent. In the event that a Successor Servicer has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Administrative Agent shall petition a court of competent jurisdiction to appoint any established financial institution, having a net worth of not less than $50,000,000 and whose regular business includes the servicing of Collateral, as the Successor Servicer hereunder.      (b) Upon its appointment, the Backup Servicer (subject to Section 6.16(a)) or the Successor Servicer, as applicable, shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Backup Servicer or the Successor Servicer, as applicable; provided that the Backup Servicer or Successor Servicer, as applicable, shall have (i) no liability with respect to any action performed by the terminated Servicer prior to the date that the Backup Servicer or Successor Servicer, as applicable, becomes the successor to the Servicer or any claim of a third party based on any alleged action or inaction of the terminated Servicer, (ii) no obligation to perform any advancing obligations, if any, of the Servicer unless it elects to in its sole discretion, (iii) no obligation to pay any taxes required to be paid by the Servicer (provided that the Backup Servicer or Successor Servicer, as applicable, shall pay any income taxes for which it is liable), (iv) no obligation to pay any of the fees and expenses of any other party to the transactions contemplated hereby, and (v) no liability or obligation with respect to any Servicer indemnification obligations of any prior Servicer, including the original Servicer. The indemnification obligations of the Backup Servicer or the Successor Servicer, as applicable, upon becoming a Successor Servicer, are expressly limited to those arising on account of its failure to act in good faith and with reasonable care under the circumstances. In addition, the 115 --------------------------------------------------------------------------------   Backup Servicer or Successor Servicer, as applicable, shall have no liability relating to the representations and warranties of the Servicer contained in Article IV. Further, for so long as the Backup Servicer shall be the Successor Servicer, the provisions of Section 2.15, Section 2.16(b) and Section 2.16(e) of this Agreement shall not apply to it in its capacity as Servicer.      (c) All authority and power granted to the Servicer under this Agreement shall automatically cease and terminate upon termination of this Agreement and shall pass to and be vested in the Seller and, without limitation, the Seller is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Seller in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing of the Collateral.      (d) Upon the Backup Servicer receiving notice that it is required to serve as the Servicer hereunder pursuant to the foregoing provisions of this Section 6.16, the Backup Servicer will promptly begin the transition to its role as Servicer. Notwithstanding the foregoing, the Backup Servicer may, in its discretion, appoint, or petition a court of competent jurisdiction to appoint, any established servicing institution as the successor to the Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer hereunder. As compensation, any Successor Servicer (including, without limitation, the Administrative Agent) so appointed shall be entitled to receive the Servicing Fee, together with any other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided herein that accrued prior thereto, including, without limitation, Transition Expenses. In the event the Backup Servicer is required to solicit bids as provided herein, the Backup Servicer shall solicit, by public announcement, bids from banks and mortgage servicing institutions meeting the qualifications set forth in Section 6.16(a). Such public announcement shall specify that the Successor Servicer shall be entitled to the full amount of the Servicing Fee as servicing compensation, together with the other servicing compensation in the form of assumption fees, late payment charges or otherwise that accrued prior thereto. Within 30 days after any such public announcement, the Backup Servicer shall negotiate and effect the sale, transfer and assignment of the servicing rights and responsibilities hereunder to the qualified party submitting the highest qualifying bid. The Backup Servicer shall deduct from any sum received by the Backup Servicer from the successor to the Servicer in respect of such sale, transfer and assignment all costs and expenses of any public announcement and of any sale, transfer and assignment of the servicing rights and responsibilities hereunder and the amount of any unreimbursed Servicing Advances. After such deductions, the remainder of such sum shall be paid by the Backup Servicer to the Servicer at the time of such sale, transfer and assignment to the Servicer’s successor. The Backup Servicer and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. No appointment of a successor to the Servicer hereunder shall be effective until written notice of such proposed appointment shall have been provided by the Backup Servicer to the Administrative Agent and each Purchaser Agent and the Backup Servicer shall have consented thereto. The Backup Servicer shall not resign as servicer until a Successor Servicer has been appointed and accepted such appointment. Notwithstanding anything to the contrary contained herein, in no event shall Wells Fargo, in any capacity, be liable for any Servicing Fee or for any differential in the amount of the Servicing Fee paid hereunder and the amount necessary to 116 --------------------------------------------------------------------------------   induce any Successor Servicer under this Agreement and the transactions set forth or provided for by this Agreement. ARTICLE VII THE BACKUP SERVICER      Section 7.1 Designation of the Backup Servicer.      (a) Initial Backup Servicer. The backup servicing role with respect to the Collateral shall be conducted by the Person designated as Backup Servicer hereunder from time to time in accordance with this Section 7.1. Until the Administrative Agent shall give to Wells Fargo a Backup Servicer Termination Notice, Wells Fargo is hereby designated as, and hereby agrees to perform the duties and obligations of, a Backup Servicer pursuant to the terms hereof.      (b) Successor Backup Servicer. Upon the Backup Servicer’s receipt of Backup Servicer Termination Notice from the Administrative Agent of the designation of a replacement Backup Servicer pursuant to the provisions of Section 7.5, the Backup Servicer agrees that it will terminate its activities as Backup Servicer hereunder.      Section 7.2 Duties of the Backup Servicer.      (a) Appointment. The Seller and the Administrative Agent, as agent for the Secured Parties, each hereby appoints Wells Fargo to act as Backup Servicer, for the benefit of the Administrative Agent, each Purchaser Agent and the Secured Parties, as from time to time designated pursuant to Section 7.1. The Backup Servicer hereby accepts such appointment and agrees to perform the duties and obligations with respect thereto set forth herein.      (b) Duties. On or before the initial Funding Date, and until its removal pursuant to Section 7.5, the Backup Servicer shall perform, on behalf of the Administrative Agent and the Secured Parties, the following duties and obligations:      (i) On or before the Closing Date, the Backup Servicer shall accept from the Servicer delivery of the information required to be set forth in the Monthly Reports (if any) in hard copy and on computer tape; provided that the computer tape is in an MS DOS, PC readable ASCII format or other format to be agreed upon by the Backup Servicer and the Servicer on or prior to closing.      (ii) Not later than 12:00 noon (New York City, New York time) on each Reporting Date, the Servicer shall deliver to the Backup Servicer the asset tape, which shall include but not be limited to the following information: (x) for each Asset, the name and number of the related Obligor, the collection status, the loan status, the date of each Scheduled Payment and the Outstanding Asset Balance, (y) the Borrowing Base and (z) the Aggregate Outstanding Asset Balance (the “Tape”). The Backup Servicer shall accept delivery of the Tape.      (iii) Prior to the related Payment Date, the Backup Servicer shall review the Monthly Report to ensure that it is complete on its face and that the following items in 117 --------------------------------------------------------------------------------   such Monthly Report have been accurately calculated, if applicable, and reported: (A) the Borrowing Base, (B) the Backup Servicing Fee, (C) the Assets that are current and not past due, (D) the Assets that are 1 — 30 days past due, (E) the Assets that are 31 — 60 days past due, (F) the Assets that are 61 — 90 days past due, (G) the Assets that are 90+ days past due, (H) the Pool Charged-Off Ratio, and (I) the Aggregate Outstanding Asset Balance. The Backup Servicer by a separate written report shall notify the Administrative Agent and the Servicer of any disagreements with the Monthly Report based on such review not later than the Business Day preceding such Payment Date to such Persons.      (iv) If the Servicer disagrees with the report provided under paragraph (iii) above by the Backup Servicer or if the Servicer or any subservicer has not reconciled such discrepancy, the Backup Servicer agrees to confer with the Servicer to resolve such disagreement on or prior to the next succeeding Determination Date and shall settle such discrepancy with the Servicer if possible, and notify the Administrative Agent of the resolution thereof. The Servicer hereby agrees to cooperate at its own expense with the Backup Servicer in reconciling any discrepancies herein. If within 20 days after the delivery of the report provided under paragraph (iii) above by the Backup Servicer, such discrepancy is not resolved, the Backup Servicer shall promptly notify the Administrative Agent of the continued existence of such discrepancy. Following receipt of such notice by the Administrative Agent, the Servicer shall deliver to the Administrative Agent, the Secured Parties and the Backup Servicer no later than the related Payment Date a certificate describing the nature and amount of such discrepancies and the actions the Servicer proposes to take with respect thereto.      (c) Reliance on Tape. With respect to the duties described in Section 7.2(b), the Backup Servicer, is entitled to rely conclusively, and shall be fully protected in so relying, on the contents of each Tape, including, but not limited to, the completeness and accuracy thereof, provided by the Servicer.      Section 7.3 Merger or Consolidation.      Any Person (i) into which the Backup Servicer may be merged or consolidated, (ii) that may result from any merger or consolidation to which the Backup Servicer shall be a party, or (iii) that may succeed to the properties and assets of the Backup Servicer substantially as a whole, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Backup Servicer hereunder, shall be the successor to the Backup Servicer under this Agreement without further act on the part of any of the parties to this Agreement provided such Person is organized under the laws of the United States of America or any one of the States thereof or the District of Columbia (or any domestic branch of a foreign bank), (i) (a) that has either (1) a long-term unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P or “P-1” or better by Moody’s, (b) the parent corporation which has either (1) a long-term unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P and “P-1” or better by Moody’s or (c) is otherwise acceptable to the Administrative Agent. 118 --------------------------------------------------------------------------------        Section 7.4 Backup Servicing Compensation.      As compensation for its back-up servicing activities hereunder, the Backup Servicer shall be entitled to receive the Backup Servicing Fee from the Servicer. To the extent that such Backup Servicing Fee is not paid by the Servicer, the Backup Servicer shall be entitled to receive the unpaid balance of its Backup Servicing Fee to the extent of funds available therefor pursuant to Section 2.9(a)(4) and Section 2.10(a)(4), as applicable. The Backup Servicer’s entitlement to receive the Backup Servicing Fee shall cease (excluding any unpaid outstanding amounts as of that date) on the earliest to occur of: (i) it becoming the Successor Servicer, (ii) its removal as Backup Servicer pursuant to Section 7.5, or (iii) the termination of this Agreement. Upon becoming Successor Servicer pursuant to Section 6.16, the Backup Servicer shall be entitled to the Servicing Fee.      Section 7.5 Backup Servicer Removal.      The Backup Servicer may be removed, with or without cause, by the Administrative Agent by notice given in writing to the Backup Servicer (the “Backup Servicer Termination Notice”). In the event of any such removal, a replacement Backup Servicer may be appointed by the Administrative Agent.      Section 7.6 Limitation on Liability.      (a) The Backup Servicer undertakes to perform only such duties and obligations as are specifically set forth in this Agreement, it being expressly understood by all parties hereto that there are no implied duties or obligations of the Backup Servicer hereunder. Without limiting the generality of the foregoing, the Backup Servicer, except as expressly set forth herein, shall have no obligation to supervise, verify, monitor or administer the performance of the Servicer. The Backup Servicer may act through its agents, nominees, attorneys and custodians in performing any of its duties and obligations under this Agreement, it being understood by the parties hereto that the Backup Servicer will be responsible for any misconduct or negligence on the part of such agents, attorneys or custodians acting on the routine and ordinary day-to-day operations for and on behalf of the Backup Servicer. Neither the Backup Servicer nor any of its officers, directors, employees or agents shall be liable, directly or indirectly, for any damages or expenses arising out of the services performed under this Agreement other than damages or expenses that result from the gross negligence or willful misconduct of it or them or the failure to perform materially in accordance with this Agreement.      (b) The Backup Servicer shall not be liable for any obligation of the Servicer contained in this Agreement or for any errors of the Servicer contained in any computer tape, certificate or other data or document delivered to the Backup Servicer hereunder or on which the Backup Servicer must rely in order to perform its obligations hereunder, and the Secured Parties, the Administrative Agent and the Collateral Custodian each agree to look only to the Servicer to perform such obligations. The Backup Servicer shall have no responsibility and shall not be in default hereunder or incur any liability for any failure, error, malfunction or any delay in carrying out any of its duties under this Agreement if such failure or delay results from the Backup Servicer acting in accordance with information prepared or supplied by a Person other than the Backup Servicer or the failure of any such other Person to prepare or provide such 119 --------------------------------------------------------------------------------   information. The Backup Servicer shall have no responsibility, shall not be in default and shall incur no liability for (i) any act or failure to act of any third party, including the Servicer, (ii) any inaccuracy or omission in a notice or communication received by the Backup Servicer from any third party, (iii) the invalidity or unenforceability of any Collateral under Applicable Law, (iv) the breach or inaccuracy of any representation or warranty made with respect to any Collateral, or (v) the acts or omissions of any successor Backup Servicer.      Section 7.7 The Backup Servicer Not to Resign.      The Backup Servicer shall not resign (except with prior consent of the Administrative Agent which consent shall not be unreasonably withheld) from the obligations and duties hereby imposed on it except upon the Backup Servicer’s determination that (i) the performance of its duties hereunder is or becomes impermissible under Applicable Law and (ii) there is no reasonable action that the Backup Servicer could take to make the performance of its duties hereunder permissible under Applicable Law. Any such determination permitting the resignation of the Backup Servicer shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Administrative Agent and each Purchaser Agent. No such resignation shall become effective until a successor Backup Servicer shall have assumed the responsibilities and obligations of the Backup Servicer hereunder. ARTICLE VIII THE COLLATERAL CUSTODIAN      Section 8.1 Designation of Collateral Custodian.      (a) Initial Collateral Custodian. The role of collateral custodian with respect to the Required Asset Documents shall be conducted by the Person designated as Collateral Custodian hereunder from time to time in accordance with this Section 8.1. Until the Administrative Agent shall give to Wells Fargo a Collateral Custodian Termination Notice, Wells Fargo is hereby designated as, and hereby agrees to perform the duties and obligations of, Collateral Custodian pursuant to the terms hereof.      (b) Successor Collateral Custodian. Upon the Collateral Custodian’s receipt of a Collateral Custodian Termination Notice from the Administrative Agent of the designation of a successor Collateral Custodian pursuant to the provisions of Section 8.5, the Collateral Custodian agrees that it will terminate its activities as Collateral Custodian hereunder.      Section 8.2 Duties of Collateral Custodian.      (a) Appointment. The Seller and the Administrative Agent each hereby appoints Wells Fargo to act as Collateral Custodian, for the benefit of the Administrative Agent, as agent for the Secured Parties. The Collateral Custodian hereby accepts such appointment and agrees to perform the duties and obligation with respect thereto set forth herein.      (b) Duties. On or before the initial Funding Date, and until its removal pursuant to Section 8.5, the Collateral Custodian shall perform on behalf of the Administrative Agent and the Secured Parties, the following duties and obligations: 120 --------------------------------------------------------------------------------        (i) The Collateral Custodian shall take and retain custody of the Required Asset Documents delivered by the Seller pursuant to Section 3.2 in accordance with the terms and conditions of this Agreement, all for the benefit of the Secured Parties and subject to the Lien thereon in favor of the Administrative Agent as agent for the Secured Parties. Within five Business Days of its receipt of any Required Asset Documents, the Collateral Custodian shall review the related Collateral and Required Asset Documents to confirm that (A) such Collateral has been properly executed and has no missing or mutilated pages, (B) any UCC and other filings (as set forth on the Asset Checklists) have been made, (C) an Insurance Policy exists with respect to any real or personal property constituting the Related Property, and (D) confirming the related Outstanding Asset Balance, Asset number and Obligor name with respect to such Asset is referenced on the related Asset List and is not a duplicate Asset (collectively, the “Review Criteria”). In order to facilitate the foregoing review by the Collateral Custodian, in connection with each delivery of Required Asset Documents hereunder to the Collateral Custodian, the Servicer shall provide to the Collateral Custodian an electronic file (in EXCEL or a comparable format) that contains the related Asset List or that otherwise contains the Asset identification number and the name of the Obligor with respect to each related Asset. If, at the conclusion of such review, the Collateral Custodian shall determine that (i) the Outstanding Asset Balances of the Collateral it has received Required Asset Documents with respect to is less than as set forth on the electronic file, the Collateral Custodian shall immediately notify the Administrative Agent of such discrepancy, and (ii) any Review Criteria is not satisfied, the Collateral Custodian shall within one Business Day notify the Servicer of such determination and provide the Servicer with a list of the non-complying Assets and the applicable Review Criteria that they fail to satisfy. The Servicer shall have five Business Days to correct any non-compliance with a Review Criteria. If after the conclusion of such time period the Servicer has still not cured any non-compliance by an Asset with a Review Criteria, the Collateral Custodian shall promptly notify the Seller and the Administrative Agent of such determination by providing a written report to such persons identifying, with particularity, each Asset and each of the applicable Review Criteria that such Asset fails to satisfy. In addition, if requested in writing by the Servicer and approved by the Administrative Agent within ten Business Days of the Collateral Custodian’s delivery of such report, the Collateral Custodian shall return any Asset which fails to satisfy a Review Criteria to the Seller. Other than the foregoing, the Collateral Custodian shall not have any responsibility for reviewing any Required Asset Documents.      (ii) In taking and retaining custody of the Required Asset Documents, the Collateral Custodian shall be deemed to be acting as the agent of the Administrative Agent and the Secured Parties; provided that the Collateral Custodian makes no representations as to the existence, perfection or priority of any Lien on the Required Asset Documents or the instruments therein; and provided further that, the Collateral Custodian’s duties as agent shall be limited to those expressly contemplated herein.      (iii) All Required Asset Document shall be kept in fire resistant vaults, rooms or cabinets at the locations specified on Schedule III attached hereto, or at such other office as shall be specified to the Administrative Agent by the Collateral Custodian in a written notice delivered at least 45 days prior to such change. All Required Asset 121 --------------------------------------------------------------------------------   Documents shall be placed together with an appropriate identifying label and maintained in such a manner so as to permit retrieval and access. All Required Asset Documents shall be clearly segregated from any other documents or instruments maintained by the Collateral Custodian.      (iv) The Collateral Custodian shall make payments pursuant to the terms of the Monthly Report in accordance with Section 2.9 and Section 2.10 (the “Payment Duties”).      (v) On each Reporting Date, the Collateral Custodian shall provide a written report to the Administrative Agent and the Servicer (in a form acceptable to the Administrative Agent) identifying each Asset for which it holds Required Asset Documents, the non-complying Assets and the applicable Review Criteria that any non-complying Asset fails to satisfy.      (vi) In performing its duties, the Collateral Custodian shall use the same degree of care and attention as it employs with respect to similar Collateral that it holds as Collateral Custodian.      Section 8.3 Merger or Consolidation.      Any Person (i) into which the Collateral Custodian may be merged or consolidated, (ii) that may result from any merger or consolidation to which the Collateral Custodian shall be a party, or (iii) that may succeed to the properties and assets of the Collateral Custodian substantially as a whole, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Collateral Custodian hereunder, shall be the successor to the Collateral Custodian under this Agreement without further act of any of the parties to this Agreement.      Section 8.4 Collateral Custodian Compensation.      As compensation for its collateral custodian activities hereunder, the Collateral Custodian shall be entitled to a Collateral Custodian Fee (the “Collateral Custodian Fee”) from the Servicer. To the extent that such Collateral Custodian Fee is not paid by the Servicer, the Collateral Custodian shall be entitled to receive the unpaid balance of its Collateral Custodian Fee to the extent of funds available therefor pursuant to the provision of Section 2.9(a)(4) or Section 2.10(a)(4), as applicable. The Collateral Custodian’s entitlement to receive the Collateral Custodian Fee shall cease on the earlier to occur of: (i) its removal as Collateral Custodian pursuant to Section 8.5 or (ii) the termination of this Agreement.      Section 8.5 Collateral Custodian Removal.      The Collateral Custodian may be removed, with or without cause, by the Administrative Agent by notice given in writing to the Collateral Custodian (the “Collateral Custodian Termination Notice”); provided that notwithstanding its receipt of a Collateral Custodian Termination Notice, the Collateral Custodian shall continue to act in such capacity until a successor Collateral Custodian has been appointed, has agreed to act as Collateral Custodian 122 --------------------------------------------------------------------------------   hereunder, and has received all Required Asset Documents held by the previous Collateral Custodian.      Section 8.6 Limitation on Liability.      (i) The Collateral Custodian may conclusively rely on and shall be fully protected in acting upon any certificate, instrument, opinion, notice, letter, telegram or other document delivered to it and that in good faith it reasonably believes to be genuine and that has been signed by the proper party or parties. The Collateral Custodian may rely conclusively on and shall be fully protected in acting upon (a) the written instructions of any designated officer of the Administrative Agent or (b) the verbal instructions of the Administrative Agent.      (ii) The Collateral Custodian may consult counsel satisfactory to it and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice or opinion of such counsel.      (iii) The Collateral Custodian shall not be liable for any error of judgment, or for any act done or step taken or omitted by it, in good faith, or for any mistakes of fact or law, or for anything that it may do or refrain from doing in connection herewith except in the case of its willful misconduct or grossly negligent performance or omission of its duties and in the case of the negligent performance of its Payment Duties and in the case of its negligent performance of its duties in taking and retaining custody of the Required Asset Documents.      (iv) The Collateral Custodian makes no warranty or representation and shall have no responsibility (except as expressly set forth in this Agreement) as to the content, enforceability, completeness, validity, sufficiency, value, genuineness, ownership or transferability of the Collateral, and will not be required to and will not make any representations as to the validity or value (except as expressly set forth in this Agreement) of any of the Collateral. The Collateral Custodian shall not be obligated to take any legal action hereunder that might in its judgment involve any expense or liability unless it has been furnished with an indemnity reasonably satisfactory to it.      (v) The Collateral Custodian shall have no duties or responsibilities except such duties and responsibilities as are specifically set forth in this Agreement and no covenants or obligations shall be implied in this Agreement against the Collateral Custodian.      (vi) The Collateral Custodian shall not be required to expend or risk its own funds in the performance of its duties hereunder.      (vii) It is expressly agreed and acknowledged that the Collateral Custodian is not guaranteeing performance of or assuming any liability for the obligations of the other parties hereto or any parties to the Collateral. 123 --------------------------------------------------------------------------------        Section 8.7 The Collateral Custodian Not to Resign.      The Collateral Custodian shall not resign from the obligations and duties hereby imposed on it except upon the Collateral Custodian’s determination that (i) the performance of its duties hereunder is or becomes impermissible under Applicable Law and (ii) there is no reasonable action that the Collateral Custodian could take to make the performance of its duties hereunder permissible under Applicable Law. Any such determination permitting the resignation of the Collateral Custodian shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Administrative Agent and each Purchaser Agent. No such resignation shall become effective until a successor Collateral Custodian shall have assumed the responsibilities and obligations of the Collateral Custodian hereunder.      Section 8.8 Release of Documents.      (a) Release for Servicing. From time to time and as appropriate for the enforcement or servicing any of the Collateral, the Collateral Custodian is hereby authorized (unless and until such authorization is revoked by the Administrative Agent), upon written receipt from the Servicer of a request for release of documents and receipt in the form annexed hereto as Exhibit H to release to the Servicer the related Required Asset Documents or the documents set forth in such request and receipt to the Servicer. All documents so released to the Servicer shall be held by the Servicer in trust for the benefit of the Administrative Agent in accordance with the terms of this Agreement. The Servicer shall return to the Collateral Custodian the Required Asset Documents or other such documents (i) immediately upon the request of the Administrative Agent, or (ii) when the Servicer’s need therefor in connection with such foreclosure or servicing no longer exists, unless the Asset shall be liquidated, in which case, upon receipt of an additional request for release of documents and receipt certifying such liquidation from the Servicer to the Collateral Custodian in the form annexed hereto as Exhibit H, the Servicer’s request and receipt submitted pursuant to the first sentence of this subsection shall be released by the Collateral Custodian to the Servicer.      (b) Limitation on Release. The foregoing provision respecting release to the Servicer of the Required Asset Documents and documents by the Collateral Custodian upon request by the Servicer shall be operative only to the extent that at any time the Collateral Custodian shall not have released to the Servicer active Required Asset Documents (including those requested) pertaining to more than 15 Assets at the time being serviced by the Servicer under this Agreement. Any additional Required Asset Documents or documents requested to be released by the Servicer may be released only upon written authorization of the Administrative Agent. The limitations of this paragraph shall not apply to the release of Required Asset Documents to the Servicer pursuant to the immediately succeeding subsection.      (c) Release for Payment. Upon receipt by the Collateral Custodian of the Servicer’s request for release of documents and receipt in the form annexed hereto as Exhibit H(which certification shall include a statement to the effect that all amounts received in connection with such payment or repurchase have been credited to the Collection Account as provided in this Agreement), the Collateral Custodian shall promptly release the related Required Asset Documents to the Servicer. 124 --------------------------------------------------------------------------------        Section 8.9 Return of Required Asset Documents.      The Seller may, with the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld), require that the Collateral Custodian return each Required Asset Document (a) delivered to the Collateral Custodian in error, (b) for which a Substitute Asset has been substituted in accordance with Section 2.18, (c) as to which the lien on the Related Property has been so released pursuant to Section 9.2, (d) that has been repaid by the Seller pursuant to Section 4.6 or (e) that is required to be redelivered to the Seller in connection with the termination of this Agreement, in each case by submitting to the Collateral Custodian and the Administrative Agent a written request in the form of Exhibit H hereto (signed by both the Seller and the Administrative Agent) specifying the Collateral to be so returned and reciting that the conditions to such release have been met (and specifying the Section or Sections of this Agreement being relied upon for such release). The Collateral Custodian shall upon its receipt of each such request for return executed by the Seller and the Administrative Agent promptly, but in any event within five Business Days, return the Required Asset Documents so requested to the Seller.     Section 8.10 Access to Certain Documentation and Information Regarding the Collateral; Audits.      The Collateral Custodian shall provide to the Administrative Agent and each Purchaser Agent access to the Required Asset Documents and all other documentation regarding the Collateral including in such cases where the Administrative Agent and each Purchaser Agent is required in connection with the enforcement of the rights or interests of the Secured Parties, or by applicable statutes or regulations, to review such documentation, such access being afforded without charge but only (i) upon two Business Days prior written request, (ii) during normal business hours and (iii) subject to the Servicer’s and Collateral Custodian’s normal security and confidentiality procedures. Prior to the Closing Date and periodically thereafter at the discretion of the Administrative Agent and each Purchaser Agent, the Administrative Agent and each Purchaser Agent may review the Servicer’s collection and administration of the Collateral in order to assess compliance by the Servicer with the Credit and Collection Policy, as well as with this Agreement and may conduct an audit of the Collateral, Required Asset Documents in conjunction with such a review. Such review shall be reasonable in scope and shall be completed in a reasonable period of time. Without limiting the foregoing provisions of this Section 8.10, from time to time on request of the Administrative Agent, the Collateral Custodian shall permit certified public accountants or other auditors acceptable to the Administrative Agent to conduct, at the Servicer’s expense, a review of the Required Asset Documents and all other documentation regarding the Collateral.      Section 8.11 Securities Intermediary      (a) There shall at all times be one or more “securities intermediaries” (as defined in the UCC) appointed by the Collateral Custodian for purposes of this Agreement (the “Securities Intermediary”). The Collateral Custodian hereby appoints Wells Fargo Bank, National Association at its Corporate Trust Office as the initial Securities Intermediary hereunder and Wells Fargo Bank, National Association hereby accepts such appointment. 125 --------------------------------------------------------------------------------             (b) The Securities Intermediary shall be, and the initial Securities Intermediary hereunder hereby represents and warrants that it is as of the date hereof and shall be for so long as it is the Securities Intermediary hereunder, a corporation or national bank that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity hereunder. The Securities Intermediary shall, and the initial Securities Intermediary does, agree with the parties hereto that the Securities Account shall be an account to which financial assets may be credited and undertake to treat the Collateral Custodian as entitled to exercise the rights that comprise such financial assets. The Securities Intermediary shall, and the initial Securities Intermediary does, agree with the parties hereto that each item of property credited to the Securities Account shall be treated as a “financial asset” as defined in the UCC. The Securities Intermediary shall, and the initial Securities Intermediary does, agree and acknowledge that the “securities intermediary’s jurisdiction” for purpose of the UCC of the Securities Intermediary with respect to the Collateral shall be the State of New York. The Securities Intermediary shall, and the initial Securities Intermediary does, represent and covenant that it is not and will not be (as long as it is the Securities Intermediary hereunder) a party to any agreement that is inconsistent with the provisions of this Agreement. The Securities Intermediary shall, and the initial Securities Intermediary does, covenant that it will not take any action inconsistent with the provisions of this Agreement applicable to it. The Securities Intermediary shall, and the initial Securities Intermediary does, agree that any item of property credited to the Securities Account shall not be subject to any security interest, lien, encumbrance, or right of setoff in favor of the Securities Intermediary or anyone claiming through the Securities Intermediary (other than the Collateral Custodian).           (c) It is the intent of the Collateral Custodian and the Seller that the Securities Account shall be a securities account of the Collateral Custodian and not an account of the Seller. Nonetheless, (i) the Securities Intermediary shall agree to comply with entitlement orders originated by the Collateral Custodian without further consent by the Seller or any other person or entity, and (ii) the initial Securities Intermediary agrees that for so long as it is the Securities Intermediary hereunder, it will comply with entitlement orders originated by the Collateral Custodian without further consent by the Seller or any other person or entity. The Securities Intermediary shall covenant that it will not agree with any person or entity other than the Collateral Custodian that it will comply with entitlement orders originated by any person or entity other than the Collateral Custodian, and the initial Securities Intermediary hereby covenants that, for so long as it is the Securities Intermediary hereunder, it will not agree with any person or entity other than the Collateral Custodian that it will comply with entitlement orders originated by any person or entity other than the Collateral Custodian.                (d) Nothing herein shall imply or impose upon the Securities Intermediary any duties or obligations other than those expressly set forth herein and those applicable to a securities intermediary under the UCC (and the Securities Intermediary shall be entitled to all of the protections available to a securities intermediary under the UCC). Without limiting the foregoing, nothing herein shall imply or impose upon the Securities Intermediary any duties of a fiduciary nature (such as, without limitation, the fiduciary duties of the Collateral Custodian hereunder).           (e) The Securities Intermediary may at any time resign by notice to the Collateral Custodian and may at any time be removed by notice from the Collateral Custodian; 126 --------------------------------------------------------------------------------   provided however that it shall be the responsibility of the Collateral Custodian to appoint a successor Securities Intermediary and to cause the Securities Account to be established and maintained with such successor Securities Intermediary in accordance with the terms hereof; and the responsibilities and duties of the retiring Securities Intermediary hereunder shall remain in effect until all of the Collateral credited to the Securities Account held by such retiring Securities Intermediary have been transferred to such successor. Any corporation into which the Securities Intermediary may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which the Securities Intermediary shall be a party, shall be the successor of the Securities Intermediary hereunder, without the execution or filing of any further act on the part of the parties hereto or such Securities Intermediary or such successor corporation. ARTICLE IX SECURITY INTEREST      Section 9.1 Grant of Security Interest.      The parties to this Agreement intend that the conveyance of the Collateral by the Seller to the applicable Purchasers be treated as sales for all purposes (other than for the purposes described in Section 13.19). If, despite such intention, a determination is made that such transactions not be treated as sales, then the parties hereto intend that this Agreement constitute a security agreement and the transactions effected hereby constitute secured loans by the applicable Purchasers to the Seller under Applicable Law. For such purpose, the Seller hereby transfers, conveys, assigns and grants as of the Closing Date to the Administrative Agent, as agent for the Secured Parties, a lien and continuing security interest in all of the Seller’s right, title and interest in, to and under (but none of the obligations under) all Collateral (including any Hedging Agreements), whether now existing or hereafter arising or acquired by the Seller, and wherever the same may be located, to secure the prompt, complete and indefeasible payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Aggregate Unpaids of the Seller arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Aggregate Unpaids. The assignment under this Section 9.1 does not constitute and is not intended to result in a creation or an assumption by the Administrative Agent, the Purchaser Agents, any Hedge Counterparty, the Liquidity Banks or any of the Secured Parties of any obligation of the Seller or any other Person in connection with any or all of the Collateral or under any agreement or instrument relating thereto. Anything herein to the contrary notwithstanding, (a) the Seller shall remain liable under the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Administrative Agent, as agent for the Secured Parties, of any of its rights in the Collateral shall not release the Seller from any of its duties or obligations under the Collateral, and (c) none of the Administrative Agent, the Purchaser Agents, any Hedge Counterparty, the Liquidity Banks or any Secured Party shall have any obligations or liability under the Collateral by reason of this Agreement, nor shall the Administrative Agent, the Purchaser Agents, any Hedge Counterparty, the Liquidity Banks or any Secured Party be obligated to perform any of the obligations or duties 127 --------------------------------------------------------------------------------   of the Seller thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.      Section 9.2 Release of Lien on Collateral.      At the same time as (i) any Collateral expires by its terms and all amounts in respect thereof have been paid in full by the related Obligor and deposited in the Collection Account, (ii) any Asset becomes a Prepaid Asset and all amounts in respect thereof have been paid in full by the related Obligor and deposited in the Collection Account, (iii) such Asset is replaced in accordance with Section 2.18, or (iv) this agreement terminates in accordance with Section 13.6, the Administrative Agent as agent for the Secured Parties will, to the extent requested by the Servicer, release its interest in such Collateral. In connection with any sale of such Related Property, the Administrative Agent as agent for the Secured Parties will after the deposit by the Servicer of the Proceeds of such sale into the Collection Account, at the sole expense of the Servicer, execute and deliver to the Servicer any assignments, bills of sale, termination statements and any other releases and instruments as the Servicer may reasonably request in order to effect the release and transfer of such Related Property; provided that the Administrative Agent as agent for the Secured Parties will make no representation or warranty, express or implied, with respect to any such Related Property in connection with such sale or transfer and assignment. Nothing in this section shall diminish the Servicer’s obligations pursuant to Section 6.6 with respect to the Proceeds of any such sale.      Section 9.3 Further Assurances.      The provisions of Section 13.12 shall apply to the security interest granted under Section 9.1 as well as to the Advances hereunder.      Section 9.4 Remedies.      Upon the occurrence of a Termination Event, the Administrative Agent and Secured Parties shall have, with respect to the Collateral granted pursuant to Section 9.1, and in addition to all other rights and remedies available to the Administrative Agent and Secured Parties under this Agreement or other Applicable Law, all rights and remedies of a secured party upon default under the UCC.      Section 9.5 Waiver of Certain Laws.      Each of the Seller and the Servicer agrees, to the full extent that it may lawfully so agree, that neither it nor anyone claiming through or under it will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where any Collateral may be situated in order to prevent, hinder or delay the enforcement or foreclosure of this Agreement, or the absolute sale of any of the Collateral or any part thereof, or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and each of the Seller and the Servicer, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may be lawful so to do, the benefit of all such laws, and any and all right to have any of the properties or assets constituting the Collateral marshaled upon any such sale, and agrees that the Administrative Agent or any court having jurisdiction to foreclose the security interests granted in this 128 --------------------------------------------------------------------------------   Agreement may sell the Collateral as an entirety or in such parcels as the Administrative Agent or such court may determine.      Section 9.6 Power of Attorney.      Each of the Seller and the Servicer hereby irrevocably appoints the Administrative Agent its true and lawful attorney (with full power of substitution) in its name, place and stead and at is expense, in connection with the enforcement of the rights and remedies provided for in this Agreement, including without limitation the following powers: (a) to give any necessary receipts or acquittance for amounts collected or received hereunder, (b) to make all necessary transfers of the Collateral in connection with any such sale or other disposition made pursuant hereto, (c) to execute and deliver for value all necessary or appropriate bills of sale, assignments and other instruments in connection with any such sale or other disposition, the Seller and the Servicer hereby ratifying and confirming all that such attorney (or any substitute) shall lawfully do hereunder and pursuant hereto, and (d) to sign any agreements, orders or other documents in connection with or pursuant to any Transaction Document or Hedging Agreement. Nevertheless, if so requested by the Administrative Agent or a Purchaser Agent, the Seller shall ratify and confirm any such sale or other disposition by executing and delivering to the Administrative Agent or such purchaser all proper bills of sale, assignments, releases and other instruments as may be designated in any such request. ARTICLE X TERMINATION EVENTS      Section 10.1 Termination Events.      The following events shall be Termination Events (“Termination Events”) hereunder:      (a) as of any Determination Date, the Average Portfolio Delinquency Ratio exceeds 6.5%; or      (b) as of any Determination Date, the Adjusted Average Pool Charged-Off Ratio exceeds 3.0%; or      (c) as of any Determination Date, the Average Portfolio Charged-Off Ratio exceeds 4.0%; or      (d) (i) the Advances Outstanding on any day exceeds the lesser of the Facility Amount and Maximum Availability, and the same continues unremedied for two Business Days or (ii) the Adjusted Advances Outstanding on any day exceeds the lesser of the Adjusted Facility Amount and Adjusted Maximum Availability, and the same continues unremedied for two Business Days; provided that during the period of time that either such event remains unremedied, no additional Advances will be made under this Agreement and any payments required to be made by the Servicer on a Payment Date shall be made under Section 2.10; or      (e) a Servicer Default occurs and is continuing; or 129 --------------------------------------------------------------------------------        (f) the Facility Termination Date shall have occurred; or      (g) failure on the part of the Seller or Originator to make any payment or deposit (including without limitation with respect to Collections) required by the terms of any Transaction Document on the day such payment or deposit is required to be made and the same continues unremedied for two Business Days; or      (h) the occurrence of an Insolvency Event relating to the Seller or the Servicer which is a party to a Permitted Securitization Transaction; or      (i) the Seller shall become required to register as an “investment company” within the meaning of the Investment Company Act of 1940, as amended or the arrangements contemplated by the Transaction Documents shall require registration as an “investment company” within the meaning of the 1940 Act; or      (j) a regulatory, tax or accounting body has ordered that the activities of the Seller or any other Subsidiary of CapitalSource Inc. contemplated hereby be terminated or, as a result of any other event or circumstance, the activities of the Seller contemplated hereby may reasonably be expected to cause the Seller or any other Subsidiary of CapitalSource Inc. to suffer materially adverse regulatory, accounting or tax consequences; or      (k) there shall exist any Material Adverse Effect; or      (l) the Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Code with regard to any assets of the Seller or the Originator and such lien shall not have been released within five Business Days, or the Pension Benefit Guaranty Corporation shall file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the assets of the Seller or the Originator and such lien shall not have been released within five Business Days; or      (m) any Change-in-Control shall occur; or      (n) (i) any Transaction Document, or any lien or security interest granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of the Seller, the Originator, or the Servicer,      (ii) the Seller, the Originator, the Servicer or any other party shall, directly or indirectly, contest in any manner the effectiveness, validity, binding nature or enforceability of any Transaction Document or any lien or security interest thereunder, or      (iii) any security interest securing any obligation under any Transaction Document shall, in whole or in part, cease to be a perfected first priority security interest; or      (o) on any date of determination, the aggregate Hedge Notional Amount in effect for that day under all Hedge Transactions is less than the product of the Hedge Percentage on such day and the Hedge Amount on that day, and the same continues unremedied for a period of two Business Days; or 130 --------------------------------------------------------------------------------        (p) any failure on the part of the Seller or the Originator duly to observe or perform in any material respect any other covenants or agreements of the Seller or the Originator set forth in this Agreement or the other Transaction Documents to which the Seller or the Originator is a party and the same continues unremedied for a period of 30 days after the earlier to occur of (i) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Seller or the Originator by the Administrative Agent and (ii) the date on which the Seller or the Originator becomes aware thereof; or      (q) any representation, warranty or certification made by the Seller or the Originator in any Transaction Document or in any certificate delivered pursuant to any Transaction Document shall prove to have been incorrect when made, which has a Material Adverse Effect on the Secured Parties and which continues to be unremedied for a period of 30 days after the earlier to occur of (i) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Seller or the Originator by the Administrative Agent and (ii) the date on which the Seller or the Originator becomes aware thereof; or      (r) any failure by the Seller to give instructions or notice to the Administrative Agent as required by this Agreement, or to deliver any required Monthly Report or other Required Reports hereunder on or before the date occurring two Business Days after the date such instruction, notice or report is required to be made or given, as the case may be, under the terms of this Agreement; or      (s) the failure of the Seller, the Servicer or the Originator to make any payment due with respect to recourse debt or other obligations, in the case of the Servicer or the Originator, in excess of $10,000,000, or the occurrence of any event or condition that would permit acceleration of such recourse debt or other obligations whether or not such event or condition has been waived; or      (t) (1) the rendering of one or more final judgments, decrees or orders by a court or arbitrator of competent jurisdiction for the payment of money in excess of $10,000,000, individually or in the aggregate, against the Originator, or $2,000,000 against the Seller, individually or in the aggregate, and the Originator shall not have either (i) discharged or provided for the discharge of any such judgment, decree or order in accordance with its terms or (ii) perfected a timely appeal of such judgment, decree or order and caused the execution of same to be stayed during the pendency of the appeal or (2) the failure of the Originator or the Seller to make any payments due of amounts in excess of $7,500,000 by the Originator, or $2,000,000 by the Seller, in the settlement of any litigation, claim or dispute (excluding payments made from insurance proceeds); or      (u) as of any Determination Date, (i) the Adjusted Pool Yield does not equal or exceed the Adjusted Minimum Pool Yield or (ii) the Pool Yield does not equal or exceed the Minimum Pool Yield and the same continues unremedied by the following Determination Date; or      (v) on any day an (i) Overcollateralization Shortfall or (ii) Adjusted Overcollateralization Shortfall exists and continues unremedied for two Business Days; or 131 --------------------------------------------------------------------------------        (w) as of any Quarterly Determination Date, the Originator’s ratio of Consolidated Funded Indebtedness to Consolidated Tangible Net Worth is more than 6 to 1; provided that such calculation shall exclude the effects of any Liquid Real Estate Assets that are acquired and levered by the Originator solely to satisfy REIT asset and income tests.      Section 10.2 Remedies.      (a) Upon the occurrence of a Termination Event (other than a Termination Event described in Section 10.1(h)), the Administrative Agent shall, at the request of, or may, with the consent of, a majority of the Purchasers, by notice to the Seller, declare the Termination Date to have occurred and the Amortization Period to have commenced.      (b) Upon the occurrence of a Termination Event described in Section 10.1(h), the Termination Date shall occur immediately and the Amortization Period shall commence automatically.      (c) Upon the occurrence of any Termination Event described in Section 10.1, no Advances will thereafter be made, and the Administrative Agent and the Secured Parties shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other Applicable Laws, which rights shall be cumulative, and also may require the Seller and Servicer to, and the Seller and Servicer hereby agree that they will at the Servicer’s expense and upon request of the Administrative Agent forthwith, (i) assemble all or any part of the Collateral as directed by the Administrative Agent and make the same available to the Administrative Agent at a place to be designated by the Administrative Agent and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at a public or private sale, at any of the Administrative Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Seller agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to the Seller of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. All cash Proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral (after payment of any amounts incurred in connection with such sale) shall be deposited into the Collection Account and to be applied against all or any part of the Aggregate Unpaids pursuant to Section 2.10 or otherwise in such order as the Administrative Agent shall elect in its discretion. 132 --------------------------------------------------------------------------------   ARTICLE XI INDEMNIFICATION      Section 11.1 Indemnities by the Seller.      (a) Without limiting any other rights that any such Person may have hereunder or under Applicable Law, the Seller hereby agrees to indemnify the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian, the Secured Parties, the Affected Parties and each of their respective assigns and officers, directors, employees and agents thereof (collectively, the “Indemnified Parties”), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related reasonable out of pocket costs and expenses, including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as the “Indemnified Amounts”) awarded against or incurred by such Indemnified Party and other non-monetary damages of any such Indemnified Party or any of them arising out of or as a result of this Agreement or the ownership of an interest in the Collateral or in respect of any Asset included in the Collateral, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or (b) Indemnified Amounts that have the effect of recourse for non-payment of the Assets included in the Collateral due to credit problems of the Obligors (except as otherwise specifically provided in this Agreement). If the Seller has made any indemnity payment pursuant to this Section 11.1 and such payment fully indemnified the recipient thereof and the recipient thereafter collects any payments from others in respect of such Indemnified Amounts then, the recipient shall repay to the Seller an amount equal to the amount it has collected from others in respect of such indemnified amounts. Without limiting the foregoing, the Seller shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from:      (i) any representation or warranty made or deemed made by the Seller, the Servicer (if the Originator or one of its Affiliates is the Servicer) or any of their respective officers under or in connection with this Agreement or any other Transaction Document, which shall have been false or incorrect in any material respect when made or deemed made or delivered;      (ii) the failure by the Seller or the Servicer (if the Originator or one of its Affiliates is the Servicer) to comply with any term, provision or covenant contained in this Agreement or any agreement executed in connection with this Agreement, or with any Applicable Law, with respect to any Collateral or the nonconformity of any Collateral with any such Applicable Law;      (iii) the failure to vest and maintain vested in the Administrative Agent, as agent for the Secured Parties, an undivided ownership interest in the Collateral, together with all Collections, free and clear of any Lien (other than Permitted Liens) whether existing at the time of any Advance or at any time thereafter;      (iv) the failure to maintain, as of the close of business on each Business Day prior to the Termination Date, (x) an amount of Advances Outstanding that is less than or 133 --------------------------------------------------------------------------------   equal to the lesser of (I) the Facility Amount and (II) the Maximum Availability on such Business Day and (y) an amount of Adjusted Advances Outstanding that is less than or equal to the lesser of (I) the Adjusted Facility Amount and (II) the Adjusted Maximum Availability on such Business Day;      (v) the failure to file, or any delay in filing, financing statements, continuation statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other Applicable Laws with respect to any Collateral, whether at the time of any Advance or at any subsequent time;      (vi) any dispute, claim, offset or defense (other than the discharge in bankruptcy of the Obligor) of the Obligor to the payment with respect to any Collateral (including, without limitation, a defense based on the Collateral not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Collateral or the furnishing or failure to furnish such merchandise or services;      (vii) any failure of the Seller or the Servicer (if the Originator or one of its Affiliates is the Servicer) to perform its duties or obligations in accordance with the provisions of this Agreement or any of the other Transaction Documents to which it is a party or any failure by the Originator, the Seller or any Affiliate thereof to perform its respective duties under any Collateral;      (viii) the failure of any Lock-Box Bank to remit any amounts held in a Lock-Box Account pursuant to the instructions of the Servicer or the Administrative Agent (to the extent such Person is entitled to give such instructions in accordance with the terms hereof and of any applicable Lock-Box Agreement) whether by reason of the exercise of set-off rights or otherwise;      (ix) any inability to obtain any judgment in, or utilize the court or other adjudication system of, any state in which an Obligor may be located as a result of the failure of the Seller or the Originator to qualify to do business or file any notice or business activity report or any similar report;      (x) any action taken by the Seller or the Servicer in the enforcement or collection of any Collateral;      (xi) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with the Related Property or services that are the subject of any Collateral;      (xii) any claim, suit or action of any kind arising out of or in connection with Environmental Laws including any vicarious liability;      (xiii) the failure by Seller to pay when due any Taxes for which the Seller is liable, including without limitation, sales, excise or personal property taxes payable in connection with the Collateral; 134 --------------------------------------------------------------------------------        (xiv) any repayment by the Administrative Agent, the Purchaser Agents or a Secured Party of any amount previously distributed in reduction of Advances Outstanding, or payment of Interest or any other amount due hereunder or under any Hedging Agreement, in each case which amount the Administrative Agent, the Purchaser Agents or a Secured Party believes in good faith is required to be repaid;      (xv) the commingling of Collections on the Collateral at any time with other funds, unless permitted hereunder;      (xvi) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Advances or the security interest in the Collateral;      (xvii) any failure by the Seller to give reasonably equivalent value to the Originator in consideration for the transfer by the Originator to the Seller of any item of Collateral or any attempt by any Person to void or otherwise avoid any such transfer under any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code;      (xviii) the use of the proceeds of any Advance in a manner other than as provided in this Agreement and the Sale Agreement;      (xix) the failure of the Seller, the Originator or any of their respective agents or representatives to remit to the Servicer or the Administrative Agent or the Purchaser Agents, Collections on the Collateral remitted to the Seller, the Originator, the Servicer or any such agent or representative;      (xx) the failure by the Seller to comply with any of the covenants relating to any Hedging Agreement in accordance with the Transaction Documents; or      (xxi) the failure of the Seller to comply with any of the covenants relating to the Required Equity Contribution in accordance with the Transaction Documents.      (b) Any amounts subject to the indemnification provisions of this Section 11.1 shall be paid by the Seller to the Indemnified Party within five Business Days following such Person’s demand therefor.      (c) If for any reason the indemnification provided above in this Section 11.1 is unavailable to the Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Seller or the Servicer, as the case may be, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Seller or the Servicer, as the case may be, on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations.      (d) The obligations of the Seller under this Section 11.1 shall survive the resignation or removal of the Administrative Agent, the Purchaser Agents, the Servicer, the Backup Servicer or the Collateral Custodian and the termination of this Agreement. 135 --------------------------------------------------------------------------------        Section 11.2 Indemnities by the Servicer.      (a) Without limiting any other rights that any such Person may have hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each Indemnified Party, forthwith on demand, from and against any and all Indemnified Amounts awarded against or incurred by any such Indemnified Party by reason of any acts, omissions or alleged acts or omissions of the Servicer, including, but not limited to (i) any representation or warranty made by the Servicer under or in connection with any Transaction Document, any Monthly Report, Servicer’s Certificate or any other information or report delivered by or on behalf of the Servicer pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made, (ii) the failure by the Servicer to comply with any Applicable Law, (iii) the failure of the Servicer to comply with its duties or obligations in accordance with the Agreement, (iv) the failure by the Servicer to comply with any of the covenants relating to any Hedging Agreement in accordance with the Transaction Documents, or (v) any litigation, proceedings or investigation against the Servicer. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof.      (b) Any amounts subject to the indemnification provisions of this Section 11.2 shall be paid by the Servicer to the Indemnified Party within five Business Days following such Person’s demand therefor.      (c) The Servicer shall have no liability for making indemnification hereunder to the extent any such indemnification constitutes recourse for uncollectible or uncollected Assets.      (d) The obligations of the Servicer under this Section 11.2 shall survive the resignation or removal of the Administrative Agent, the Purchaser Agents, the Backup Servicer or the Collateral Custodian and the termination of this Agreement.      (e) Any indemnification pursuant to this Section 11.2 shall not be payable from the Collateral.      Section 11.3 After-Tax Basis.      Indemnification under Section 11.1 and Section 11.2 shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the receipt of the indemnity provided hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits that is or was payable by the Indemnified Party. ARTICLE XII THE ADMINISTRATIVE AGENT AND PURCHASER AGENTS      Section 12.1 The Administrative Agent.      (a) Each Purchaser Agent and each Secured Party hereby appoints and authorizes the Administrative Agent as its agent and bailee for purposes of perfection pursuant to the applicable 136 --------------------------------------------------------------------------------   UCC or other Applicable Law and hereby further authorizes the Administrative Agent to appoint additional agents and bailees to act on its behalf and for the benefit of each of the Purchaser Agents and each Secured Party. Each of the Purchaser Agents and each Secured Party further authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. In furtherance, and without limiting the generality, of the foregoing, each Secured Party hereby appoints the Administrative Agent as its agent to execute and deliver all further instruments and documents, and take all further action that the Administrative Agent may deem necessary or appropriate or that a Secured Party may reasonably request in order to perfect, protect or more fully evidence the security interests granted by the Seller hereunder, or to enable any of them to exercise or enforce any of their respective rights hereunder, including, without limitation, the execution by the Administrative Agent as secured party/assignee of such financing or continuation statements, or amendments thereto or assignments thereof, relative to all or any of the Collateral now existing or hereafter arising, and such other instruments or notices, as may be necessary or appropriate for the purposes stated hereinabove. The Purchaser Agents and the Purchasers may direct the Administrative Agent to take any such incidental action hereunder. With respect to other actions which are incidental to the actions specifically delegated to the Administrative Agent hereunder, the Administrative Agent shall not be required to take any such incidental action hereunder, but shall be required to act or to refrain from acting (and shall be fully protected in acting or refraining from acting) upon the direction of the Purchaser Agents and the Purchasers; provided that that the Administrative Agent shall not be required to take any action hereunder if the taking of such action, in the reasonable determination of the Administrative Agent, shall be in violation of any Applicable Law or contrary to any provision of this Agreement or shall expose the Administrative Agent to liability hereunder or otherwise. In the event the Administrative Agent requests the consent of a Purchaser Agent or a Purchaser pursuant to the foregoing provisions and the Administrative Agent does not receive a consent (either positive or negative) from such Person within ten Business Days of such Person’s receipt of such request, then such Purchaser Agent or Purchaser shall be deemed to have declined to consent to the relevant amendments.      (b) The Administrative Agent shall exercise such rights and powers vested in it by this Agreement and the other Transaction Documents, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.      (c) Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Administrative Agent under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Administrative Agent: (i) may consult with legal counsel (including counsel for the Seller or the Originator), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation and shall not be responsible for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or 137 --------------------------------------------------------------------------------   conditions of this Agreement or any of the other Transaction Documents on the part of the Seller, the Originator, or the Servicer or to inspect the property (including the books and records) of the Seller, the Originator, or the Servicer; (iv) shall not be responsible for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any of the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (v) shall incur no liability under or in respect of this Agreement or any of the other Transaction Documents by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex) believed by it to be genuine and signed or sent by the proper party or parties.      (d) Credit Decision with Respect to the Administrative Agent. Each Purchaser Agent and Secured Party acknowledges that it has, independently and without reliance upon the Administrative Agent, or any of the Administrative Agent’s Affiliates, and based upon such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and the other Transaction Documents to which it is a party. Each Purchaser Agent and Secured Party also acknowledges that it will, independently and without reliance upon the Administrative Agent, or any of the Administrative Agent’s Affiliates, and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement and the other Transaction Documents to which it is a party.      (e) Indemnification of the Administrative Agent. Each Purchaser Agent and Purchaser agrees to indemnify the Administrative Agent (to the extent not reimbursed by the Seller or the Servicer), ratably in accordance with its Pro Rata Share from and against any and 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 the Administrative Agent in any way relating to or arising out of this Agreement or any of the other Transaction Documents, or any action taken or omitted by the Administrative Agent hereunder or thereunder; provided that none of the Purchaser Agents or Purchasers shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct. Without limitation of the foregoing, each Purchaser Agent and Purchaser agrees to reimburse the Administrative Agent, ratably in accordance with its Pro Rata Share promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Purchaser Agents, or the Purchasers hereunder and/or thereunder and to the extent that the Administrative Agent is not reimbursed for such expenses by the Seller or the Servicer.      (f) Successor Administrative Agent. The Administrative Agent may resign at any time, effective upon the appointment and acceptance of a successor Administrative Agent as provided below, by giving at least five days’ written notice thereof to each Purchaser Agent and the Seller and may be removed at any time with cause by the Purchaser Agents acting jointly. Upon any such resignation or removal, the Purchaser Agents and the Seller acting jointly shall 138 --------------------------------------------------------------------------------   appoint a successor Administrative Agent. Each of the Purchaser Agents and the Seller agrees that it shall not unreasonably withhold or delay its approval of the appointment of a successor Administrative Agent. If no such successor Administrative Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Secured Parties, appoint a successor Administrative Agent which successor Administrative Agent shall be either (i) a commercial bank organized under the laws of the United States or of any state thereof and have a combined capital and surplus of at least $50,000,000 or (ii) an Affiliate of such a bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article XII shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.      (g) Payments by the Administrative Agent. Unless specifically allocated to a specific Purchaser Agent pursuant to the terms of this Agreement, all amounts received by the Administrative Agent on behalf of the Purchaser Agents shall be paid by the Administrative Agent to the Purchaser Agents in accordance with their respective Pro Rata Shares in the applicable Advances Outstanding, or if there are no Advances Outstanding then to the Purchaser Agents in accordance with the most recent applicable Commitment, on the Business Day received by the Administrative Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Administrative Agent shall use its reasonable efforts to pay such amounts to each Purchaser Agent on such Business Day, but, in any event, shall pay such amounts to such Purchaser Agent not later than the following Business Day.      Section 12.2 The Purchaser Agents.      (a) Authorization and Action. Each Purchaser hereby designates and appoints its applicable Purchaser Agent to act as its agent hereunder and under each other Transaction Document, and authorizes such Purchaser Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to such Purchaser Agent by the terms of this Agreement together and the other Transaction Documents with such powers as are reasonably incidental thereto. Such Purchaser Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with its related Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Purchaser Agent shall be read into this Agreement or any other Transaction Document or otherwise exist for such Purchaser Agent. In performing its functions and duties hereunder and under the other Transaction Documents, such Purchaser Agent shall act solely as agent for its related Purchaser and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller or any of its successors or assigns. Such Purchaser Agent shall not be required to take any action that exposes such Purchaser Agent to personal liability or that is contrary to this Agreement, or any other Transaction Document or Applicable Law. The appointment and authority of such Purchaser Agent hereunder shall terminate at the indefeasible payment in full of the Aggregate Unpaids. Each Purchaser Agent, 139 --------------------------------------------------------------------------------   respectively, hereby authorizes the Administrative Agent to execute each of the UCC Financing Statements on behalf of such Purchaser (the terms of which shall be binding on such Purchaser).      (b) Delegation of Duties. Each applicable Purchaser Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Such Purchaser Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.      (c) Exculpatory Provisions. Neither any applicable Purchaser Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document (except for its, their or such Person’s own gross negligence or willful misconduct or, in the case of such Purchaser Agent, the breach of its obligations expressly set forth in this Agreement or any other Transaction Document), or (ii) responsible in any manner to its related Purchaser for any recitals, statements, representations or warranties made by the Seller contained in this Agreement or any other Transaction Document, for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any other Transaction Document or any other document furnished in connection herewith, for any failure of the Seller to perform its obligations hereunder, or for the satisfaction of any condition specified in Article III. Such Purchaser Agent shall not be under any obligation to its related Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of the Seller. Such Purchaser Agent shall not be deemed to have knowledge of any Unmatured Termination Event, Termination Event or Servicer Default unless such Purchaser Agent has received notice from the Seller or a Secured Party.      (d) Reliance. Such Purchaser Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Seller), independent accountants and other experts selected by such Purchaser Agent. Such Purchaser Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement, any other Transaction Document or any other document furnished in connection herewith unless it shall first receive such advice or concurrence of its related Purchaser, as it deems appropriate, or it shall first be indemnified to its satisfaction by its related Purchaser; provided that unless and until such Purchaser Agent shall have received such advice, such Purchaser Agent may take or refrain from taking any action as such Purchaser Agent shall deem advisable and in the best interests of its related Purchaser. Such Purchaser Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of its related Purchaser, and such request and any action taken or failure to act pursuant thereto shall be binding upon its related Purchaser.      (e) Non-Reliance on the Purchaser Agent and Other Purchasers. Each applicable Purchaser, respectively, expressly acknowledges that neither its related Purchaser Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by such Purchaser Agent hereafter taken, 140 --------------------------------------------------------------------------------   including, without limitation, any review of the affairs of the Seller, shall be deemed to constitute any representation or warranty by the such Purchaser Agent. Each applicable Purchaser, respectively, represents and warrants to its related Purchaser Agent that it has and will, independently and without reliance upon such Purchaser Agent, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Seller and made its own decision to enter into this Agreement, the other Transaction Documents or any Hedging Agreement, as the case may be.      (f) Purchaser Agents in their Respective Capacities. Each applicable Purchaser Agent, respectively, and any of its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Seller or any Affiliate of the Seller as though such Purchaser Agent were not a Purchaser Agent hereunder. With respect to the Advances made pursuant to this Agreement, such Purchaser Agent and each of its Affiliates shall have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not a Purchaser Agent and the terms “Purchaser” and “Purchasers” shall include such Purchaser Agent in its individual capacity.      (g) Successor Purchaser Agent. Each applicable Purchaser Agent, respectively, may, upon five days’ notice to the Seller and its related Purchaser, and such Purchaser Agent will, upon the direction of its related Purchaser, resign as Purchaser Agent for such Purchaser. If such Purchaser Agent shall resign, then its related Purchaser, during such five day period, shall appoint a successor agent. If for any reason no successor Agent is appointed by such Purchaser during such five day period, then effective upon the expiration of such five day period, the Seller shall make all payments in respect of the Aggregate Unpaids directly to such Purchaser and for all purposes shall deal directly with such Purchaser. After any retiring Purchaser Agent’s resignation hereunder as Purchaser Agent, the provisions of Articles XI and XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Purchaser Agent under this Agreement. Notwithstanding the resignation or removal of the Purchaser Agent for Citigroup, the Hedge Counterparties, shall each continue to be a Secured Party hereunder.      Section 12.3 Additional Agent.      (a) Authorization and Action. Each Additional Purchaser hereby designates and appoints the relevant Additional Agent designated in the related Additional Purchaser Agreement to act as its agent hereunder and under each other Transaction Document, and authorizes such Additional Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Additional Agent by the terms of this Agreement and the other Transaction Documents together with such powers as are reasonably incidental thereto. No Additional Agent shall have any duties or responsibilities, except those expressly set forth herein or in any other Transaction Document, or any fiduciary relationship with such related Additional Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Additional Agent shall be read into this Agreement or any other Transaction Document or otherwise exist for such Additional Agent. In performing its functions and duties hereunder and under the other Transaction Documents, each Additional Agent shall act solely as agent for the related Additional Purchaser and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller or the Servicer or any of the 141 --------------------------------------------------------------------------------   Seller’s or the Servicer’s successors or assigns. No Additional Agent shall be required to take any action that exposes the Additional Agent to personal liability or that is contrary to this Agreement, any other Transaction Document or Applicable Law. The appointment and authority of each Additional Agent hereunder shall terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each Additional Agent hereby authorizes the Administrative Agent to execute each of the UCC financing statements on behalf of such Additional Agent (the terms of which shall be binding on such Additional Agent).      (b) Delegation of Duties. Any of the Additional Agents may execute any of its duties under this Agreement and each other Transaction Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Additional Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.      (c) Exculpatory Provisions. Neither any Additional Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document (except for its, their or such Person’s own gross negligence or willful misconduct), or (ii) responsible in any manner to any Additional Purchaser for any recitals, statements, representations or warranties made by the Seller or the Servicer contained in Article IV, any other Transaction Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Transaction Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any other Transaction Document or any other document furnished in connection herewith or therewith, or for any failure of the Seller or the Servicer to perform its obligations hereunder or thereunder, or for the satisfaction of any condition specified in this Agreement, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in connection herewith. No Additional Agent shall be under any obligation to any Additional Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of the Seller or the Servicer. No Additional Agent shall be deemed to have knowledge of any Termination Event or Unmatured Termination Event unless such Additional Agent has received notice from the Seller or the related Additional Purchaser.      (d) Reliance by Additional Agent. Each Additional Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Seller), independent accountants and other experts selected by such Additional Agent. Each Additional Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless it shall first receive such advice or concurrence of the related Additional Purchaser as it deems appropriate and it shall first be indemnified to its satisfaction by such Additional Purchaser; provided that unless and until such Additional Agent shall have received such advice, the Additional Agent may take or refrain from taking any action, as the Additional Agent shall deem advisable and in the best interests of the Related Additional Purchaser. Each Additional Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a 142 --------------------------------------------------------------------------------   request of the related Additional Purchaser, and such request and any action taken or failure to act pursuant thereto shall be binding upon such Additional Purchaser.      (e) Non-Reliance on Additional Agent. Each Additional Purchaser expressly acknowledges that neither any Additional Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by such Additional Agent hereafter taken, including, without limitation, any review of the affairs of the Seller or the Servicer, shall be deemed to constitute any representation or warranty by such Additional Agent. Each Additional Purchaser represents and warrants to the related Additional Agent that it has and will, independently and without reliance upon such Additional Agent, such Additional Purchaser and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Seller and made its own decision to enter into this Agreement, the other Transaction Documents and all other documents related hereto or thereto.      (f) Additional Agent in its Individual Capacity. Each Additional Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Seller or any Affiliate of the Seller as though such Additional Agent were not an Additional Agent hereunder. With respect to Advances pursuant to this Agreement, each Additional Agent shall have the same rights and powers under this Agreement in its individual capacity as any Purchaser and may exercise the same as though it were not an Additional Agent, and the terms “Purchaser,” and “Purchasers,” shall include the Additional Agent in its individual capacity.      (g) Successor Additional Agent. Each Additional Agent may, upon five days’ notice to the Seller, and the related Additional Purchaser, and such Additional Agent will, upon the direction of such Additional Purchaser (other than such Additional Agent, in its individual capacity) resign as Additional Agent. If any Additional Agent shall resign, then the related Additional Purchaser during such five day period shall appoint a successor agent. If for any reason no successor Additional Agent is appointed by the related Additional Purchaser during such five day period, then effective upon the termination of such five day period, and the Seller shall make all payments in respect of the Aggregate Unpaids directly to such Additional Purchaser, and for all purposes shall deal directly with such Additional Purchaser. After any retiring Additional Agent’s resignation hereunder as an Additional Agent, the provisions of Articles XI and XII shall inure to its benefit with respect to any actions taken or omitted to be taken by it while it was an Additional Agent under this Agreement. ARTICLE XIII MISCELLANEOUS      Section 13.1 Amendments and Waivers.      (a) Except as provided in this Section 13.1, no amendment, waiver or other modification of any provision of this Agreement shall be effective without the written agreement of the Seller, the Servicer, the Backup Servicer, the Collateral Custodian, the Administrative 143 --------------------------------------------------------------------------------   Agent and the Secured Parties; provided that no such amendment, waiver or modification adversely affecting the rights or obligations of any Hedge Counterparty shall be effective without the written agreement of such Person.      (b) The parties hereto acknowledge and agree that after the Closing Date the Agreement may need to be amended to correct certain ambiguities or errors as well as to correct inconsistencies with the terms of the other Transaction Documents and each such party agrees to cooperate in good faith to effectuate, and not to unreasonably withhold, delay or condition its consent to, any such amendments; provided that notwithstanding the foregoing, to the extent any such amendment would have a adverse effect on any Secured Party, such Secured Party shall have the right to consent or withhold consent in its sole discretion.      Section 13.2 Notices, Etc.      All notices, reports and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of (a) notice by mail, five days after being deposited in the United States mail, first class postage prepaid or (b) notice by facsimile copy, when communication of receipt is obtained.      Section 13.3 Ratable Payments.      If any Secured Party, whether by setoff or otherwise, has payment made to it with respect to any portion of the Aggregate Unpaids owing to such Secured Party (other than payments received pursuant to Section 11.1) in a greater proportion than that received by any other Secured Party, such Secured Party agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of the Aggregate Unpaids held by the other Secured Parties so that after such purchase each Secured Party will hold its ratable proportion of the Aggregate Unpaids; provided that if all or any portion of such excess amount is thereafter recovered from such Secured Party, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.      Section 13.4 No Waiver; Remedies.      No failure on the part of the Administrative Agent, the Purchaser Agents, the Collateral Custodian, the Backup Servicer or a Secured Party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies herein provided are cumulative and not exclusive of any rights and remedies provided by law.      Section 13.5 Binding Effect; Benefit of Agreement.      This Agreement shall be binding upon and inure to the benefit of the Seller, the Servicer, the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian, 144 --------------------------------------------------------------------------------   the Secured Parties and their respective successors and permitted assigns and, in addition, the provisions of Section 2.9(a)(1) and Section 2.10(a)(1) shall inure to the benefit of each Hedge Counterparty, whether or not that Hedge Counterparty is a Secured Party.      Section 13.6 Term of this Agreement.      This Agreement, including, without limitation, the Seller’s representations and covenants set forth in Articles IV and V, and the Servicer’s representations, covenants and duties set forth in Articles VI, VII and VIII, create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Collection Date. Upon the occurrence of the Collection Date and the written request of the Seller, the Administrative Agent shall release its interest in the Collateral pursuant to Section 9.2; provided however that the rights and remedies with respect to any breach of any representation and warranty made or deemed made by the Seller pursuant to Articles III and IV the indemnification and payment provisions of Article XI and the provisions of Section 13.9, Section 13.10 and Section 13.11, shall be continuing and shall survive any termination of this Agreement.      Section 13.7 Governing Law; Consent to Jurisdiction; Waiver of Objection to Venue.      THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW PROVISIONS THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH OF THE PARTIES HERETO AND EACH HEDGE COUNTERPARTY HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND EACH SECURED PARTY HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.      Section 13.8 Waiver of Jury Trial.      TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO AND EACH HEDGE COUNTERPARTY HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. 145 --------------------------------------------------------------------------------        Section 13.9 Costs, Expenses and Taxes.      (a) In addition to the rights of indemnification granted under Article XI hereof, the Seller and Originator agrees to pay on demand all reasonable out of pocket costs and expenses of the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian and the Secured Parties incurred in connection with the preparation, execution, delivery, administration (including periodic auditing, which shall be limited to two audits per year prior to the occurrence of a Termination Event), renewal, amendment or modification of, or any waiver or consent issued in connection with, this Agreement and the other documents to be delivered hereunder or in connection herewith (including any Hedging Agreement), including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian and the Secured Parties with respect thereto and with respect to advising the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian and the Secured Parties as to their respective rights and remedies under this Agreement and the other documents to be delivered hereunder or in connection herewith (including any Hedging Agreement), and all reasonable out of pocket costs and expenses, if any (including reasonable counsel fees and expenses), incurred by the Administrative Agent, the Purchaser Agents, the Backup Servicer, the Collateral Custodian or the Secured Parties in connection with the enforcement of this Agreement and the other documents to be delivered hereunder or in connection herewith (including any Hedging Agreement).      (b) The Seller and Originator shall pay on demand any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the other documents to be delivered hereunder or any agreement or other document providing liquidity support, credit enhancement or other similar support to the Purchasers in connection with this Agreement or the funding or maintenance of Advances hereunder.      (c) The Seller and Originator shall pay on demand all other reasonable out of pocket costs, expenses and Taxes (excluding income taxes) incurred by the Administrative Agent, the Purchaser Agents, the Secured Parties (“Other Costs”), including, without limitation, all costs and expenses incurred by the Administrative Agent and the Purchaser Agents in connection with periodic audits of the Seller’s or the Servicer’s books and records.      Section 13.10 No Proceedings.      (a) Each of the parties hereto (other than a particular Purchaser) and each Hedge Counterparty (by accepting the benefits of this Agreement) hereby agrees that it will not institute against, or join any other Person in instituting against, such Purchaser, the Administrative Agent, the related Purchaser Agent or any Liquidity Banks any Insolvency Proceeding so long as any commercial paper issued by such Purchaser shall be outstanding and there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding.      (b) Each of the parties hereto (other than a particular Additional Purchaser) hereby agrees that it will not institute against, or join any other Person in instituting against such 146 --------------------------------------------------------------------------------   Additional Purchaser, the related Additional Agent or any of its Liquidity Banks any Insolvency Proceeding so long as any commercial paper issued by such Additional Purchaser shall be outstanding and there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding.      (c) Each of the parties hereto (other than the Administrative Agent without the consent of the Purchaser Agents) hereby agrees that it will not institute against, or join any other Person in instituting against, the Seller any Insolvency Proceeding so long as there shall not have elapsed one year and one day since the Collection Date; provided that nothing in this Section 13.10 shall limit any party’s right to file any claim in or otherwise take any action with respect to any Insolvency Proceeding that was instituted by any other Person.      Section 13.11 Recourse Against Certain Parties.      (a) No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any administrator of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party, or any incorporator, affiliate, stockholder, officer, employee or director of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party, or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party, and that no personal liability whatsoever shall attach to or be incurred by any administrator of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party or any incorporator, stockholder, affiliate, officer, employee or director of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party or of any such administrator, as such, or any other of them, under or by reason of any of the obligations, covenants or agreements of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party contained in this Agreement or in any other such instruments, documents or agreements, or that are implied therefrom, and that any and all personal liability of every such administrator of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party and each incorporator, stockholder, affiliate, officer, employee or director of the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party or of any such administrator, or any of them, for breaches by the Administrative Agent, the Purchaser Agents, the Seller, the Servicer, the Originator or any Secured Party of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. The provisions of this Section 13.11 shall survive the termination of this Agreement. 147 --------------------------------------------------------------------------------        (b) Notwithstanding anything in this Agreement to the contrary, no Purchaser or Additional Purchaser shall have any obligation to pay any amount required to be paid by it hereunder in excess of any amount available to such Purchaser or such Additional Purchaser, as applicable, after paying or making provision for the payment of its Commercial Paper Notes. All payment obligations of each Purchaser and each Additional Purchaser, as applicable, hereunder are contingent on the availability of funds in excess of the amounts necessary to pay its Commercial Paper Notes; and each of the other parties hereto agrees that it will not have a claim under Section 101(5) of the Bankruptcy Code if and to the extent that any such payment obligation owed to it by a Purchaser or an Additional Purchaser, as applicable, exceeds the amount available to such Purchaser or such Additional Purchaser, as applicable, to pay such amount after paying or making provision for the payment of its Commercial Paper Notes.      (c) Notwithstanding any contrary provision set forth herein, no claim may be made by the Seller, the Originator or the Servicer or any other Person against the Administrative Agent and the Secured Parties or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect to any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Seller, the Originator and the Servicer each hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected.      (d) No obligation or liability to any Obligor under any of the Assets is intended to be assumed by the Administrative Agent and the Secured Parties under or as a result of this Agreement and the transactions contemplated hereby      Section 13.12 Protection of Right, Title and Interest in the Collateral; Further Action Evidencing Advances .      (a) The Servicer shall cause this Agreement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the right, title and interest of the Administrative Agent as agent for the Secured Parties and of the Secured Parties to the Collateral to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Administrative Agent as agent for the Secured Parties hereunder to all property comprising the Collateral. The Servicer shall deliver to the Administrative Agent file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Seller shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this Section 13.12(a).      (b) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that the Administrative Agent may reasonably request in order to perfect, protect or more fully evidence the Advances hereunder and the security interest granted in the Collateral, or to enable the Administrative 148 --------------------------------------------------------------------------------   Agent or the Secured Parties to exercise and enforce their rights and remedies hereunder or under any Transaction Document.      (c) If the Seller or the Servicer fails to perform any of its obligations hereunder, the Administrative Agent or any Secured Party may (but shall not be required to) perform, or cause performance of, such obligation; and the Administrative Agent’s or such Secured Party’s costs and expenses incurred in connection therewith shall be payable by the Seller as provided in Article XI. The Seller irrevocably authorizes the Administrative Agent and appoints the Administrative Agent as its attorney-in-fact to act on behalf of the Seller (i) to execute on behalf of the Seller as debtor and to file financing statements necessary or desirable in the Administrative Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Secured Parties in the Collateral and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Administrative Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Secured Parties in the Collateral. This appointment is coupled with an interest and is irrevocable.      (d) Without limiting the generality of the foregoing, Seller will, not earlier than six months and not later than three months prior to the fifth anniversary of the date of filing of the financing statement referred to in Section 3.1 or any other financing statement filed pursuant to this Agreement or in connection with any Advance hereunder, unless the Collection Date shall have occurred:      (i) deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement; and      (ii) deliver or cause to be delivered to the Administrative Agent an opinion of the counsel for Seller, in form and substance reasonably satisfactory to the Administrative Agent, confirming and updating the opinion delivered pursuant to Section 3.1 with respect to perfection and otherwise to the effect that the security interest hereunder continues to be an enforceable and perfected security interest, subject to no other Liens of record except as provided herein or otherwise permitted hereunder, which opinion may contain usual and customary assumptions, limitations and exceptions.      Section 13.13 Confidentiality      (a) Each of the Administrative Agent, the Purchaser Agents, the Secured Parties, the Servicer, the Collateral Custodian, the Backup Servicer and the Seller shall maintain and shall cause each of its employees and officers to maintain the confidentiality of the Agreement and all information with respect to the other parties, including all information regarding the business of CapitalSource Inc. and its Affiliates, the Seller and the Servicer hereto, and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein or related to any of the underlying Obligors, except that each such party and its officers and employees may (i) disclose such information to its external accountants, attorneys, investors, potential investors parties that provide or may in the future provide first loss or credit enhancement to such Person and the agents of such Persons 149 --------------------------------------------------------------------------------   (“Excepted Persons”); (ii) disclose the existence of the Agreement, but not the financial terms thereof, (iii) disclose such information as is required by Applicable Law and (iv) disclose the Agreement and such information in any suit, action, proceeding or investigation (whether in law or in equity or pursuant to arbitration) involving any of the Transaction Documents or any Hedging Agreement for the purpose of defending itself, reducing its liability, or protecting or exercising any of its claims, rights, remedies, or interests under or in connection with any of the Transaction Documents or any Hedging Agreement. It is understood that the financial terms that may not be disclosed except in compliance with this Section 13.13(a) include, without limitation, all fees and other pricing terms, and all Termination Events, Servicer Defaults, and priority of payment provisions.      (b) Anything herein to the contrary notwithstanding, the Seller and the Servicer each hereby consents to the disclosure of any nonpublic information with respect to it (i) to the Administrative Agent, the Purchaser Agents, the Collateral Custodian, the Backup Servicer or the Secured Parties by each other, (ii) by the Administrative Agent, the Purchaser Agents, the Collateral Custodian, the Backup Servicer and the Secured Parties to any prospective or actual assignee or participant of any of them provided such Person agrees to hold such information confidential, or (iii) by the Administrative Agent, the Purchaser Agents, and the Secured Parties to any commercial paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to any Purchaser, as applicable, and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, provided each such Person is informed of the confidential nature of such information. In addition, the Secured Parties, the Administrative Agent and the Purchaser Agents, may disclose any such nonpublic information as required pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).      (c) Notwithstanding anything herein to the contrary, the foregoing shall not be construed to prohibit (i) disclosure of any and all information that is or becomes publicly known; (ii) disclosure of any and all information (a) if required to do so by any applicable statute, law, rule or regulation, (b) to any government agency or regulatory body having or claiming authority to regulate or oversee any respects of the Administrative Agents’, the Purchaser Agents’, the Secured Parties’, the Collateral Custodian’s, the Backup Servicer’s, the Seller, the Servicer or the Originator business or that of their affiliates, (c) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory authority, arbitrator or arbitration to which the Administrative Agent, the Purchaser Agents, the Secured Parties, the Collateral Custodian, the Backup Servicer, the Seller, the Servicer or the Originator or an officer, director, employer, shareholder or affiliate of any of the foregoing is a party, (d) in any preliminary or final offering circular, registration statement or contract or other document approved in advance by the Seller, the Servicer or the Originator or (e) to any affiliate, independent or internal auditor, agent, employee or attorney of the Collateral Custodian or Backup Servicer having a need to know the same, provided that the Collateral Custodian or Backup Servicer advises such recipient of the confidential nature of the information being disclosed; or (iii) any other disclosure authorized in writing by the Seller, Servicer or Originator. 150 --------------------------------------------------------------------------------        Section 13.14 Execution in Counterparts; Severability; Integration.      This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts (including by facsimile), each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. This Agreement and the Transaction Documents contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings delivered by the Originator to the Administrative Agent, the Purchaser Agents, and the Secured Parties.      Section 13.15 Waiver of Set-off.      (a) Each of the parties hereto (other than any one of the Purchasers) hereby waives any right of setoff it may have or to which it may be entitled under this Agreement from time to time against such Purchaser, its Affiliates or its respective assets.      (b) Each of the parties hereto (other than any one of the Additional Purchasers) hereby waives any right of setoff it may have or to which it may be entitled under this Agreement from time to time against such Additional Purchaser, its Affiliates or its respective assets.      Section 13.16 Assignments.      (a) The Purchasers may at any time assign, or grant a security interest or sell a participation interest in, any Advance (or portion thereof) to any Person (such Person, an “Additional Purchaser”); provided that in the case of an assignment of the Purchaser Variable Funding Certificate or Additional Purchaser Variable Funding Certificate the assignee (other than any assignee that is a Liquidity Bank) shall execute and deliver to the Servicer and the Administrative Agent a Transferee Letter substantially in the form of Exhibit K hereto (the “Transferee Letter”). The parties to any such assignment, grant or sale of participation interest shall execute and deliver to the Purchaser Agent or the related Additional Agent, as applicable, for its acceptance and recording in its books and records, such agreement or document as may be satisfactory to such parties and the Purchaser Agent or such Additional Agent, as applicable. The Seller shall not assign or delegate, or grant any interest in, or permit any Lien (other than any Permitted Lien) to exist upon, any of the Seller’s rights, obligations or duties under this Agreement without the prior written consent of the Administrative Agent and each Hedge Counterparty.      (b) The Originator may, with the written consent of the Administrative Agent, add additional Persons as an Additional Purchaser or an Additional Agent or cause an existing Purchaser to increase its Commitment; provided however that the Commitment of any Purchaser may only be increased with the prior written consent of such Purchaser and the Administrative 151 --------------------------------------------------------------------------------   Agent. Each new Additional Purchaser and Additional Agent shall become a party hereto by executing and delivering to the Administrative Agent and the Originator an Assumption Agreement substantially in the form of Exhibit M hereto (the “Assumption Agreement”).      (c) An Additional Purchaser shall not be entitled to receive any greater payment under Sections 2.14 through 2.16 or Article XI than the applicable Purchaser would have been entitled to receive with respect to the participation interest sold to the Additional Purchaser.      Section 13.17 Heading and Exhibits.      The headings herein are for purposes of references only and shall not otherwise affect the meaning or interpretation of any provision hereof. The schedules and exhibits attached hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes.      Section 13.18 Loans Subject to Retained Interest Provisions.      (a) With respect to any Loan included in the Collateral subject to the Retained Interest provisions of this Agreement, the Seller will own only the principal portion of such Loans outstanding as of the applicable Cut-Off Date. Principal Collections received by the Seller or the Servicer on any Revolving Loans will be allocated first to the portion of such Revolving Loan owned by the Seller, until the principal amount of such portion is reduced to zero, and then to the portion not owned by the Seller; provided that if (i) a payment default occurs with respect to any of the related Loans, (ii) a Liquidity Factor Reduction Event occurs and continues, (iii) the Originator has determined in its sole discretion that an Obligor’s credit has deteriorated or the Originator has determined in its sole discretion to reduce its commitment to an Obligor, or (iv) an Allocation Adjustment Event occurs, then Principal Collections received on (x) the applicable Loan (in the case of clause (i) or (iii) above or during the time that a Liquidity Factor Reduction Event exists and continues in the case of clause (ii) above) or (y) all the Revolving Loans (in the case of clauses (iv) above) will be allocated between the portion owned by the Seller and the portion not owned by the Seller, pro rata based upon the outstanding principal amount of each such portion.      (b) With respect to any Term Loans included in the Collateral subject to the Retained Interest provisions of this Agreement, Principal Collections and Interest Collections received by the Servicer will be allocated between the portion owned by the Seller and to the portion not owned by the Seller (if any) on a pro rata basis according to the outstanding principal amount of such portion.      Section 13.19 Tax Treatment of Advances.      It is the intention of the Seller and the Purchasers that, for U.S. federal, state and local income and franchise tax purposes only, the Advances made hereunder will be treated as indebtedness secured by the Collateral. The Seller, by entering into this Agreement, and the Purchasers, by making the Advances described herein, agree to treat the Advances for U.S. federal, state and local income and franchise tax purposes as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further these intentions of the parties. 152 --------------------------------------------------------------------------------   [Remainder of Page Intentionally Left Blank.] 153 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.                   THE SELLER:   CSE QRS FUNDING II LLC                           By:   /s/ Thomas A. Fink                       Name: Thomas A. Fink         Title: Chief Financial Officer & Senior Vice President Finance                           CSE QRS Funding II LLC         4445 Willard Avenue, 12th Floor         Chevy Chase, Maryland 20815         Attention:   Treasurer         Facsimile No.:   (301) 841-2375         Confirmation No.:   (301) 841-2731                       THE ORIGINATOR AND SERVICER:   CSE MORTGAGE LLC                           By:   /s/ Thomas A. Fink                       Name: Thomas A. Fink         Title: Chief Financial Officer & Senior Vice President Finance                           CSE Mortgage LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815         Attention:   Treasurer         Facsimile No.:   (301) 841-2375         Confirmation No.:   (301) 841-2731     [Signatures Continued on the Following Page] Sale and Servicing Agreement   --------------------------------------------------------------------------------                     CITIGROUP: Commitment: $500,000,000   CITIGROUP GLOBAL MARKETS REALTY CORP., in its capacity as a Purchaser                           By:   /s/ John Pawolsky                       Name: John Pawolsky Title: Authorized Signer                           Citigroup Global Markets Realty Corp. 390 Greenwich Street New York, New York 10013         Facsimile No.:   212-723-8591         Confirmation No.:   212-723-5800                       THE ADMINISTRATIVE AGENT AND THE CITIGROUP AGENT   CITIGROUP GLOBAL MARKETS REALTY CORP.                           By:   /s/ John Pawolsky                       Name: John Pawolsky Title: Authorized Signer                           Citigroup Global Markets Realty Corp. 390 Greenwich Street New York, New York 10013         Facsimile No.:   212-723-8591         Confirmation No.:   212-723-5800     [Signatures Continued on the Following Page] Sale and Servicing Agreement   --------------------------------------------------------------------------------                     THE BACKUP SERVICER: AND THE COLLATERAL CUSTODIAN:   WELLS FARGO BANK, NATIONAL ASSOCIATION, not in its individual capacity but solely as Backup Servicer                           By:   /s/ Joe Nardi                       Name: Joe Nardi Title: Vice President                           Wells Fargo Bank, National Association Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479         Attention:   Corporate Trust Services                 Collateral-Backed Administration         Facsimile No.:   (612) 667-3539         Confirmation No.:   (612) 667-8058     [Signatures Continued on the Following Page] Sale and Servicing Agreement   --------------------------------------------------------------------------------                     Acknowledged and Agreed to as of the date first written above.                       [                                                                                                             ],     as the Hedge Counterparty                       By:                         Name:                         Title:                                         [                                                                                       ] [                                                                                      ] [                                                                                      ]     Attention:   [                                                                 ]     Facsimile No.:   [                                                                  ]     Confirmation No.:   [                                                                 ]     Sale and Servicing Agreement  

  EXHIBIT 10.14 TAX ALLOCATION AGREEMENT      Agreement as of May 26, 2004 by and among American Entertainment Properties Corp. (“Parent”), a Delaware corporation, having offices at 2000 Las Vegas Blvd. South, Las Vegas, Nevada 89104, and American Casino & Entertainment Properties LLC, a Delaware limited liability company (“Issuer”), having offices at 2000 Las Vegas Blvd. South, Las Vegas, Nevada 89104, and Issuer Subsidiaries (as defined below).      WHEREAS, Issuer is treated, for federal income tax purposes, as a disregarded entity, of which all items of income, deduction, gain and loss are treated as having been earned or incurred by Parent;      WHEREAS, Issuer is the sole direct or indirect owner of certain limited liability companies which are likewise treated as disregarded entities, of which all items of income, deduction, gain and loss are treated as having been earned or incurred by Parent;      WHEREAS, Parent is the common parent of an affiliated group (as such term is defined in the Internal Revenue Code of 1986, as amended, or any succeeding law (the “Code”)) which includes the Issuer Corporate Subsidiaries (as defined below):      WHEREAS, Parent and its subsidiaries will file consolidated federal income tax returns (“Consolidated Federal Returns”) for all periods in which Parent and such subsidiaries are members of an affiliated group (as defined in the Code); and      WHEREAS, Parent and Issuer believe it is desirable to provide for the allocation and payment of federal and state income tax liabilities and certain related matters.      NOW, THEREFORE, in consideration of the foregoing and of the covenants set forth below, the parties hereto have agreed as follows: 1.   Definitions.   (i)   “Issuer Group” means Issuer together with the Issuer Subsidiaries. “Issuer Subsidiaries” means the Issuer Corporate Subsidiaries and the Issuer Disregarded Entities. “Issuer Corporate Subsidiaries” means Stratosphere Corporation, American Casino & Entertainment Properties Finance Corp. and any other direct and indirect subsidiaries of Issuer which are corporations eligible to be   --------------------------------------------------------------------------------         included in a Consolidated Return (as defined below) with Parent. “Issuer Disregarded Entities” means Charlie’s Holding LLC, Arizona Charlie’s, LLC, Fresca, LLC and any other entities which are directly or indirectly wholly-owned by Issuer and which, for federal income tax purposes, are treated as disregarded entities of which all items of income, deduction, gain and loss are treated as earned or incurred by Parent.   (ii)   “Consolidated Returns” mean all Consolidated Federal Returns and all state income or franchise tax returns filed by Parent on a consolidated or combined basis with the Issuer Group (“Consolidated State Returns”).     (iii)   “Federal Income Taxes” means any income tax imposed under the Code including, without limitation, the corporate income tax, the minimum tax imposed on corporations, and the personal holding company tax.     (iv)   “State Income Taxes” means any income or franchise tax imposed under the tax law of any state (or political subdivision thereof) including, without limitation, corporate income taxes and minimum taxes.     (v)   “Net Operating Loss” means the amount of any net operating loss as defined in the Code or under the tax law of any state.     (vi)   “Net Capital Loss” means the amount of any net capital loss as defined in the Code or under the tax law of any state.     (vii)   “Credit” means the amount of any tax credit allowed under the Code or under the tax law of any state including, without limitation, investment tax credits and foreign tax credits.     (viii)   The “Regulations” means the regulations and proposed regulations issued by the Secretary of the Treasury interpreting the Code. - 2 - --------------------------------------------------------------------------------     (ix)   The “Consolidated Group” means the affiliated group (as defined in the Code) of which Parent (or its successor) is the common parent, for so long as such affiliated group files a Consolidated Return.     (x)   “Tax Benefits” as to any entity (or group of entities) means the Net Operating Loss, Net Capital Loss, and Credits generated by or available to such entity (or group of entities) and any carryforwards or carrybacks thereof.     (xi)   “Final Determination” shall mean the final resolution of liability for any Tax for a taxable period, (i) by IRS Form 870 or 870-AD (or any successor form thereto), on the date of the final acceptance by or on behalf of a party thereto, or by a comparable form under the laws of another jurisdiction; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of taxing authority to assert a further deficiency shall not constitute a Final Determination; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreement under the laws of another jurisdiction; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the Tax imposing jurisdiction; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties. - 3 - --------------------------------------------------------------------------------     (xii)   “Indenture Trustee” means Wilmington Trust Company, or any replacement or successor trustee under that certain indenture dated January 29, 2004 with respect to the Debt.     (xiii)   “Debt” means (a) 7.85% Senior Secured Notes due 2012 of the Issuer, and (b) any substantially similar notes of the Issuer issued pursuant to an exchange offer as provided for in the terms of such notes. 2.   Joinder in Consolidated Returns.   (a)   Issuer hereby agrees and consents (i) to cause each Issuer Corporate Subsidiary to join with the Consolidated Group in the filing of Consolidated Returns with respect to any fiscal year in which Parent elects to file such returns, (ii) to furnish to Parent, and cause each Issuer Subsidiary to furnish to Parent, all information relating to members of the Issuer Group as may be necessary or appropriate for the preparation of Consolidated Returns, (iii) to cause each Issuer Corporate Subsidiary to execute and deliver to Parent all consents, directors’ resolutions and other documentation which Parent may reasonably require to evidence Parent’s authority to file Consolidated Returns, and (iv) to cause each Issuer Corporate Subsidiary to maintain the same fiscal year as Parent for all periods in which Parent and Issuer are members of an affiliated group (as defined in the Code).     (b)   Parent hereby consents to join with the Consolidated Group in the filing of Consolidated Returns; provided, however, that Parent is not precluded from taking any action which would require Parent to discontinue the filing of Consolidated Returns including, without limitation, a sale or other disposition of all or a portion of its stock ownership in Issuer and/or the filing of an application with the Commissioner of Internal Revenue, or other appropriate authorities, including tax authorities of any state (or political subdivision thereof) (“Taxing Authorities”) on behalf of the - 4 - --------------------------------------------------------------------------------         Consolidated Group, requesting permission to discontinue the filing of Consolidated Returns.     (c)   Parent shall prepare and file Consolidated Returns on behalf of the Consolidated Group and shall make all decisions regarding any elections or other matters relating to the preparation and filing of Consolidated Returns; provided, however, that in making elections and other decisions with respect to members of the Issuer Group, Parent shall consult with the Issuer Group and in good faith consider their recommendations regarding the possibility of making such elections. 3.   Payment of Tax and Refunds.      Subject to the provisions of this Agreement and compliance with the terms hereof, Parent shall be obligated to and shall make all payments and be entitled to all refunds of Federal Income Taxes and estimated Federal Income Taxes on behalf of any and all members of the Consolidated Group, and shall indemnify and hold the members of the Issuer Group harmless against all such Taxes (including penalties and interest). Further, subject to the provisions of this Agreement and compliance with the terms hereof, whenever Parent elects to file state or local income or franchise tax returns on a consolidated or combined basis, Parent shall be obligated to and shall make all payments and be entitled to all refunds of such State Income Taxes and estimated State Income Taxes (such actual and estimated State Income Taxes are referred to herein as “Consolidated State Income Taxes”) on behalf of all members of the Consolidated Group, and shall indemnify and hold the members of the Issuer Group harmless against all such Taxes (including penalties and interest). Subject to the provisions of Section 5(a) of this Agreement, (and to the extent not indemnified pursuant to the two immediately preceding sentences) for all periods on or after the date hereof, Parent shall indemnify and hold Issuer and the other members of the Issuer Group harmless against all Federal Income Taxes, Consolidated State Income Taxes, and State Income Taxes and local income taxes payable by or with respect to any member of the Consolidated Group other than the members of the Issuer Group, including any interest and penalties with respect thereto and reasonable out-of-pocket expenses (including legal and accounting expenses) - 5 - --------------------------------------------------------------------------------   incurred by the Issuer Group in connection with an administrative or judicial proceeding initiated by a governmental authority relating to any such tax. 4.   Payments by Issuer to Parent.   (a)   Issuer shall pay to Parent, for the Consolidated Group’s 2004 taxable year and subsequent fiscal years or periods during which Issuer Corporate Subsidiaries are included in a Consolidated Return with the Consolidated Group, an amount equal to the amount of Federal Income Taxes and Consolidated State Income Taxes that the Issuer Group would have been required to pay to the Taxing Authorities, computed as though (i) the Issuer was a corporation, (ii) neither the Issuer nor any Issuer Subsidiary were part of the Consolidated Group, (iii) all items of income, deduction, gain and loss of each Issuer Disregarded Entity were treated as earned or incurred by Issuer, and (iv) Issuer and the Issuer Corporate Subsidiaries had filed Consolidated Returns for federal, state and/or local tax purposes, as the case may be, as though Issuer were the common Parent corporation (the “Issuer Group Taxes”), provided, however, that payment pursuant to this Section 4(a) shall only be required for periods in which the Issuer is treated, for federal income tax purposes, as either (a) a disregarded entity, or (b) a corporation which is part of the same affiliated group as Parent. The above calculation shall give effect to any federal, state or local Net Operating Loss, Net Capital Loss and Credit carryforwards or carrybacks which would have been available to the Issuer Group if it had never been included in a Consolidated Return with the Consolidated Group, but such calculation shall be subject to any audit adjustments and any limitations on the utilization of tax attributes (including, without limitation, such carryforwards and any limitations on the utilization of depreciation, amortization or other similar deductions) of the Issuer Group imposed by law.     (b)   If, for any year, the Issuer Group would, under the principles of Section 4(a), have been entitled to carry back any Net Operating Loss, Net Capital - 6 - --------------------------------------------------------------------------------         Loss or Credit to any prior year for which the Issuer made a payment (the “Prior Payment”) under Section 4(a), then, to the extent such carryback would have resulted in a refund of federal, state or local tax had the Prior Payment been paid to one or more governmental authorities as Issuer Group Taxes, Parent shall refund the Prior Payment to Issuer. Any payment pursuant to this Section 4(b) shall be made no later than the due date (including extensions) of the Consolidated Returns for the year which gives rise to the carryback.     (c)   The amounts payable under Section 4(a) (including amounts in respect of estimated tax) shall be determined by KPMG, LLP or another nationally recognized firm of certified public accountants, which shall inform Parent and Issuer, and, unless all of the Debt is paid in full, provide a certificate to the Indenture Trustee, of such amount. Issuer shall pay to Parent any such amount that would be due on the basis of the foregoing calculations within three business days after such notification and certificate have been provided. The excess of any amounts paid to Parent, with respect to estimated tax payments under this Section 4(c) for a taxable year, over the liability of the Issuer Group to Parent under Section 4(a) for such year, shall be refunded by Parent to Issuer within three business days after Issuer notifies Parent that it has made such an excess payment.     (d)   Issuer shall indemnify and hold Parent harmless against any liability for any interest and penalties with respect thereto imposed upon Parent by reason of any false or fraudulent information supplied by any member of the Issuer Group to Parent in connection with the determination of the federal, state, or local income tax liability payable by any member of the Consolidated Group. 5.   Adjustments   (a)   In the event of a Final Determination with respect to the tax liability of the Consolidated Group, appropriate adjustments (including, without limitation, adjustments to Issuer’s payment obligation under Section 4(a) - 7 - --------------------------------------------------------------------------------         and Parent’s obligation to refund under Section 4(b)) shall, except as inconsistent with this Agreement, be made hereunder consistent with such Final Determination. Further, Issuer shall pay to Parent any interest, penalties and additions to tax imposed in connection with a Final Determination to the extent that such amounts are attributable to items of Issuer or its subsidiaries. Similarly, Parent shall pay Issuer any interest received from a governmental authority in connection with a Final Determination that there has been an overpayment, together with the amount of any refund or credit received, to the extent attributable to items of Issuer or its subsidiaries.   (b)   Payments under this Section 5 shall be made promptly after the amounts thereof are determined and, unless all of the Debt is paid in full, KPMG, LLP, or another nationally recognized firm of certified public accountants has certified such amounts to the Indenture Trustee. For purposes of this Agreement, any Net Operating Loss, Net Capital Loss, or Credit shall be carried forward or carried back to the extent permitted by law. 6.   Late Filing.         Notwithstanding any other provisions of this agreement, Parent shall indemnify and hold harmless the Issuer against any interest or penalties incurred by reason of late filing of any Consolidated Return for the Consolidated Group, or by reason of late payment of any tax or estimated tax for the Consolidated Group, unless such late filing or late payment is due to the fault of Issuers or any other member of the Issuer Group. 7.   State Taxes.         Issuer and each of the Issuer Subsidiaries shall continue to prepare and file all applicable state tax returns, at their own expense, and to pay, or cause its subsidiaries to so prepare, file and pay, all amounts shown to be due thereunder unless Parent elects to have Issuer and/or members of the Issuer Group file state and/or local tax returns on a consolidated or combined basis with Parent, provided, however, that, in the case of taxing jurisdictions which treat the Issuer and the Issuer Disregarded Entities as disregarded entities, all items of income, deduction, gain or loss of the Issuer and each Issuer - 8 - --------------------------------------------------------------------------------   Disregarded Entity shall, to the extent provided by law, be included in Parent’s tax returns regardless of whether consolidated or combined returns are filed for such jurisdictions. 8.   Accounting.   (a)   For the purpose of the computation of assumed tax liabilities herein, all payments made (i) by Parent to Issuer and (ii) by Issuer to Parent, pursuant to the provisions thereof shall not be considered income to the recipient of the payment or an expense of the payor, but rather shall be considered the payment of a tax. Any difference between a Consolidated Group member’s tax liability under this Agreement and such member’s liability under Treasury Regulation Sections 1.1502-33 and 1.1552-1 shall be treated as a distribution with respect to its stock or as a contribution to its capital, as the case may be. 9.   Parties.      Any corporation which is an Issuer Subsidiary on the date hereof or which becomes an Issuer Subsidiary at any time subsequent to such date shall automatically be subject to the terms and conditions of this Agreement. If any entity other than Parent shall become the common parent of the affiliated group of corporations for federal income tax purposes which includes members of the Issuer Group, such entity shall automatically be substituted for Parent under this Agreement. 10.   Notices.         All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly and properly given or sent (a) on the date when such notice, request, consent or other communication is personally delivered with receipt acknowledged, or (b) if mailed, three days after the date on which the same is deposited in a post office box and sent by certified or registered mail, return receipt requested, postage prepaid and addressed to the party for whom intended at its address set - 9 - --------------------------------------------------------------------------------   forth below or to such other address or addresses as any of the parties hereto shall theretofore designated by notice hereunder. If to Parent, at: 2000 Las Vegas Blvd. South Las Vegas, Nevada 89104 Attention: Denise Barton If to Issuer or the Issuer Subsidiaries, at: 2000 Las Vegas Blvd. South Las Vegas, Nevada 89104 Telephone: 702-380-7777 Fax: 702-380-4738 Attention: Denise Barton 11.   Entire Agreement.         This agreement (a) contains the entire understanding of the parties hereto with respect to the subject matter hereof, (b) shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed therein, and (c) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 12.   Amendments.         This Agreement may not be modified, changed or amended except by a writing signed by all parties hereto and consented to by the Indenture Trustee, provided, however, that consent of the Indenture Trustee shall not be required (i) if all of the Debt has been paid in full, (ii) to amend this Agreement to cure any ambiguity, defect or inconsistency, or (iii) to amend this Agreement to make any change that would provide additional rights or benefits to the Issuer, or that does not adversely affect the legal rights of holders of the Debt. 13.   Further Assurances.         Each of the parties hereto agrees to execute, acknowledge, deliver, file, record and publish such further certificates, instruments, agreements and other documents, and to take all such further actions as may be required by law or deemed necessary or useful in - 10 - --------------------------------------------------------------------------------   furtherance of the objectives and intentions underlying this Agreement and not inconsistent with the terms hereof. 14.   Captions. Captions are inserted for convenience only and shall not be given any legal effect. - 11 - --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.             American Entertainment Properties Corp.       By:       /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer        American Casino & Entertainment Properties LLC       By:       /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer        American Casino & Entertainment Properties Finance Corp.       By:       /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer        Charlie’s Holding LLC       By:   American Casino & Entertainment Properties LLC                 By:       /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer                  Arizona Charlie’s, LLC       By:   /s/ Denise Barton         Name:   Denise Barton        Title:   Senior Vice President, Chief Financial Officer, Secretary and Treasurer    --------------------------------------------------------------------------------               Fresca, LLC   By: Charlie’s Holding LLC, its sole member            By: American Casino & Entertainment          Properties LLC, its sole member                   By:   /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer                  Stratosphere Corporation       By:   /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer        Stratosphere Gaming Corp.       By:   /s/ Richard P. Brown         Name:   Richard P. Brown        Title:   President and Chief Executive Officer        Stratosphere Advertising Agency       By:   /s/ Denise Barton         Name:   Denise Barton        Title:   Chief Financial Officer, Secretary and Treasurer        Stratosphere Land Corporation       By:   /s/ Denise Barton         Name:   Denise Barton        Title:   Secretary and Treasurer     

Exhibit 10.1 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the “Agreement”) dated as of October 25, 2006 by and among MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services Inc. (“Merrill Lynch”); SILICON VALLEY BANK (“SVB”) (SVB and Merrill Lynch each individually a “Lender”, and collectively the “Lenders”), SVB in its capacity as agent for the Lenders (in such capacity, the “Agent”), SVB and Merrill Lynch in their capacities as joint lead arrangers (in such capacity, the “Arrangers”), and PONIARD PHARMACEUTICALS, INC., a Washington corporation (“Borrower”) provides the terms on which Lenders shall lend to Borrower and Borrower shall repay Lenders.  The parties agree as follows: 1.                                      ACCOUNTING AND OTHER TERMS Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP.  The term “financial statements” includes the notes and schedules.  The terms “including” and “includes” always mean “including (or includes) without limitation,” in this or any Loan Document. Capitalized terms in this Agreement shall have the meanings as set forth in Section 13.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 2.                                      LOANS AND TERMS OF PAYMENT 2.1          Promise to Pay. Borrower hereby unconditionally promises to pay Lenders the unpaid principal amount of all Credit Extensions hereunder with all interest, fees and finance charges due thereon as and when due in accordance with this Agreement. 2.1.1.           Term Loan Facility. (a)           Availability.  Subject to the terms and conditions of this Agreement, Lenders agree, severally and not jointly, to lend to Borrower, not later than October 31, 2006, an advance (the “Term Loan Advance”) in an aggregate amount equal to the Term Loan Commitment according to each Lender’s pro rata share of the Term Loan Commitment (based upon the respective Commitment Percentage of each Lender).  When repaid, the Term Loan Advance may not be re-borrowed.  If the Term Loan Advance is not properly requested by Borrower in accordance with the terms of this Agreement on or prior to October 31, 2006, Borrower shall immediately pay to Agent, for the benefit of Lenders, the sum of (i) all interest that would have been earned by the Lenders if the Term Loan had been advanced in its entirety on October 31, 2006, and the principal amount thereof repaid on each Payment Date through April 1, 2010 in accordance with the terms hereof, and (ii) the Final Payment. (b)           Borrowing Procedure.  To obtain the Term Loan Advance, Borrower must notify Agent by facsimile or telephone by 12:00 p.m. Pacific time three (3) Business Days prior to the date the Term Loan Advance is to be made.  If such notification is by telephone, Borrower -------------------------------------------------------------------------------- must promptly confirm the notification by delivering to Agent a completed Payment/Advance Form in the form attached as Exhibit B (a “Payment Advance Form”).  On the Funding Date, each Lender shall credit and/or transfer (as applicable) to Borrower’s deposit account with SVB, an amount equal to its Commitment Percentage multiplied by the amount of the Term Loan Advance.  Each Lender may make the Term Loan Advance under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Term Loan Advance is necessary to meet Obligations which have become due.  Each Lender may rely on any telephone notice given by a person whom such Lender believes is a Responsible Officer or designee. Borrower shall indemnify each Lender for any loss Lender suffers due to such reliance. 2.2          Termination of Commitment to Lend. Without limiting Lenders’ other rights hereunder, each Lender’s obligation to lend the undisbursed portion of the Obligations shall terminate if, in such Lender’s good faith business judgment, there has been a material adverse change in the business, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Agent prior to the execution of this Agreement. 2.3          Repayment of Credit Extensions. (a)           Principal and Interest Payments On Payment Dates. (i)            Commencing on November 1, 2006, and continuing thereafter on the first Business Day of each successive calendar month through April 1, 2010 (each a “Payment Date”), Borrower shall make equal monthly payments of principal, plus accrued interest (individually, the “Scheduled Payment”, and collectively, “Scheduled Payments”).  All unpaid principal and accrued interest is due and payable in full on April 1, 2010.  A Term Loan Advance may only be prepaid in accordance with Sections 2.3(d) and 2.3(e). (ii)           Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. (b)           Interest Rate. (i)            Borrower shall pay interest on each Payment Date on the unpaid principal amount of each Term Loan Advance until the Term Loan Advance has been paid in full, at the per annum rate of interest equal to the Basic Rate determined by Agent as of the Funding Date for each Term Loan Advance in accordance with the definition of the Basic Rate.  Interest is computed on the basis of a 360 day year for the actual number of days elapsed. (ii)           Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to five percent (5%) above the highest interest rate otherwise applicable thereto (the “Default Rate”). (iii)          In no event shall the interest charged hereunder, with respect to the notes (if any) or any other obligations of Borrower under any Loan Documents exceed the 2 -------------------------------------------------------------------------------- maximum amount permitted under the laws of the State of California or of any other applicable jurisdiction.  Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable hereunder or under any note or other Loan Document (the “Stated Rate”) would exceed the highest rate of interest permitted under any applicable law to be charged (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable.  Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply.  In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower.  In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. (c)           Final Payment.  On the Maturity Date, Borrower shall pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with respect to such Term Loan Advance, an amount equal to the Final Payment. (d)           Mandatory Prepayment Upon an Acceleration.  If the Term Loan is accelerated following the occurrence of an Event of Default or otherwise, Borrower shall immediately pay to Lenders an amount equal to the sum of:  (i) all payments of principal plus accrued interest due and owing on such date and not yet paid, plus (ii) all remaining payments of principal and all interest due to be paid on such principal payments in the future, plus (iii) the Final Payment, plus (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. (e)           Permitted Prepayment of Loans.   Borrower shall have the option to prepay all, but not less than all, of the Term Loan advanced by Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Term Loan at least thirty (30) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all payments of principal plus accrued interest due and owing on such date and not yet paid, plus (B) all remaining payments of principal and all interest due to be paid on such principal payments in the future, plus (C) the Final Payment, plus (D) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. (f)            Debit of Accounts.   Agent may debit any of Borrower’s deposit accounts including Account Number 3300474313 maintained with SVB for principal and interest 3 -------------------------------------------------------------------------------- payments or any amounts Borrower owes Agent or Lenders. Agent will promptly notify Borrower when it debits Borrower’s accounts.  These debits shall not constitute a set-off. (g)           Payments.  All payments to be made by Borrower hereunder or under any other Loan Document, including payments of principal and interest made hereunder and pursuant to any other Loan Document, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds. 2.4          Fees. Borrower will pay to Agent: (a)           Final Payment.  The Final Payment, when due; (b)           Agent Expenses. All Agent Expenses (including reasonable attorneys’ fees and reasonable expenses) incurred through and after the Closing Date, when due; and (c)           Lender’s Expenses.  All Lender’s Expenses (including reasonable attorneys’ fees and reasonable expenses) incurred through and after the Closing Date, when due.  Agent shall provide Borrower notice if the aggregate total amount of attorneys’ fees included in Agent Expenses and Lender’s Expenses is expected to exceed $20,000. A good faith deposit of $50,000 has already been paid to Agent by Borrower and will be applied against the Agent Expenses and Lender’s Expenses.  Any portion of the deposit not utilized to pay Agent Expenses and Lender Expenses will be refunded to Borrower. 2.5          Additional Costs. If any new law or regulation increases any Lender’s costs or reduces its income for any loan, Borrower shall pay the increase in cost or reduction in income or additional expense; provided, however, that Borrower shall not be liable for any amount attributable to any period before 180 days prior to the date such Lender notifies Borrower of such increased costs.  Each Lender agrees that it shall allocate any increased costs among its customers similarly affected in good faith and in a manner consistent with such Lender’s customary practice. 3.                                      CONDITIONS OF LOANS 3.1          Conditions Precedent to Initial Credit Extension. The Lenders’ agreement to make the initial Credit Extension is subject to the condition precedent that Agent shall have received, in form and substance satisfactory to Agent, such documents and completion of such other matters, as Agent may reasonably deem necessary or appropriate, including, without limitation, subject to the condition precedent that Agent shall have received in form and substance satisfactory to the Agent the following: (a)           this Agreement; 4 -------------------------------------------------------------------------------- (b)           a certificate of the Secretary of Borrower with respect to articles, by-laws, incumbency, specimen signature and corporate resolutions authorizing the execution, delivery and performance of this Agreement; (c)           Perfection Certificate by Borrower; (d)           Intercreditor Agreement between the Lenders; (e)           Warrants to Purchase Stock; (f)            Financing statement (Forms UCC-1); (g)           Deposit Account Control Agreements/Securities Account Control Agreements (SVB and other financial institutions); (h)           Certificates evidencing Borrower’s equity ownership of NRX Manufacturing Group, Inc. together with an assignment executed in blank; (i)            Evidence of insurance; (j)            payment of the fees and Agent Expenses and Lender’s Expenses then due specified in Section 2.4 hereof; (k)           Certificate of Foreign Qualification from the State of California; (l)            Certificate of Good Standing/Legal Existence from the jurisdiction of incorporation; (m)          A legal opinion issued to Agent and Lenders by counsel to Borrower, in form and substance satisfactory to Agent; and (n)           such other documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate. 3.2          Conditions Precedent to all Credit Extensions. The obligations of Lenders to make each Credit Extension, including the initial Credit Extension, is subject to the following: (a)           timely receipt of any Payment/Advance Form; and (b)           the representations and warranties in Section 5 shall be true, correct and complete in all material respects on the date of the Payment/Advance Form and on the effective date of each Credit Extension; provided, that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all respects as of that date, and no Event of Default shall have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects. 5 --------------------------------------------------------------------------------   4.                                      CREATION OF SECURITY INTEREST 4.1          Grant of Security Interest. Borrower hereby grants Agent, for the ratable benefit of the Lenders; and to each Lender, to secure the payment and performance in full of all of the Obligations and the performance of each of Borrower’s duties under the Loan Documents, a continuing security interest in, and pledges and assigns to the Agent, for the ratable benefit of the Lenders, and to each Lender the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  Borrower warrants and represents that the security interest granted herein shall be a first priority security interest in the Collateral, subject to only Permitted Liens. Except as noted on Section 4.1 of Borrower’s Disclosure Schedule, Borrower is not a party to, nor is bound by, any material license or other similar agreement with respect to which the Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property.  Borrower shall provide written notice to Agent within ten (10) days of entering into or becoming bound by, any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition.  If such licenses or other agreements meet the definition of Collateral set forth in Section 13 of this Agreement, Borrower shall take such steps as Agent reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for such licenses or other agreements to be deemed “Collateral” and for Agent to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Collateral, whether now existing or entered into in the future. Borrower agrees that any disposition of the Collateral in violation of this Agreement, by either the Borrower or any other Person, shall be deemed to violate the rights of the Lenders under the Code.  If the Agreement is terminated, Lenders’ and Agent’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations.  If Borrower shall at any time, acquire a commercial tort claim (as defined in the Code) or Letter-of-Credit Right, Borrower shall promptly notify Agent in a writing signed by Borrower of the brief details thereof and grant to Agent and Lenders in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Agent. 4.2          Authorization to File Financing Statements. Borrower hereby authorizes Agent to file financing statements, without notice to Borrower, with all appropriate jurisdictions, in order to perfect or protect Agent’s and Lenders’ interest or rights hereunder. 5.                                      REPRESENTATIONS AND WARRANTIES Except as set forth in the Perfection Certificate or any Schedule, Borrower represents and warrants to Agent and each Lender as follows: 6 --------------------------------------------------------------------------------   5.1          Due Organization and Authorization. Each of Borrower and its Subsidiaries is duly organized, validly existing and in good standing in its state of incorporation and duly qualified to do business in, and in good standing in, each jurisdiction in which the nature of the business conducted by it or its ownership of property requires that it be qualified, except where the failure to be or do so could not reasonably be expected to cause a Material Adverse Change.  In connection with this Agreement, the Borrower delivered to the Agent a certificate signed by the Borrower and entitled “Perfection Certificate”.  The Borrower represents and warrants to the Agent and each Lender that: (a) the Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) the Borrower is an organization of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth the Borrower’s organizational identification number or accurately states that the Borrower has none; (d) the Perfection Certificate accurately sets forth the Borrower’s place of business, or, if more than one, its chief executive office as well as the Borrower’s mailing address if different; and (e) all other information set forth on the Perfection Certificate pertaining to the Borrower is accurate and complete in all material respects.  If the Borrower does not now have an organizational identification number, but later obtains one, Borrower shall forthwith notify the Agent of such organizational identification number. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change. 5.2          Collateral. Borrower has good title to the Collateral, free of Liens except Permitted Liens.  Borrower has no deposit account, other than the deposit accounts with Lenders and deposit accounts described in the Perfection Certificate delivered to Agent in connection herewith.  The Accounts are bona fide, existing obligations of the account debtors.  The Collateral is not in the possession of any third party bailee (such as a warehouse).  Except as hereafter disclosed to the Lenders in writing by Borrower, none of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate.  In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Lenders and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Agent and Lenders.  All Inventory is in all material respects of good and marketable quality, free from material defects. 7 -------------------------------------------------------------------------------- 5.3          Intellectual Property. Borrower and its Subsidiaries solely own, or have sufficient rights to use and otherwise exercise and exploit and license all Intellectual Property necessary or material for use in connection with their respective businesses as currently being conducted.  Neither Borrower nor any of its Subsidiaries has received any notice that any current activities of any of them may violate or infringe upon the patent rights of any Person.  Except as set forth on Section 5.3(i) of Borrower’s Disclosure Schedule, to the knowledge of Borrower, each Patent owned or licensed by Borrower or its Subsidiaries that is necessary or material for use in its business as currently conducted is enforceable and there is no existing or expected infringement (or challenge) by another Person of (or to) any of the Intellectual Property of Borrower or its Subsidiaries that could reasonably be expected to cause a Material Adverse Change.  Section 5.3(ii) of Borrower’s Disclosure Schedule sets forth, as of September 29, 2006, (i) all domestic and foreign registered patents and patent applications of Borrower; and (ii) all domestic and foreign registered and applied for trademarks, trade names and service marks of Borrower.  Borrower has no domestic or foreign copyrights or copyright registrations, nor does Borrower use any material unregistered copyrights in the ordinary course of its business. 5.4          Litigation. Except as shown in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower, threatened by or against Borrower or any Subsidiary in which an adverse decision could reasonably be expected to cause a Material Adverse Change. 5.5          No Material Deterioration in Financial Statements. All consolidated financial statements for Borrower and its Subsidiaries, delivered to Agent were prepared in accordance with GAAP consistently applied during the periods involved (except in the case of unaudited interim statements, to the extent that they may not include footnotes, may be condensed or summary statements or may conform to the SEC’s rules and instructions for Reports on Form 10-Q) and fairly present in all material respects Borrower’s consolidated financial condition as of the dates thereof and Borrower’s consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments).  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Agent. 5.6          Solvency. Based on the financial condition of Borrower as of the Closing Date, the fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 8 -------------------------------------------------------------------------------- 5.7          Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”  by an “investment company”, or a “subsidiary” of an “investment company” under the Investment Company Act of 1940.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any Laws, the violation of which could reasonably be expected to cause a Material Adverse Change.  None of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue its business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Change. Neither Borrower, nor to the knowledge of Borrower, any of its Affiliates or agents acting on behalf of Borrower in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person.  Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or agents acting on behalf of Borrower in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law. 5.8          Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 5.9          Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Agent or any Lender (taken together with all such written certificates and written statements given to Agent or any Lender) contains any untrue statement of a material fact or omits to state a material fact necessary to make any representation, warranty or other statement contained in the certificates or written statements, in light of the circumstances under which they were made, not misleading as of the date such written representation, warranty or other statement was made, it being recognized by Agent and Lenders that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not 9 -------------------------------------------------------------------------------- viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results. 6.                                      AFFIRMATIVE COVENANTS Borrower shall do all of the following for so long as Agent or any Lender has an obligation to make any Credit Extension, or there are outstanding Obligations: 6.1          Government Compliance. Borrower shall maintain its and all Subsidiaries’ legal existence and good standing as a Registered Organization and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations.  Borrower shall comply, and have each Subsidiary comply, with all Laws to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change. 6.2          Financial Statements, Reports, Certificates. (a)           Borrower shall deliver to Agent:  (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared unaudited consolidated financial statements, consisting of a balance sheet and income statement covering Borrower’s consolidated operations for the monthly period ending the last day of such month, together with a Compliance Certificate signed by a Responsible Officer in the form of Exhibit C and in a form reasonably acceptable to Agent; (ii) as soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, or within five (5) days of filing with the SEC, if earlier, audited consolidated financial statements prepared under GAAP, consistently applied, together with the report of an independent registered accounting firm issued in connection therewith; (iii) within five (5) days of filing, copies of all reports on Form 10-K, Form 10-Q and Form 8-K filed with the SEC; (iv) financial projections and operating plans approved by the Borrower’s board of directors for each fiscal year not less than thirty (30) days prior to each such fiscal year; and (v) other financial information reasonably requested by Agent.  Borrower may comply with the requirements of clauses (ii) and (iii) above by maintaining an electronic link to its SEC reports on Borrower’s website. (b)           Borrower will keep proper books of record and account in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities.  Borrower shall allow, at the sole cost of Borrower, Agent to visit and inspect any of its properties, to examine and make abstracts or copies from any of their respective books and records, to conduct a collateral audit and analysis of its operations and the Collateral, to verify the amount and age of the accounts, the identity and credit of the respective account debtors, to review the billing practices of Borrower and to discuss its respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be requested.  Notwithstanding the foregoing, such audits shall be conducted at Borrower’s expense no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing. 10 -------------------------------------------------------------------------------- (c)           (i) Borrower will give prompt written notice to Agent of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to result in a Material Adverse Change with respect to Borrower; (ii) Borrower shall provide to Agent evidence of the payments required to be made to AnorMED, Inc. pursuant to a License Agreement between them; and (iii) Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the existence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Agent of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default. 6.3          Inventory; Returns. Borrower shall keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its account debtors shall follow Borrower’s customary practices as they exist at the Closing Date.  Borrower must promptly notify Agent of all returns, recoveries, disputes and claims, that involve more than $100,000. 6.4          Taxes. Borrower shall make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Agent, on demand, appropriate certificates attesting to such payments. 6.5          Insurance. Borrower shall keep its business and the Collateral insured for risks and in amounts, customary for similarly situated companies in Borrower’s industry as Lenders and Agent may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Agent in Agent’s reasonable discretion.  All property policies shall have a lenders’ loss payable endorsement showing each Lender as an additional loss payee and all liability policies shall show the Lenders and Agent as an additional insured and all policies shall provide that the insurer must give Agent on behalf of Lenders at least 20 days notice before canceling its policy.  At Agent’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy shall, at Agent’s option, be payable to Agent on behalf of Lenders on account of the Obligations.  Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy toward the replacement or repair of destroyed or damaged property; provided that (i) such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral, and (b) shall be deemed Collateral in which Agent has been granted a first priority security interest pursuant to the terms hereunder. 6.6          Primary Accounts. (a)           In order to permit the Agent to monitor the Borrower’s financial performance and condition, Borrower, and all Borrower’s Subsidiaries, shall maintain 11 -------------------------------------------------------------------------------- Borrower’s, and such Subsidiaries’, primary depository and operating accounts and securities accounts with Agent or Agent’s Affiliates, which accounts shall represent at least 85% of the dollar value of the Borrower’s cash and cash equivalents at all financial institutions. Any Guarantor shall maintain all depository, operating and securities account with Agent. (b)           Borrower shall identify to Agent, in writing, any bank or securities account opened by Borrower with any institution other than Agent.  In addition, for each such account that the Borrower or any Guarantor at any time opens or maintains, Borrower shall, at the Agent’s on behalf of Lenders request and option, pursuant to an agreement in form and substance acceptable to the Lenders and Agent cause the depository bank or securities intermediary to agree that such account is the Collateral of the Agent, on behalf of Lenders pursuant to the terms hereunder.  The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Borrower’s employees. 6.7          Registration of Intellectual Property Rights. Borrower shall:  (i) protect, defend and maintain the validity and enforceability of the Intellectual Property material to Borrower’s business; (ii) promptly advise Lenders in writing of material infringements of the Intellectual Property; and (iii) not allow any Intellectual Property material to the Borrower’s business to be abandoned, forfeited or dedicated to the public without Lenders’ written consent. 6.8          Financial Covenant. Borrower shall maintain, as of the last day of each month, minimum unrestricted cash and cash equivalents in an amount not less than $7,500,000. 6.9          Use of Proceeds. Borrower shall use the Term Loan for working capital needs.  No portion of the Term Loan will be used for personal, family, agricultural or household use. 6.10        Achievement of Milestones. Not later than December 31, 2007, Borrower shall have provided evidence to Agent, satisfactory to Agent in its good faith business judgment, of both (a) positive Phase II data for the Picoplatin drug development program, and (b) commencement of enrollment of persons in a Phase III trial for Picoplatin. 6.11        Notice of Management Change. Borrower shall notify Agent of the separation of any of the following parties from employment at Borrower within ten (10) days of such separation:  the Chief Executive Officer, the Chief Financial Officer, the Chief Medical Officer, any Senior Vice President, and any executive Vice President of Borrower. 12 -------------------------------------------------------------------------------- 6.12        Further Assurances. Borrower shall execute any further documents, instruments and agreements and take further action as Agent reasonably requests to perfect or continue Agent’s for the benefit of Lenders security interest in the Collateral or to effect the purposes of this Agreement. 7.                                      NEGATIVE COVENANTS Borrower shall not do any of the following without the Agent’s prior written consent, which shall not be unreasonably withheld or delayed, for so long as Agent or any Lender has an obligation to make Credit Extensions or there are any outstanding Obligations: 7.1          Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete Equipment; (iv) of assets constituting all or part of the Non-Core Technologies; (v) in connection with partnerships, joint ventures or similar arrangements (including out-licenses) relating to Borrower’s Picoplatin and future product development programs to the extent approved by Borrower’s board of directors; (vi) the manufacturing facility and other assets located in Denton, Texas as of the Closing Date; (vii) in connection with Permitted Liens and Permitted Investments; and (viii) other Transfers which in the aggregate do not exceed $100,000 in any fiscal year. 7.2          Changes in Business, Ownership, Management or Locations of Collateral. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto, or consummate any offering of equity securities, whether in a single transaction or a series of related transactions, following which the shareholders of Borrower who were shareholders immediately preceding such securities offering would, on a fully diluted basis, beneficially own less than 50% of the common stock of Borrower immediately after giving effect to the such transaction or transactions.  Borrower shall not, without at least thirty (30) days prior written notice to Agent: (i) relocate its chief executive office, or add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Borrower’s assets or property), or (ii) change its jurisdiction of organization, or (iii) change its status as a registered organization (within the meaning of the Code) in the State of Washington, or (iv) change its legal name, or (v) change any organizational number (if any) assigned by its jurisdiction of organization. 7.3          Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement; 13 -------------------------------------------------------------------------------- (ii) Borrower is the surviving entity after such transaction is consummated (to the extent Borrower was a party thereto); and (iii) no material adverse change in financial position or outlook of the combined entity is reasonably likely to result. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 7.4          Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 7.5          Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein, except that the Collateral may also be subject to Permitted Liens.  In addition, except as permitted by Section 7.1 of this Agreement, Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber, or enter into any agreement, document, instrument or other arrangement (except with or in favor of the Agent and Lenders) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower from selling, transferring, assigning, mortgaging, pledging, leasing, granting a security interest in or upon, or encumbering any of Borrower’s Intellectual Property. 7.6          Distributions; Investments. (i) Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so; or (ii) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, except for (A) exchange of shares of Borrower’s common stock, payment of cash for any fractional shares and other transactions related to Borrower’s one-for-six reverse stock split effective September 22, 2006; (B) antidilution adjustments and repurchases, distributions and similar transactions (including payment of cash for any fractional shares) pursuant to the terms of outstanding convertible securities; and (C) semi-annual cash dividends payable pursuant to the terms of the Company’s outstanding Series I Convertible Exchangeable Preferred Stock not to exceed $251,000 in the aggregate for any such payment. 7.7          Transactions with Affiliates. Except as approved by the majority of the disinterested members of Borrower’s board of directors, directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non--affiliated Person, and (b) transactions with Subsidiaries not otherwise prohibited hereunder, including Permitted Investments in Subsidiaries and Permitted Indebtedness to and from Subsidiaries. 14 -------------------------------------------------------------------------------- 7.8          Subordinated Debt. Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any material provision in any document relating to the Subordinated Debt. 7.9          Compliance with Anti-Terrorism Laws. Agent hereby notifies Borrower that pursuant to the requirements of Anti-Terrorism Laws, and Agent’s policies and practices, Agent is required to obtain, verify and record certain information and documentation that identifies Borrower and its principals, which information includes the name and address of Borrower and its principals and such other information that will allow Agent to identify such party in accordance with Anti-Terrorism Laws.  Borrower will not, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists.  Borrower shall immediately notify Agent if Borrower has knowledge that Borrower or any Subsidiary or Affiliate is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering.  Borrower will, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law. 7.10        Compliance. Become an “investment company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other Law, if such failure or violation could reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 8.                                      EVENTS OF DEFAULT Any one of the following is an Event of Default: 8.1          Payment Default. Borrower fails to pay any of the Obligations within three (3) Business Days after their due date. During the additional three Business Day period the failure to cure the payment default 15 -------------------------------------------------------------------------------- shall not constitute an Event of Default (but no Credit Extension shall be made during such cure period). 8.2          Covenant Default. (a)           If Borrower fails to perform any obligation under Sections 6.2, 6.6, 6.8, 6.9 or 6.10 or violates any of the covenants contained in Section 7 of this Agreement, or (b)           If Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and any Lender and has failed to cure such default within ten (10) days after the occurrence thereof; provided, however, that (i) if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be made during such cure period) and (ii) if the default cannot by its nature be cured, then Borrower shall have a reasonable period (which shall not in any case exceed ten (10) days) to minimize the impact of the default such that the default is not material, and within such reasonable time period the default shall not be deemed an Event of Default (provided that no Credit Extensions will be made during such period). 8.3          Material Adverse Change. A Material Adverse Change occurs. 8.4          Attachment. (i) Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (ii) the service of process upon the Borrower seeking to attach, by trustee or similar process, any funds of the Borrower on deposit with the Lenders and/or Agent, or any entity under the control of Lenders and/or Agent (including a subsidiary); (iii) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (iv) a judgment or other claim becomes a Lien on a material portion of Borrower’s assets; or (v) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice.  These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure period). 8.5          Insolvency. (i) Borrower is unable to pay its debts (including trade debts) as they become due; (ii) Borrower begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within sixty (60) days (but no Credit Extensions shall be made before any Insolvency Proceeding is dismissed). 16 -------------------------------------------------------------------------------- 8.6          Other Agreements. If there is a default in (a) the License Agreement between Borrower and AnorMED, Inc. due to Borrower’s failure to make any payment required thereunder; or (b) any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or that could result in a Material Adverse Change. 8.7          Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) Business Days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment). 8.8          Misrepresentations. If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Agent and/or Lenders or to induce Agent and/or Lenders to enter this Agreement or any Loan Document. 8.9          Criminal Proceeding. The institution by any Governmental Authority of criminal proceedings against Borrower which are reasonably likely to result in a Material Adverse Change. 8.10        Subordinated Debt. Any Person holding any Subordinated Debt terminates the applicable subordination agreement or asserts that it is terminated. 8.11        Lien Priority. Any Lien created hereunder or by any other Loan Document shall at any time fail to constitute a valid and perfected Lien on all of the Collateral purported to be secured thereby, subject to no prior or equal Lien except Permitted Liens, or any Borrower shall so assert. 9.                                      RIGHTS AND REMEDIES 9.1          Rights and Remedies. When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following: 17 -------------------------------------------------------------------------------- (a)           Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders); (b)           Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Agent and/or Lenders; (c)           Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Agent considers advisable and notify any Person owing Borrower money of Agent’s for the benefit of Lenders’ security interest in such funds and verify the amount of such account.  Borrower shall collect all payments in trust for Agent for the benefit of Lenders and, if requested by Agent, immediately deliver the payments to Lenders in the form received from the account debtor, with proper endorsements for deposit; (d)           Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral.  Borrower shall assemble the Collateral if Agent requests and make it available as Agent designates.  Agent may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Agent for the benefit of Lenders a license to enter and occupy any of its premises, without charge, to exercise any of Agent’s rights or remedies; (e)           Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Agent or Lenders owing to or for the credit or the account of Borrower; (f)            Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Agent is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property solely to the extent required in completing production of, advertising for sale, and selling any Collateral and, in connection with Agent’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Agent’s for benefit of Lenders; and (g)           Place a “hold” on any account maintained with Agent and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any control agreement or similar agreements providing control of any Collateral; and (h)           Dispose of the Collateral according to the Code or exercise any other right or remedy permitted hereunder, under any other Loan Document or under applicable Law. 9.2          Power of Attorney. Borrower hereby irrevocably appoints Agent as its lawful attorney-in-fact, to be effective upon the occurrence and during the continuance of an Event of Default, to:  (i) endorse Borrower’s name on any checks or other forms of payment or security; (ii) sign Borrower’s 18 -------------------------------------------------------------------------------- name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Agent determines reasonable; (iv) make, settle, and adjust all claims under Borrower’s insurance policies; and (v) transfer the Collateral into the name of Agent for the benefit of Lenders or a third party as the Code permits.  Borrower hereby appoints Agent as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Agent and Lenders are under no further obligation to make Credit Extensions hereunder.  Agent’s foregoing appointment as Borrower’s attorney in fact, and all of Agent’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Lenders’ and Agent’s obligation to provide Credit Extensions terminates. 9.3          Accounts, Notification and Collection. In the event that an Event of Default occurs and is continuing, Agent may notify any Person owing Borrower money of Agent’s security interest in the funds and verify and/or collect the amount of the Account.  Upon the occurrence and during the continuation of an Event of Default, any amounts received by Borrower shall be held in trust by Borrower for Agent, and, if requested by Agent, Borrower shall immediately deliver such receipts to Agent in the form received from the account debtor, with proper endorsements for deposit. 9.4          Agent Expenses. Any amounts paid by Agent as provided herein are Agent Expenses and are immediately due and payable and shall bear interest at the then applicable rate and be secured by the Collateral.  No payments by Agent shall be deemed an agreement to make similar payments in the future or Agent’s and Lenders’ waiver of any Event of Default. 9.5          Agent’s Liability for Collateral. So long as the Agent and Lenders comply with reasonable banking practices regarding the safekeeping of Collateral, the Agent and Lenders shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral. 9.6          Application of Proceeds. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a)  Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower or any Guarantor of all or any part of the Obligations, and, as between Borrower on the one hand and Agent and Lenders on the other, Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent, and (b) the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied:  first, to Agent Expenses; second, to Lender’s Expenses; 19 -------------------------------------------------------------------------------- third, to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts); fourth, to the principal amount of the Obligations outstanding; and fifth to any other indebtedness or obligations of Borrower owing to Agent or any Lender under the Loan Documents.  Any balance remaining shall be delivered to Borrower or to whoever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct.  In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category. 9.7          Remedies Cumulative. Agent’s rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative.  Agent has all rights and remedies provided under the Code, by law, or in equity. Agent’s exercise of one right or remedy is not an election, and Agent’s waiver of any Event of Default is not a continuing waiver. Agent’s delay is not a waiver, election, or acquiescence. No waiver hereunder shall be effective unless signed by Agent and each Lender and then is only effective for the specific instance and purpose for which it was given.  Agent and Lenders shall have no obligation to marshal any assets in favor of Borrower or any Guarantor, or against or in payment of any of the other Obligations or any other obligation owed to Agent or Lenders by Borrower or any Guarantor. 9.8          Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Agent on which Borrower is liable. 10.                               NOTICES Notices or demands by either party about this Agreement must be in writing and personally delivered or sent by an overnight delivery service or by telefacsimile at the addresses listed below.  A party may change its notice address by written notice to the other party. If to Borrower: Poniard Pharmaceuticals, Inc. 7000 Shoreline Court South San Francisco, California 94080 Attn: Caroline Loewy, Chief Financial Officer Fax: (650) 583-3789     If to Agent or SVB: Silicon Valley Bank 185 Berry Street, Suite 3000 San Francisco, California 94107 Attn: Peter Scott Fax: (415) 856-0810   20 --------------------------------------------------------------------------------   If to Merrill Lynch: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Account Manager for MLC/SVB/Poniard Fax: (866) 231-8408   11.                               CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER California law governs the Loan Documents without regard to principles of conflicts of law.  Borrower, Lenders and Agent each submit to the exclusive jurisdiction of the State and Federal courts in California and Borrower accepts jurisdiction of the courts and venue in Santa Clara County, California.  NOTWITHSTANDING THE FOREGOING, THE AGENT SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE AGENT DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE LENDERS’ OR AGENT’S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY. BORROWER, AGENT AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce 21 -------------------------------------------------------------------------------- all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph. 12.                               GENERAL PROVISIONS 12.1        Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or Obligations under it without Agent’s prior written consent which may be granted or withheld in Agent’s discretion.  Lenders and Agent have the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Lenders’ obligations, rights and benefits under this Agreement, the Loan Documents or any related agreement, including, without limitation, an assignment to any Affiliate or related party. 12.2        Indemnification. Borrower hereby indemnifies, defends and holds Agent and the Lenders and their respective officers, employees, and agents (collectively called the “Indemnitees”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnitee) in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnitee shall be designated a party thereto and including any such proceeding initiated by or on behalf of Borrower, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Agent or Lenders) asserting any right to payment for the transactions contemplated hereby, which may be imposed on, incurred by or asserted against such Indemnitee as a result of or in connection with the transactions contemplated hereby and the use or intended use of the proceeds of the Term Loan, except that Borrower shall not have any obligation hereunder to an Indemnitee with respect to any liabilities, obligations, losses, damages, penalties, claims, costs, expenses and disbursements caused by or resulting from the gross negligence or willful misconduct of any Indemnitee, as determined by a final non-appealable judgment of a court of competent jurisdiction.  To the extent that the undertaking set forth in the immediately preceding sentence may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them. 22 -------------------------------------------------------------------------------- 12.3        Expenses. Borrower hereby agrees to promptly pay (a) all reasonable costs and expenses of Agent (including, without limitation, the reasonable fees, costs and expenses of counsel to, and independent appraisers and consultants retained by Agent) in connection with the examination, review, due diligence investigation, documentation, negotiation, closing and syndication of the transactions contemplated by this Agreement and the Loan Documents, in connection with the performance by Agent of its rights and remedies this Agreement and under the Loan Documents and in connection with the continued administration of this Agreement and under the Loan Documents including: (i) any amendments, modifications, consents and waivers to and/or under this Agreement or any and all Loan Documents and (ii) any periodic public record searches conducted by or at the request of Agent (including, without limitation, title investigations, UCC searches, fixture filing searches, judgment, pending litigation and tax lien searches and searches of applicable corporate, limited liability, partnership and related records concerning the continued existence, organization and good standing of certain Persons), (b) without limitation of the preceding clause (a), all reasonable costs and expenses of Agent (including recordation and transfer taxes) in connection with the creation, perfection and maintenance of Liens pursuant to this Agreement and the Loan Documents, (c) without limitation of the preceding clause (a), all costs and expenses of Agent in connection with (i) protecting, storing, insuring, handling, maintaining or selling any Collateral; (ii) any litigation, dispute, suit or proceeding relating to this Agreement and any Loan Document; and (iii) any workout, collection, bankruptcy, insolvency and other enforcement proceedings under this Agreement and any and all of the Loan Documents, and (d) all costs and expenses incurred by Lenders in connection with any litigation, dispute, suit or proceeding relating to this Agreement and any Loan Document and in connection with any workout, collection, bankruptcy, insolvency and other enforcement proceedings under this Agreement or under any and all Loan Documents, provided, however, that to the extent that the costs and expenses referred to in this clause (d) consist of fees, costs and expenses of counsel, Borrower shall be obligated to pay such fees, costs and expenses for counsel to Agent and for only one counsel acting for all Lenders (other than Agent) and provided further that, in all cases and notwithstanding any other provision in this Agreement or the Loan Documents to the contrary, if Borrower prevails in any action or proceeding between Borrower and Agent and/or Lenders arising out of or relating to this Agreement and any Loan Documents, Borrower shall be entitled to recover from Agent and Lenders all attorneys fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled. 12.4        Right of Set-Off. Borrower and any guarantor hereby grant to Agent for the ratable benefit of Lenders, a lien, security interest and right of set-off as security for all Obligations to Agent and each Lender, hereunder, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Agent or any entity under the control of the Agent (including an Agent subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Agent may set-off the same or any part thereof and apply the same to any liability or obligation of Borrower and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES 23 -------------------------------------------------------------------------------- WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 12.5        Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement. 12.6        Severability of Provision. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 12.7        Amendments in Writing, Integration. All amendments to this Agreement must be in writing signed by Agent, each Lender and Borrower.  This Agreement and the Loan Documents represent the entire agreement about this subject matter, and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents. 12.8        Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 12.9        Survival. All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding.  The obligation of Borrower in Section 12.2 to indemnify each Lender and Agent shall survive until the statute of limitations with respect to such claim or cause of action shall have run. 12.10      Administrative Agent. (a)  Each Lender hereby irrevocably appoints and authorizes Agent to enter into each of the Loan Documents to which it is a party (other than this Agreement) on its behalf and to take such actions as Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms thereof, together with all such powers as are reasonably incidental thereto.  Subject to the terms of the other Loan Documents, Agent is authorized and empowered to amend, modify, or waive any provisions of this Agreement or the other Loan Documents on behalf of Lenders.  The provisions of this Section 12.10 are solely for the benefit of Agent and Lenders and neither Borrower nor any Guarantor shall have any rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under 24 -------------------------------------------------------------------------------- this Agreement, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Borrower or any Guarantor.  Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. The duties of Agent shall be mechanical and administrative in nature.  Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender.  Nothing in this Agreement or any of the Loan Documents is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein or therein.  Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Neither Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or not taken by it in connection with this Agreement or the Loan Documents, except that Agent shall be liable with respect to its specific duties set forth hereunder but only to the extent of its own gross negligence or willful misconduct in the discharge thereof as determined by a final non-appealable judgment of a court of competent jurisdiction.  Neither Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (a) any statement, warranty or representation made in connection with this Agreement or the Loan Documents or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements specified in this Agreement or the Loan Documents; (c) the satisfaction of any condition specified in this Agreement or the Loan Documents; (d) the validity, effectiveness, sufficiency or genuineness of this Agreement or the Loan Documents, any Lien purported to be created or perfected thereby or any other instrument or writing furnished in connection therewith; (e) the existence or non-existence of any Event of Default; or (f) the financial condition of Borrower.  Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile or electronic transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties.  Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). Each Lender shall, in accordance with its pro rata share of the Obligations, indemnify Agent (to the extent not reimbursed by Borrower) upon demand against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from Agent’s gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction) that Agent may suffer or incur in connection with this Agreement or the Loan Documents or any action taken or omitted by Agent hereunder or thereunder.  If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity 25 -------------------------------------------------------------------------------- and cease, or not commence, to do the acts indemnified against even if so requested by Lenders until such additional indemnity is furnished. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement and the Loan Documents. Lenders irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent under this Agreement or any Loan Document (i) upon payment in full of all Obligations; or (ii) constituting property sold or disposed of as part of or in connection with any disposition permitted under this Agreement (it being understood and agreed that Agent may conclusively rely without further inquiry on a certificate of a responsible officer of Borrower as to the sale or other disposition of property being made in full compliance with the provisions of this Agreement). Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to Agent for the account of Lenders, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such event and stating that such notice is a “notice of default”.  Agent will notify each Lender of its receipt of any such notice.  Agent shall take such action with respect to such event in accordance with the terms hereof.  Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default as it shall deem advisable or in the best interests of Lenders. (b)  Agent may retire or be retired as Agent as follows:  (i) Agent may at any time give notice of its resignation to the Lenders and Borrower and upon receipt of any such notice of resignation, the Lenders shall have the right to appoint a successor Agent and (ii) following the occurrence of any Event of Default, Agent may be replaced and succeeded as Agent by any other Lender if so provided for under any intercreditor agreement among Lenders so long as such Lender shall give notice to Borrower promptly upon becoming such successor Agent.  Upon the acceptance of a successor’s appointment as Agent hereunder (or, in the case of the replacement of Agent by any other Lender as contemplated in clause (ii) of the preceding sentence, immediately upon such Lender becoming Agent), such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, the retiring Agent’s resignation shall become immediately effective and the retiring Agent shall be discharged from all of its duties and obligations hereunder and under the other Loan Documents.  The provisions of this Loan Agreement and the other Loan Documents shall continue in effect for the benefit of any retiring Agent and its sub-agents after the effectiveness of its resignation hereunder and under the other Loan Documents in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting or was continuing to act as Agent. 26 -------------------------------------------------------------------------------- 12.11      Arrangers. Notwithstanding the provisions of this Agreement or any of the Loan Documents, the Arrangers shall have no powers, rights, duties, responsibilities or liabilities with respect to this Agreement and the other Loan Documents. 12.12      Confidentiality. In handling any confidential information, Lenders and Agent shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (i) to Lenders’ and Agent’s subsidiaries or affiliates in connection with their business with Borrower; (ii) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Lenders and Agent shall use commercially reasonable efforts in obtaining such prospective transferee’s or purchaser’s agreement to the terms of this provision); (iii) as required by law, regulation, subpoena, or other order, (iv) as reasonably required in connection with Lenders’ and Agent’s examination or audit; and (v) as Agent in its good faith business judgment deems necessary in exercising remedies under this Agreement.  Confidential information does not include information that either: (a) is in the public domain or in Lenders’ and/or Agent’s possession when disclosed to Lenders and/or Agent, or becomes part of the public domain after disclosure to Lenders and/or Agent; or (b) is disclosed to Lenders and/or Agent by a third party, if Lenders and/or Agent does not know that the third party is prohibited from disclosing the information. 12.13      Publicity. Borrower will not directly or indirectly publish, disclose or otherwise use in any public disclosure, advertising material, promotional material, press release or interview, any reference to the name, logo or any trademark of Agent or any Lender or any of their Affiliates or any reference to this Agreement or the financing evidenced hereby, in any case except as required by Law, subpoena or judicial or similar order.  Agent and each Lender hereby acknowledge that Borrower is a public company subject to the reporting and disclosure requirements under federal and state securities laws and the Nasdaq Marketplace Rules, which Laws require public disclosure and discussion of the material terms of this transaction and the filing with the SEC of this Agreement and certain of the Loan Documents at and after the Closing Date. Each Lender and Borrower hereby authorizes Merrill Lynch to publish the name of such Lender and Borrower, the existence of the financing arrangements referenced under this Agreement, the primary purpose and/or structure of those arrangements, the amount of credit extended under each facility, the title and role of each party to this Agreement, and the total amount of the financing evidenced hereby in any “tombstone”, comparable advertisement or press release which Merrill Lynch elects to submit for publication.  In addition, each Lender and Borrower agrees that Merrill Lynch may provide lending industry trade organizations with information necessary and customary for inclusion in league table measurements after the Closing Date.  With respect to any of the foregoing, Merrill Lynch shall provide Borrower with an opportunity to review and confer with Merrill Lynch regarding the contents of any such tombstone, advertisement or information, as applicable, prior to its submission for publication and, following such review period, Merrill Lynch may, from time to time, publish such 27 -------------------------------------------------------------------------------- information in any media form desired by Merrill Lynch, until such time that Borrower shall have requested Merrill Lynch cease any such further publication. 12.14      No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto 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.  The headings in this Agreement are for convenience of reference only, are not part of this Agreement and do not affect its interpretation. 12.15      Effective Date. Notwithstanding anything set forth in this Agreement or any Loan Document to the contrary, this Agreement and all of the Loan Documents shall not be effective until the date on which the Agent and each Lender executes this Agreement as indicated on the signature page to this Agreement. 13.                               DEFINITIONS 13.1        Definitions. In this Agreement: “Accounts” are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing, as such definition may be amended from time to time according to the Code. “Affiliate” is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members. “Agent” means, SVB, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of the Lenders. “Agent Expenses” are all audit fees and expenses and reasonable costs or expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). “Anti-Terrorism Laws” means any Laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC. 28 -------------------------------------------------------------------------------- “Basic Rate” is, as of the Funding Date the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) U.S. Treasury note yield to maturity for a term equal to thirty-six months as quoted in the Wall Street Journal on the Funding Date, plus (b) the Loan Margin. “Blocked Person” means any Person:  (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list. “Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. “Business Day” is any day that is not a Saturday, Sunday or a day on which the Agent is closed. “Closing Date” is the date of this Agreement. “Code” is the Uniform Commercial Code as adopted in California as amended and in effect from time to time. “Collateral” is the property described on Exhibit A. “Commitment Percentage” means with respect to (a) SVB, fifty percent (50%), and (b) Merrill Lynch, fifty percent (50%). “Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. “Copyrights” are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held. 29 -------------------------------------------------------------------------------- “Credit Extension” is the Term Loan Advance, or any other extension of credit by any Lender for Borrower’s benefit. “Equipment” is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. “Final Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the Maturity Date for the Term Loan Advance equal to the Loan Amount multiplied by the Final Payment Percentage. “Final Payment Percentage” is 9.0%. “Funding Date” is any date on which a Term Loan Advance is made to or on account of Borrower. “GAAP” is generally accepted accounting principles. “Governmental Authority” is any nation or government, any state or other political subdivision thereof, and any agency, department or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other Person owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing, whether domestic or foreign. “Guarantor” is any present or future guarantor of the Obligations. “Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations. “Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. “Intellectual Property” is: (a)           Copyrights, Trademarks, Patents, and Mask Works including amendments, renewals, extensions, and all licenses, options to license or other rights to use and all license fees and royalties from the use; (b)           Any trade secrets, including any inventions, and any intellectual property rights, including all licenses, options to license or other rights to use and all license fees and royalties from the use of such rights, and those for computer software and computer software products, now or later existing, created, acquired or held; and (c)           All design rights which may be available to Borrower now or later created, acquired or held. 30 -------------------------------------------------------------------------------- “Inventory” is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. “Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. “Law” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, guidances, guidelines, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, governmental agreements and governmental restrictions, whether now or hereafter in effect, which are applicable to Borrower in any particular circumstance. “Lenders’ Expenses” are all audit fees and expenses and reasonable costs or expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). “Letter-of-Credit Right” has the meaning set forth in the Code. “Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. “Loan Amount” is the original principal amount of the Term Loan Advance. “Loan Documents” are, collectively, this Agreement, any note or notes or guaranties executed by Borrower or any Guarantor, and any other present or future document, instruments or agreement between Borrower and/or for the benefit of Lenders and Agent in connection with this Agreement, all as amended, extended or restated. “Loan Margin” is three percentage points. “Mask Works” are all mask works or similar rights available for the protection of semiconductor chips, now owned or later acquired. “Material Adverse Change” is: (i) a material impairment in the perfection or priority of Lenders’ security interest in the Collateral or in the value of such Collateral; (ii) a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower; or (iii) a material impairment of the prospect of repayment of any portion of the Obligations. “Maturity Date” is April 1, 2010. “Non-Core Technologies” are those products, product lines, and technologies that Borrower’s board of directors, in its good faith business judgment, determines are not appropriate 31 -------------------------------------------------------------------------------- for future development by Borrower, including STR (including holmium and samarium technologies), Annexin, TGFb, and humanized antibodies. “Obligations” are debts, principal, interest, Final Payment, Prepayment Fee, Agent Expenses, Lender’s Expenses, and other amounts Borrower owes Lenders and/or Agent now or later and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Lenders and/or Agent. “OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control. “OFAC Lists” are, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders. “Patents” are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations in part of the same. “Payment Date” is defined in Section 2.3(a). “Permitted Indebtedness” is: (a)           Borrower’s indebtedness to Lenders and Agent under this Agreement or the Loan Documents; (b)           Indebtedness existing on the Closing Date and shown on the Perfection Certificate; (c)           Subordinated Debt; (d)           Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business; (e)           Indebtedness secured by Permitted Liens; (f)            Indebtedness of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of Borrower (provided that the primary obligations are not prohibited hereby), and Indebtedness of any Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of any other Subsidiary (provided that the primary obligations are not prohibited hereby); (g)           Other Indebtedness not otherwise permitted by Section 7.4 not exceeding $100,000 in the aggregate outstanding at any time; and (h)           Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be. 32 -------------------------------------------------------------------------------- “Permitted Investments” are: (a)           Investments shown on the Perfection Certificate and existing on the Closing Date; and (b)           (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any state maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) SVB’s certificates of deposit issued maturing no more than 1 year after issue, and (iv) any other investments administered through the Lenders; (c)           Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower; (d)           Investments accepted in connection with Transfers permitted by Section 7.1; (e)           Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $50,000 in the aggregate in any fiscal year; (f)            Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors; (g)           Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (h)           Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (h) shall not apply to Investments of Borrower in any Subsidiary; (i)            Investments in connection with Transfers permitted by Section 7.1 or in connection with a transaction approved by Borrower’s board of directors, a significant purpose of which is to in-license, receive an option to in-license or develop technology with a third party; (j)            Investments permitted by Section 7.3; and (k)           Other Investments not otherwise permitted by Section 7.7 not exceeding $50,000 in the aggregate outstanding at any time. 33 -------------------------------------------------------------------------------- “Permitted Liens” are: (a)           Liens existing on the Closing Date and shown on the Perfection Certificate or arising under this Agreement or other Loan Documents; (b)           Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Agent’s security interests; (c)           Purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the equipment and the proceeds of the equipment; (d)           Leases or subleases and licenses or sublicenses granted in the ordinary course of Borrower’s business or pursuant to Section 7.1 of this Agreement and any interest or title of a lessee. licensee or licensor under such leases, licenses or sublicenses; (e)           Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase; (f)            Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 or 8.7; and (g)           Liens in favor of other financial institutions arising in connection with Borrower’s deposit accounts held at such institutions, provided that Agent has a perfected security interest in the amounts held in such deposit accounts. “Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. “Proceeds” has the meaning described in the Code as in effect from time to time. “Registered Organization” means an organization organized solely under the law of a single state or the United States and as to which the state or the United States must maintain a public record showing the organization to have been organized. “Repayment Period” is a period of time equal to forty-two (42) consecutive months commencing on November 1, 2006. “Responsible Officer” is each of the Chief Executive Officer, the Chief Financial Officer and the Principal Accounting Officer of Borrower. “Schedule” is any attached schedule of exceptions. “Scheduled Payment” is defined in Section 2.3(a). 34 -------------------------------------------------------------------------------- “SEC” is the U.S. Securities and Exchange Commission. “Subordinated Debt”  is debt incurred by Borrower subordinated to Borrower’s debt to Lenders (pursuant to a subordination agreement entered into between the Agent, the Borrower and the subordinated creditor), on terms acceptable to Agent. “Subsidiary” is any Person, corporation, partnership, limited liability company, joint venture, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. “Supporting Obligation” means a letter-of-credit right, secondary obligation or obligation of a secondary obligor or that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument or investment property.  “Term Loan” is a Term Loan Advance of Fifteen Million Dollars ($15,000,000). “Term Loan Advance” or “Term Loan Advances” is defined in Section 2.1.1(a). “Term Loan Commitment” means with respect to each Lender, the total amount of the Credit Extensions which may be made hereunder.  With respect to SVB this means an amount of up to $7,500,000, with respect to Merrill Lynch this means an amount of up to $7,500,000. “Trademarks” are trademark and service mark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of Assignor connected with the trademarks. “USA Patriot Act” shall mean United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA) PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. (Signatures are on the following page) 35 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. PONIARD PHARMACEUTICALS, INC.           By:   /S/ Gerald McMahon     Name:   Gerald McMahon     Title:   Chairman, President and         Chief Executive Officer               AGENT:       SILICON VALLEY BANK           By:   /S/ Peter Scott     Name:   Peter Scott     Title:   Senior Vice President             LENDERS:       MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services Inc.           By:   /S/ Chris York     Name:   Chris York     Title:   Vice President             SILICON VALLEY BANK           By:   /S/ Peter Scott     Name:   Peter Scott     Title:   Senior Vice President       Effective as of October 25, 2006     36 -------------------------------------------------------------------------------- EXHIBIT A The Collateral consists of all right, title and interest of Borrower in and to the following: All goods, equipment, inventory, contract rights or rights to payment of money, license agreements, franchise agreements, general intangibles (including payment intangibles), accounts (including health-care receivables), documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities, and all other investment property, financial assets, whether now owned or hereafter acquired, wherever located; all Supporting Obligations and all of the Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and Proceeds thereof. All Letter-Of-Credit Rights (whether or not the letter of credit is evidenced by a writing); and All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing. Provided, however, the Collateral does not include any Intellectual Property Notwithstanding the foregoing, the Collateral shall include all accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing Intellectual Property.  To the extent a court of competent jurisdiction holds that a security interest in any Intellectual Property is necessary to have a security interest in any accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing Intellectual Property, then the Collateral shall, effective as of the Closing Date, include the Intellectual Property, to the extent (and only to the extent) necessary to permit perfection of the Lenders’ security interest in such accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the Intellectual Property. -------------------------------------------------------------------------------- EXHIBIT B Loan Payment/Advance Request Form Fax To:     Date:       LOAN PAYMENT: Poniard Pharmaceuticals, Inc. (Borrower) From Account #     To Account #         (Deposit Account #)     (Loan Account #)         Principal $     and/or Interest $     All Borrower’s representation and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone transfer request for an advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date: Authorized Signature     Phone Number:     LOAN ADVANCE: Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire. From Account #     To Account #         (Loan Account #)     (Deposit Account #)         Amount of Advance $           All Borrower’s representation and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone transfer request for an advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date: Authorized Signature     Phone Number:     -------------------------------------------------------------------------------- OUTGOING WIRE REQUEST Complete only if all or a portion of funds from the loan advance above are to be wired. Deadline for same day processing is 12:00 pm, P.S.T. Beneficiary Name:     Amount of Wire: $         Beneficiary Bank:     Account Number:         City and State:         Beneficiary Bank Transit (ABA) #:     Beneficiary Bank Code (Swift, Sort, Chip, etc.):                   Intermediary Bank:     (For International Wire Only)         Transit (ABA) #:         For Further Credit to:         Special Instruction:     By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us). Authorized Signature:     2nd Signature (If Required):         Print Name/Title:     Print Name/Title:         Telephone #     Telephone #     -------------------------------------------------------------------------------- EXHIBIT C Compliance Certificate TO:                                               SILICON VALLEY BANK, as Agent FROM:                            PONIARD PHARMACEUTICALS, Inc. The undersigned authorized officer of Poniard Pharmaceuticals, Inc. certifies that under the terms and conditions of the Loan and Security Agreement among Borrower, Lenders and Agent (the “Agreement”), (i) Borrower is in compliance for the period ending                         with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects on this date (except for those representations and warranties expressly referring to a specific date, which were true and correct in all respects as of that date).  Attached are the required documents supporting the certification.  In addition, the undersigned certifies that (1) Borrower has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP and (ii) no liens has been levied or claims made against Borrower relating to unpaid employee payroll or benefits which Borrower has not previously notified in writing to Agent.  The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Please indicate compliance status by circling Yes/No under “Complies” column. Reporting Covenant   Required   Complies               Monthly financial statements with Compliance Certificate   Monthly within 30 days   Yes   No               Annual (CPA Audited)   FYE within earlier of 180 days or 5 days after filing with SEC   Yes   No               Financial Projections approved by Board   Annually at least 30 days prior to fiscal year end   Yes   No   Financial Covenant   Required   Complies               Minimum cash and cash equivalents, measured at the end of each month   $ 7,500,000   Yes   No   Achievement of Milestones not later than December 31, 2007.  (Attach evidence per Section 6.10) --------------------------------------------------------------------------------   Comments Regarding Exceptions:  See Attached. BANK USE ONLY       Received by:         AUTHORIZED SIGNER       Sincerely, Date:             Verified:     Signature     AUTHORIZED SIGNER       Date     Title         Compliance Status: Yes  ¨      No   ¨   Date:       --------------------------------------------------------------------------------

  Exhibit 10.1 Form 2006 Restricted Stock Unit Award for Employees PRIDE INTERNATIONAL, INC. 1998 LONG-TERM INCENTIVE PLAN RESTRICTED STOCK UNIT AGREEMENT      This Restricted Stock Unit Agreement (“Agreement”) between PRIDE INTERNATIONAL, INC. (the “Company”) and ___(the “Grantee”), an employee of the Company or one of its Subsidiaries, regarding an award (“Award”) of ___units of Common Stock (as defined in the Pride International, Inc. 1998 Long-Term Incentive Plan (the “Plan”), such Common Stock comprising this Award referred to herein as “Restricted Stock Units”) awarded to the Grantee on ___ (the “Award Date”), such number of Restricted Stock Units subject to adjustment as provided in Section 14 of the Plan, and further subject to the following terms and conditions:      1. Relationship to Plan and Employment Agreement.      This Award is subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee thereunder and are in effect on the date hereof. Except as defined herein, capitalized terms shall have the same meanings ascribed to them under the Plan. In addition, the parties agree that notwithstanding any provision herein to the contrary, this Agreement shall be deemed modified by the provisions of any employment agreement between the Grantee and the Company, and vesting of this Award shall occur in the event stock options and other awards specifically vest under such employment agreement. For purposes of this Agreement:      (a) “Disability” means illness or other incapacity which prevents the Grantee from continuing to perform the duties of his job for a period of more than three months.      (b) “Employment” means employment with the Company or any of its Subsidiaries.      (c) “Exchange Act” means the Securities Exchange Act of 1934, as amended.      (d) “Retirement” means the Grantee’s termination of employment on or after attainment of age 65, or, if applicable to the Grantee, any earlier age specified as the Grantee’s Normal Retirement Age under the Pride International, Inc. Supplemental Executive Retirement Plan.   --------------------------------------------------------------------------------        2. Vesting Schedule.      (a) This Award shall vest in installments in accordance with the following schedule:               Additional Percentage of Date Vested   Award Vested       25 %       25 %       25 %       25 %                 100 %      (b) All shares of Restricted Stock Units subject to this Award shall vest, irrespective of the limitations set forth in subparagraph (a) above, provided that the Grantee has been in continuous Employment since the Award Date, upon the occurrence of: (i) a Change in Control or (ii) the Grantee’s termination of employment by reason of death, Disability or Retirement.      3. Forfeiture of Award.      Except as provided in any other agreement between the Grantee and the Company, if the Grantee’s employment terminates other than by reason of death, Disability or Retirement, all unvested Restricted Stock Units as of the termination date shall be forfeited.      4. Registration of Units.      The Participant’s right to receive the Restricted Stock Units shall be evidenced by book entry registration (or by such other manner as the Committee may determine).      5. Dividend Equivalent Payments.      The Company will pay dividend equivalents for each outstanding Restricted Stock Unit in cash as soon as administratively practicable after dividends, if any, are paid on the Company’s outstanding shares of Common Stock. Such payments shall be made no later than March 15th following the year in which the dividends are paid.      6. Shareholder Rights.      The Participant shall have no rights of a shareholder with respect to shares of Common Stock subject to this Award unless and until such time as the Award has been settled by the transfer of shares of Common Stock to the Participant. -2- --------------------------------------------------------------------------------        7. Settlement and Delivery of Shares.      Payment of vested Restricted Stock Units shall be made as soon as administratively practicable after vesting, but in no case later than the March 15th following the year in which vesting occurs. Settlement will be made by payment in shares of Common Stock.      The Company shall not be obligated to deliver any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the delivery of shares of Common Stock to comply with any such law, rule, regulation or agreement.      8. Notices.      Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Award shall be in writing and shall be:      (a) by registered or certified United States mail, postage prepaid, to Pride International, Inc., Attn: Corporate Secretary, 5847 San Felipe, Suite 3300, Houston, Texas 77057; or      (b) by hand delivery or otherwise to Pride International, Inc., Attn: Corporate Secretary, 5847 San Felipe, Suite 3300, Houston, Texas 77057.      Any notices provided for in this Agreement or in the Plan shall be given in writing and shall be deemed effectively delivered or given upon receipt or, in the case of notices delivered by the Company to the Grantee, five days after deposit in the United States mail, postage prepaid, addressed to the Grantee at the address specified at the end of this Agreement or at such other address as the Grantee hereafter designates by written notice to the Company.      9. Assignment of Award.      Except as otherwise permitted by the Committee, the Grantee’s rights under the Plan and this Agreement are personal; no assignment or transfer of the Grantee’s rights under and interest in this Award may be made by the Grantee other than by will or by the laws of descent and distribution.      Notwithstanding the foregoing, subject to the approval of the Committee, in its sole discretion, the Award may be transferred by the Grantee to (i) the children or grandchildren of the Grantee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members (“Immediate Family Member Trusts”) or (iii) a partnership or partnerships in which such Immediate Family Members have at least 99% of the equity, profit and loss interests (“Immediate Family Member Partnerships”). Subsequent transfers of a transferred Award shall be prohibited except by will or the laws of descent and distribution, unless such transfers are made to the original Grantee or a person to whom the original Grantee -3- --------------------------------------------------------------------------------   could have made a transfer in the manner described herein. No transfer shall be effective unless and until written notice of such transfer is provided to the Committee, in the form and manner prescribed by the Committee. Following transfer, the Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and except as otherwise provided herein, the term “Grantee” shall be deemed to refer to the transferee. The consequences of termination of Employment shall continue to be applied with respect to the original Grantee, following which the Awards shall vest only to the extent specified in the Plan and this Agreement.      10. Withholding.      At the time of vesting of Restricted Stock Units or the delivery of shares of Common Stock attributable to Restricted Stock Units, the amount of all federal, state and other governmental withholding tax requirements imposed upon the Company with respect to the vesting of such Restricted Stock Units or the delivery of such shares of Common Stock attributable to Restricted Stock Units shall be remitted to the Company or provisions to pay such withholding requirements shall have been made to the satisfaction of the Committee. The Committee may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with this Award. The Grantee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Grantee in connection with the all or any portion of this Award by delivering cash, or, with the Committee’s approval, by electing to have the Company withhold shares of Common Stock that would have otherwise been delivered to Grantee, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Grantee may only request withholding Common Stock that would have otherwise been delivered to the Grantee in connection with the vesting of Restricted Stock Units having a Fair Market Value equal to the statutory minimum withholding amount. The Grantee must make the foregoing election on or before the date that the amount of tax to be withheld is determined. If the Grantee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to such other restrictions as may be established by the Committee in order that satisfaction of withholding tax obligations with shares of Common Stock might be exempt from the operation of Section 16(b) of the Exchange Act in whole or in part.      11. Stock Certificates.      Certificates representing the Common Stock issued pursuant to the Award will bear all legends required by law and necessary or advisable to effectuate the provisions of the Plan and this Award. The Company may place a “stop transfer” order against shares of the Common Stock issued pursuant to this Award until all restrictions and conditions set forth in the Plan or this Agreement and in the legends referred to in this Section 11 have been complied with.      12. Successors and Assigns.      This Agreement shall bind and inure to the benefit of and be enforceable by the Grantee, the Company and their respective permitted successors and assigns (including personal representatives, heirs and legatees), except that the Grantee may not assign any rights or -4- --------------------------------------------------------------------------------   obligations under this Agreement except to the extent and in the manner expressly permitted herein.      13. No Employment Guaranteed.      No provision of this Agreement shall confer any right upon the Grantee to continued Employment with the Company or any Subsidiary.      14. Governing Law.      This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Texas.      15. Amendment.      This Agreement cannot be modified, altered or amended except by an agreement, in writing, signed by both the Company and the Grantee.      16. Section 409A.      Notwithstanding anything in this Agreement to the contrary, if any provision in this Agreement would result in the imposition of an applicable tax under Section 409A of the Code and related regulations and United States Department of the Treasury pronouncements (“Section 409A”), that provision will be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Grantee’s rights to an Award.                       PRIDE INTERNATIONAL, INC.               Date:       By:                           Name:             Title:          The Grantee hereby accepts the foregoing Restricted Stock Unit Agreement, subject to the terms and provisions of the Plan and administrative interpretations thereof referred to above.                       GRANTEE:               Date:                       -5-

  EXHIBIT 10.2 February 10, 2006 Exelon Generation Company, LLC 10 South Dearborn, 37th Floor Chicago, Illinois 60603 Attention: Michael R. Metzner Ladies and Gentlemen:      Citibank, N.A. (the “Bank”) is pleased to advise Exelon Generation Company, LLC (the “Borrower”) that the Bank has approved a committed credit facility in an amount not exceeding $200,000,000 (such amount, as reduced from time to time pursuant hereto, the “Commitment Amount”). The facility shall be available on the terms and conditions set forth below. 1. DEFINITIONS AND INTERPRETATION.      1.1 Definitions. In addition to the terms defined in the introductory paragraph, (a) capitalized terms used but not defined herein have the respective meanings set forth in the Syndicated Agreement (as defined below) and (b) the following terms have the following meanings:      Agreement means this credit agreement, as amended, restated or otherwise modified from time to time.      Applicable Margin — see Schedule I.      Available Amount means, with respect to any Letter of Credit, the maximum amount available to be drawn under such Letter of Credit under any and all circumstances during the remaining term thereof.      Base Rate means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by the Bank in its principal place of business from time to time as the Bank’s (or its banking Affiliate’s) base rate and (b) 1/2 of one percent per annum above the Federal Funds Rate in effect from time to time. If the Bank shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Bank to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Bank’s (or its banking Affiliate’s) base rate or the Federal Funds Rate shall be effective on the effective date of such change in the Bank’s base rate or the Federal Funds Rate.      Base Rate Loan means a Loan that bears interest based upon the Base Rate. -1- --------------------------------------------------------------------------------        Business Day means a day on which banks are not required or authorized to close in Philadelphia, Pennsylvania, Chicago, Illinois or New York, New York, and, if the applicable Business Day relates to any LIBOR Loan, on which dealings are carried on in the London interbank market.      Commitment means the commitment of the Bank to make Loans and issue Letters of Credit hereunder.      Credit Extension means the making of a Loan or the issuance, increase in the amount of or extension of the term of a Letter of Credit.      Default means any event described in Section 7.1.      Facility Fee Rate — see Schedule I.      Interest Payment Date means (a) for any LIBOR Loan, the last day of each Interest Period therefor and, in the case of any Interest Period that is longer than three months, each three-month anniversary of the first day of such Interest Period; (b) for any Base Rate Loan, the last day of each calendar quarter; and (c) for any Loan, any date on which such Loan is converted, prepaid or repaid and, after maturity thereof, any date on which demand is made by the Bank.      Interest Period means, for any LIBOR Loan, the period commencing on the borrowing date therefor or the date such Loan was continued for a new Interest Period as or converted to a LIBOR Loan and ending on the date one, two, three or six months thereafter as the Borrower shall specify pursuant to Section 2.2 or 2.3; provided that (i) no Interest Period shall extend beyond the scheduled Termination Date; and (ii) the length of any Interest Period shall be subject to the provisions of clauses (iii) and (iv) of the proviso to the definition of “Interest Period” in the Syndicated Agreement.      LC Application means the Bank’s standard form for the issuance of a Letter of Credit of the type requested by the Borrower at the time of such request or for an amendment to increase the amount of, or extend the term of, a Letter of Credit, in each case appropriately adjusted to conform to the terms of this Agreement (such as deleting all references to collateral, deleting references to any default other than Defaults as defined herein, and similar adjustments).      LC Fee Rate — see Schedule I.      Letter of Credit — see Section 2.1.      LIBO Rate means, for each Interest Period for each LIBOR Loan, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rates per annum at which deposits in U.S. dollars are offered by the office of the Bank in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in the amount of $1,000,000 and for a period equal to such Interest Period.      LIBOR Loan means a Loan that bears interest based upon the LIBO Rate. -2- --------------------------------------------------------------------------------        Loan — see Section 2.1.      Note means a promissory note of the Borrower substantially in the form of Exhibit A.      Syndicated Agreement means the Credit Agreement dated as July 16, 2004 among the Borrower, various affiliates thereof, various financial institutions and JPMorgan Chase Bank, N.A., as administrative agent, as such Credit Agreement is in effect on the date hereof, without giving effect to (a) any subsequent amendment thereof or waiver or consent thereunder unless the Bank is a signatory, or otherwise consents, thereto or (b) any termination thereof; provided that if the Second Amendment to such Credit Agreement (a copy of which has been provided to the Bank) becomes effective, then the Bank shall be deemed to have consented thereto (and the references in Section 4.2 and 5.7 to Section 4.01(e)(iv) of the Syndicated Agreement and in Section 7.1(d) to Section 6.01(j) of the Syndicated Agreement shall be deemed to be references to Sections 4.01(e)(iii) and 6.01(i) of the Syndicated Agreement, respectively). Wherever a portion of the Syndicated Agreement is incorporated herein by reference, each reference in the incorporated provision to the “Administrative Agent,” a “Lender,” the “Majority Lenders” or a similar term shall be deemed to be a reference to the Bank.      Termination Date means the earliest to occur of (a) February 9, 2007, (b) the date on which the Commitment Amount is reduced to zero pursuant to Section 2.4 or (c) the date on which all obligations of the Borrower hereunder become due and payable pursuant to Section 7.2.      Total Outstandings means the sum of (a) the aggregate principal amount of all outstanding Loans (and any unpaid reimbursement obligations with respect to Letters of Credit that have not yet been deemed to be Loans pursuant to Section 2.12) and (b) the Available Amount of all outstanding Letters of Credit.      Unmatured Default means an event which but for the lapse of time or the giving of notice, or both, would, unless cured or waived, constitute a Default.      1.2 Interpretation. Sections 1.02 and 1.03 of the Syndicated Agreement are incorporated herein by reference as if such Sections were set forth in full herein, mutatis mutandis. Unless otherwise specified, references herein to a Section, an Exhibit or a Schedule shall mean a Section hereof or an Exhibit or Schedule hereto. 2. THE CREDIT.      2.1 Availability. The Bank agrees to make loans (each a “Loan” and collectively the “Loans”) to, and issue letters of credit (each a “Letter of Credit” and collectively “Letters of Credit”) for the account of, the Borrower from time to time before the Termination Date; provided that the Total Outstandings shall not at any time exceed the Commitment Amount.      2.2 Loan Procedures. Each Loan (other than a Loan made pursuant to Section 2.12, shall be made on prior written notice from the Borrower received by the Bank not later than noon (Chicago time) (a) in the case of a LIBOR Loan, three Business Days prior to the requested date of such Loan, and (b) in the case of a Base Rate Loan, on the requested date of such Loan. Each such notice shall specify (i) the borrowing date, which shall be a Business Day, (ii) the amount -3- --------------------------------------------------------------------------------   of the requested Loan, (iii) whether such Loan is to be a LIBOR Loan or a Base Rate Loan and (iv) in the case of a LIBOR Loan, the initial Interest Period therefor. Each Loan (other than a Loan made pursuant to Section 2.12) shall be in the amount of $5,000,000 or a higher integral multiple of $1,000,000.      2.3 Conversion/Continuation Procedures. The Borrower may from time to time convert any Base Rate Loan to a LIBOR Loan, or vice versa, or on the last day of the Interest Period for any LIBOR Loan continue such LIBOR Loan for a new Interest Period, by prior written notice received by the Bank not later than noon (Chicago time) on (a) in the case of conversion to or continuation of a LIBOR Loan, three Business Days prior to the requested date of such conversion or continuation, and (b) in the case of conversion to a Base Rate Loan, the requested date of such conversion; provided that (i) after giving effect to any such conversion or continuation, each outstanding LIBOR Loan shall be in the amount of $5,000,000 or a higher integral multiple of $1,000,000; (ii) any conversion of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 3.4; and (iii) if the Borrower does not timely specify a new Interest Period for a LIBOR Loan (and such Loan is not paid in full on the last day of the relevant Interest Period), such Loan shall convert to a Base Rate Loan on the last day of the Interest Period therefor. Each notice of conversion or continuation of a Loan shall specify (A) the Loan (or portion thereof) to be converted or continued, (B) the requested date for such continuation or conversion, which shall be a Business Day, (C) the amount to be converted or continued, (D) whether such Loan is to be converted to a Base Rate Loan or converted to or continued as a LIBOR Loan; and (E) in the case of conversion to or continuation of a LIBOR Loan, the new Interest Period for such Loan.      2.4 Reduction of the Commitment Amount. The Borrower may from time to time, upon two Business Days’ notice to the Bank, reduce the Commitment Amount to an amount that is not less than the Total Outstandings. Any such reduction shall be in the amount of $5,000,000 or a higher integral multiple thereof. Concurrently with any reduction of the Commitment Amount to zero, the Borrower shall pay all accrued and unpaid commitment fees and all other amounts then payable by the Borrower hereunder.      2.5 Repayment of Loans. The Borrower shall repay all outstanding Loans on the Termination Date.      2.6 Prepayments. The Borrower may from time to time prepay any Loan in whole or in part; provided that (a) except as provided in the following clause (b), each partial prepayment shall be in the amount of $5,000,000 or a higher integral multiple of $1,000,000; and (b) if, as a result of a Loan pursuant to Section 2.12, the aggregate principal amount of all Base Rate Loans is not $5,000,000 or a higher integral multiple of $1,000,000, then the Borrower may prepay Base Rate Loans in any amount so long as, after giving effect to such payment, the aggregate principal amount of all Base Rate Loans is $5,000,000 or a higher integral multiple of $1,000,000 (or zero). Any prepayment of a Loan shall be made on a Business Day and shall include accrued and unpaid interest on the amount prepaid and shall be subject to the provisions of Section 3.4.      2.7 Interest. The unpaid principal amount of each Loan shall bear interest at a rate per annum equal to (a) at any time such Loan is a LIBOR Loan, the LIBO Rate for each -4- --------------------------------------------------------------------------------   applicable Interest Period plus the Applicable Margin as in effect from time to time; and (b) at any time such Loan is a Base Rate Loan, the Base Rate as in effect from time to time; provided that if any principal of any Loan is not paid when due, upon acceleration or otherwise, such Loan shall bear interest from such due date to the date paid at a rate per annum equal to the greater of (i) the rate otherwise applicable thereto plus 2% or (ii) the Base Rate as in effect from time to time plus 2%. Interest shall be payable on each Interest Payment Date.      2.8 Facility Fee. The Borrower agrees to pay the Bank, for the period beginning on the date hereof and continuing to the Termination Date, a facility fee at a rate per annum equal to the Facility Fee Rate on the Commitment Amount regardless of usage (or, after the Termination Date, on the Total Outstandings). Such fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date (and thereafter on demand).      2.9 Utilization Fee. The Borrower agrees to pay the Bank, for each day on which the Total Outstandings exceed 50% of the Commitment Amount, a utilization fee at 0.10% per annum on the Total Outstandings on such day. Such fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date.      2.10 Upfront Fee. The Borrower agrees to pay the Bank a non-refundable up-front fee in an amount equal to 0.030% of the Commitment Amount. Such fee shall be payable on the date that this Agreement has been signed by the Bank and the Borrower.      2.11 LC Credit Extensions. The Borrower shall deliver an LC Application to the Bank not less than three Business Days prior to any requested Credit Extension with respect to a Letter of Credit. Each such LC Application shall specify whether the requested Credit Extension is for the issuance, increase in the amount of or extension of the term of the applicable Letter of Credit and include such other information as the Bank may reasonably request. No Letter of Credit shall have an expiration date later than five Business Days prior to the scheduled Termination Date.      2.12 LC Drawings. The Bank will give the Borrower prompt notice of any drawing under a Letter of Credit. The Borrower may reimburse the Bank for any such drawing on the date of such drawing. If the Borrower elects not to reimburse the Bank on such date, then the Borrower shall be deemed to have requested, and the Bank shall be deemed to have made, a Base Rate Loan to the Borrower on such date in the amount of the applicable drawing (without regard to whether any condition set forth in Section 4 has been satisfied).      2.13 LC Applications. If there is any conflict between this Agreement and any LC Application, the provisions of this Agreement shall control.      2.14 LC Fees. The Borrower shall pay the Bank a letter of credit fee at a rate per annum equal to the LC Fee Rate on the average daily undrawn amount of each Letter of Credit. Such fee shall be payable on the last day of each calendar quarter and on the Termination Date (and thereafter on demand). The Borrower also shall pay the Bank documentary and processing charges in connection with the issuance and modification of, and any drawing under, any Letter of Credit in accordance with the Bank’s standard schedule for such charges as in effect from time to time. -5- --------------------------------------------------------------------------------        2.15 Computation of Interest and Fees. All computations of interest based upon the Base Rate shall be made on the basis of a year of 365 or, if applicable, 366 days. All other computations of interest and fees shall be made on the basis of a year of 360 days. Each determination of an interest rate by the Bank shall be conclusive and binding on the Borrower in the absence of manifest error.      2.16 Payments. All payments to the Bank shall be made in immediately available funds, without setoff, counterclaim or other deduction, at its principal office in Chicago, Illinois (or at such other office as the Bank may reasonably specify) not later than noon, Chicago time, on the date due (and funds received after that hour shall be deemed received on the next Business Day). Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the immediately following Business Day; provided that if the immediately following Business Day is the first Business Day of a calendar month, such payment shall be made on the immediately preceding Business Day.      2.17 Additional Interest on LIBOR Loans. If at any time the Bank is required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, then the Borrower will pay the Bank additional interest on the unpaid principal amount of each LIBOR Loan in accordance with, and subject to the limitations and requirements of, the terms of Section 2.07 of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis.      2.18 Taxes. The Borrower agrees to pay, or to reimburse the Bank for, all Taxes on the same basis as, and subject to the limitations and requirements of, the terms of Section 2.14 of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis. 3. INCREASED COSTS; ADDITIONAL PROVISIONS RELATING TO LIBOR LOANS.      3.1 Increased Costs. The Borrower agrees to reimburse the Bank for any increase in the cost to the Bank of, or any reduction in the amount of any sum receivable by the Bank in respect of, making or maintaining any LIBOR Loan or issuing or maintaining any Letter of Credit, in each case in accordance with the terms of Section 2.11(a) of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis.      3.2 Changes in Law Rendering LIBOR Loans Unlawful. If the Bank makes any determination of the type described in Section 2.12 of the Syndicated Agreement with respect to any LIBOR Loan, such Loan shall automatically convert to a Base Rate Loan on the date required and, if applicable, the availability of LIBOR Loans shall be suspended.      3.3 Increased Capital Costs. The Borrower agrees to reimburse the Bank for all increased capital costs of the type described in Section 2.11(b) of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis.      3.4 Funding Losses. The Borrower will indemnify the Bank upon demand against any loss, cost or expense which the Bank may sustain or incur (including any loss or expense sustained or incurred in obtaining, liquidating or reemploying deposits or other funds acquired to fund or maintain any Loan) as a consequence of (a) any failure of the Borrower to borrow, -6- --------------------------------------------------------------------------------   continue or convert a Loan on a date specified therefor in a notice thereof or (b) any payment (including any payment upon the Bank’s acceleration of the Loans), prepayment or conversion (including pursuant to Section 3.2) of a Loan on a day other than the last day of an Interest Period therefor. 4. CONDITIONS PRECEDENT.      4.1 Initial Credit Extension. The obligation of the Bank to make the initial Credit Extension shall be subject to the conditions precedent that the Bank shall have received all of the following, each duly executed and in form and substance (and dated a date) satisfactory to the Bank:      (a) A certificate of the Secretary or an Assistant Secretary of the Borrower attaching (i) resolutions of the sole member of the Borrower authorizing the execution, delivery and performance of this Agreement and the Note by the Borrower; (ii) an incumbency certificate that identifies by name and title and bears the signatures of the officers of the Borrower authorized to sign this Agreement and the Note and documents related hereto, upon which certificate the Bank shall be entitled to rely until informed of any change in writing by the Borrower; (iii) copies of all governmental and regulatory authorizations and approvals required for the due execution, delivery and performance of this Agreement and the Note by the Borrower (or a statement that no such authorizations and approvals are required); and (iv) a copy of the Operating Agreement of the Borrower as in effect on the date of such certificate.      (b) A certificate signed by the chief financial officer, principal accounting officer or treasurer of the Borrower stating that (i) the representations and warranties contained in Section 5 are true and correct as of the date of the initial Credit Extension, as though made on and as of such date; and (ii) no Default or Unmatured Default has occurred and is continuing or will result from such Credit Extension.      (c) A written opinion of counsel to the Borrower in form and substance reasonably acceptable to the Bank.      (d) Such other approvals and documents as the Bank may reasonably request.      4.2 Each Credit Extension. The obligation of the Bank to make any Credit Extension (including the initial Credit Extension) shall be subject to the conditions precedent that (a) all of the representations and warranties set forth in Section 5 are true and correct as if made on the date of such Credit Extension; provided that this clause (a) shall not apply to the representations and warranties set forth in Sections 4.01(e)(iv)(B) or in the first sentence of Section 4.01(f), in each case of the Syndicated Agreement as incorporated herein by reference, with respect to a Loan if the proceeds of such Loan will be used exclusively to repay the Borrower’s maturing commercial paper (and, in the event of any such Loan, the Administrative Agent may require the Borrower to deliver information sufficient to disburse the proceeds of such Loan directly to the holders of such commercial paper or a paying agent therefor); and (b) no Default or Unmatured Default shall have occurred and be continuing or would result from the making of such Credit -7- --------------------------------------------------------------------------------   Extension. Each request for a Loan shall be deemed a representation by the Borrower that the conditions precedent set forth in this Section 4.2 have been satisfied. 5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that:      5.1 Organization. The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania.      5.2 Authorization; No Conflict. The execution, delivery and performance by the Borrower of this Agreement and the Note are within the Borrower’s powers, have been duly authorized by all necessary organizational action on the part of the Borrower, and do not and will not contravene (i) the operating agreement or other organizational documents of the Borrower, (ii) applicable law or (iii) any contractual or legal restriction binding on or affecting the properties of the Borrower or any of its Subsidiaries.      5.3 Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement or the Note, except (a) the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, if applicable, and (b) the Federal Energy Regulatory Commission, if applicable, which approvals, if required, have been duly obtained and are in full force and effect..      5.4 Enforceability. This Agreement is, and the Note and each LC Application when delivered hereunder will be, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by equitable principles or bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally.      5.5 Regulation U. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Not more than 25% of the value of the assets of the Borrower and its Subsidiaries is represented by margin stock.      5.6 Use of Proceeds. No proceeds of any Loan have been or will be used directly or indirectly in connection with the acquisition of in excess of 5% of any class of equity securities that is registered pursuant to Section 12 of the Exchange Act or any transaction subject to the requirements of Section 13 or 14 of the Exchange Act.      5.7 Representations and Warranties in Syndicated Agreement. Each representation and warranty of the Borrower set forth in Section 4.01(e)(iv), (f), (i) and (j) of the Syndicated Agreement is true and correct as if such representation and warranty and all related definitions were set forth in full herein, mutatis mutandis. 6. COVENANTS. The Borrower agrees that, so long as the Commitment has not been terminated, any Letter of Credit remains outstanding or any obligation of the Borrower hereunder -8- --------------------------------------------------------------------------------   remains unpaid, the Borrower will observe and perform each applicable covenant set forth in Article V of the Syndicated Agreement (excluding, so long as no Loan or Letter of Credit is outstanding or has been requested, Section 5.02(a) thereof) as if such covenants (and all related definitions) were set forth herein, mutatis mutandis. 7. EVENTS OF DEFAULT; REMEDIES.      7.1 Events of Default. The occurrence and continuance of any one or more of the following events shall constitute a Default:      (a) The Borrower shall fail to pay (i) any principal of any Loan when the same becomes due and payable; or (ii) any interest on any Loan, or any fee or other amount payable by the Borrower under this Agreement within three Business Days after the same becomes due and payable.      (b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) pursuant to the terms of this Agreement shall prove to have been incorrect or misleading in any material respect when made.      (c) The Borrower shall fail to perform or observe (i) any term, covenant or agreement contained in Section 5.01(a)(vii), Section 5.01(b)(i) or Section 5.02 of the Syndicated Agreement as incorporated herein by reference; or (ii) any other term, covenant or agreement contained in Article V of the Syndicated Agreement as incorporated herein by reference if the failure to perform or observe such covenant or agreement shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Bank.      (d) Any “Event of Default” under and as defined in the Syndicated Agreement shall occur and be continuing with respect to the Borrower under Section 6.01(d), (e), (f), (g) or (j) of the Syndicated Agreement.      7.2 Remedies. Upon the occurrence of a Default resulting from an “Event of Default” under Section 6.01(e) of the Syndicated Agreement with respect to the Borrower, the Commitment shall automatically be terminated and all obligations hereunder shall automatically and immediately become due and payable in full, and the Borrower shall provide cash collateral for all outstanding Letters of Credit, in each case without further presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives; and upon the occurrence of any other Default, the Commitment may be terminated by the Bank and/or the Bank may declare the principal of and accrued interest on each Loan, and all other amounts payable hereunder, to be forthwith due and payable in full, whereupon the outstanding principal amount of each Loan, all interest thereon and all other amounts payable hereunder shall be forthwith due and payable, and/or the Bank may demand, and the Borrower shall provide, cash collateral for all outstanding Letters of Credit, in each case without further presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. 8. GENERAL. -9- --------------------------------------------------------------------------------        8.1 Amendments and Waivers. Except as otherwise expressly provided in the definition of “Syndicated Agreement,” no amendment or waiver of any provision of this Agreement or the Note, and no consent with respect to any departure by the Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Borrower and the Bank.      8.2 Severability; No Waiver; Remedies. The illegality or unenforceability of any provision of this Agreement or the Note shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or the Note. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.      8.3 Costs and Expenses. The Borrower shall pay all reasonable costs and expenses of the Bank (including reasonable attorneys’ fees and charges) arising out of, or in connection with, (a) the negotiation, preparation, execution and delivery of this Agreement and the Note and any amendment, waiver, consent or modification with respect hereto or thereto and (b) the protection or enforcement of any rights hereunder or under the Note or any LC Application.      8.4 Indemnification. In consideration of the execution and delivery of this Agreement by the Bank and the extension of credit hereunder, the Borrower hereby indemnifies the Bank and its affiliates and each of their respective officers, directors, employees and agents (collectively the “Indemnified Parties”) for, and agrees to hold each Indemnified Party harmless against, any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith, incurred by any Indemnified Party in connection with this Agreement and the Credit Extensions hereunder, all to the same extent, on the same basis and subject to the same limitations set forth for indemnified parties in Section 8.04(c) of the Syndicated Agreement.      8.5 Notices. Except as otherwise provided herein, all notices, and other communications hereunder shall be in writing, shall be directed to the applicable party at its address below its signature hereto (or such other address as it shall have specified by notice to the other party) and shall be deemed received in accordance with the provisions of Section 8.02 of the Syndicated Agreement.      8.6 Survival. The obligations of the Borrower under Sections 2.17, 3, 8.3 and 8.4 shall, subject to the limitations set forth therein and in the relevant provisions of the Syndicated Agreement that are incorporated therein by reference, survive repayment of the Loans, expiration or termination of all Letters of Credit and the termination of this Agreement.      8.7 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which when so executed and delivered shall be an original, and all such counterparts shall together constitute one and the same instrument. Delivery of a counterpart hereof, or a signature page hereto, by facsimile shall be effective as delivery of a manually-signed counterpart hereof. -10- --------------------------------------------------------------------------------        8.8 Successors and Assigns. Neither the Borrower nor the Bank may assign any of its rights or obligations hereunder without the prior written consent of the other party; provided that no consent of the Borrower shall be required for any assignment by the Bank during the existence of a Default.      8.9 Right of Set-off. Upon the occurrence and during the continuance of any Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Note, whether or not the Bank shall have made any demand under this Agreement and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 8.9 are in addition to other rights and remedies (including other rights of set-off) that the Bank may have.      8.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.      8.11 CONSENT TO JURISDICTION; CERTAIN WAIVERS. (a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTE AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE BANK TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.      (b) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.      8.12 USA PATRIOT ACT NOTIFICATION. The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money -11- --------------------------------------------------------------------------------   laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for the Borrower: When a borrower opens an account, if such borrower is an individual, the Bank will ask for such borrower’s name, residential address, tax identification number, date of birth, and other information that will allow the Bank to identify such borrower; and, if such borrower is not an individual, the Bank will ask for such borrower’s name, tax identification number, business address, and other information that will allow the Bank to identify such borrower. The Bank may also ask, if such borrower is an individual, to see such borrower’s driver’s license or other identifying documents; and, if such borrower is not an individual, to see such borrower’s legal organizational documents or other identifying documents. [Signature pages follow] -12- --------------------------------------------------------------------------------        Please acknowledge your agreement to the foregoing by signing and returning a copy of this Agreement.           CITIBANK, N.A.           By:           Name: Stuart J. Murray     Title: Director           388 Greenwich Street     New York, NY 10013     Attention: Stuart J. Murray     Fax: 212-816-8098 -13- --------------------------------------------------------------------------------   Agreed to as of the date first above written: EXELON GENERATION COMPANY, LLC       By:       Michael R. Metzner     Treasurer     10 South Dearborn, 37th Floor Chicago, Illinois 60603 Attention: Michael R. Metzner Fax: 312-394-5215 -14- --------------------------------------------------------------------------------   SCHEDULE I PRICING SCHEDULE      The “Applicable Margin,” the “LC Fee Rate” and the “Facility Fee Rate” for any day are the respective percentages per annum set forth below in the applicable row under the column corresponding to the Status that exists on such day:                               Applicable   LC   Facility Fee Status   Margin   Fee Rate   Rate Level I     0.250 %     0.250 %     0.060 % Level II     0.300 %     0.300 %     0.070 % Level III     0.400 %     0.400 %     0.090 % Level IV     0.500 %     0.500 %     0.110 % Level V     0.750 %     0.750 %     0.150 % Level VI     1.000 %     1.000 %     0.200 %      The Status in effect on any date is based on the Moody’s Rating and S&P Rating in effect at the close of business on such date.      For the purposes of the foregoing (but subject to the final paragraph of this Pricing Schedule):      “Level I Status” exists at any date if, on such date, the Borrower’s Moody’s Rating is A2 or better or the Borrower’s S&P Rating is A or better.      “Level II Status” exists at any date if, on such date, (i) Level I Status does not exist and (ii) the Borrower’s Moody’s Rating is A3 or better or the Borrower’s S&P Rating is A- or better.      “Level III Status” exists at any date if, on such date, (i) neither Level I Status nor Level II Status exists and (ii) the Borrower’s Moody’s Rating is Baa1 or better or the Borrower’s S&P Rating is BBB+ or better.      “Level IV Status” exists at any date if, on such date, (i) none of Level I Status, Level II Status or Level III Status exists and (ii) the Borrower’s Moody’s Rating is Baa2 or better or the Borrower’s S&P Rating is BBB or better.      “Level V Status” exists at any date if, on such date, (i) none of Level I Status, Level II Status, Level III Status or Level IV status exists and (ii) the Borrower’s Moody’s Rating is Baa3 or better or the Borrower’s S&P Rating is BBB- or better.      “Level VI Status” exists at any date for Borrower if, on such date, none of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists. -15- --------------------------------------------------------------------------------        “Status” means Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status.      If the S&P Rating and the Moody’s Rating for the Borrower create a split-rated situation and the ratings differential is one level, the higher rating will apply. If the differential is two levels or more, the intermediate rating at the midpoint will apply. If there is no midpoint, the higher of the two intermediate ratings will apply. If Borrower has no Moody’s Rating or no S&P Rating, Level VI Status shall exist. -16- --------------------------------------------------------------------------------   EXHIBIT A FORM OF NOTE February 10, 2006           FOR VALUE RECEIVED, the undersigned, EXELON GENERATION COMPANY, LLC, a Pennsylvania limited liability company (the “Borrower”), HEREBY PROMISES TO PAY to the order of CITIBANK, N.A. (the “Bank”), the aggregate principal amount of all outstanding Loans made by the Bank to the Borrower pursuant to the Credit Agreement (defined below).           The Borrower further promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to the Bank in immediately available funds.           This Note is the Note referred to in, and is entitled to the benefits of, the letter agreement dated as of February 10, 2006 between the Borrower and the Bank (as amended, modified or supplemented from time to time, the “Credit Agreement”). The Credit Agreement, among other things, (i) provides for the making of Loans by the Bank to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the Commitment Amount at such time and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.           The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. -17- --------------------------------------------------------------------------------        THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.           EXELON GENERATION COMPANY, LLC           By           Name:     Title: -18-

Exhibit 10.2   APAC CUSTOMER SERVICES, INC.   2005 INCENTIVE STOCK PLAN     EFFECTIVE JUNE 3, 2005   --------------------------------------------------------------------------------   APAC CUSTOMER SERVICES, INC.   2005 INCENTIVE STOCK PLAN   1.             Purpose.  The purpose of the APAC CUSTOMER SERVICES, INC. 2005 Incentive Stock Plan (the “Plan”) is to provide incentives to attract and retain highly competent persons as officers and key employees of APAC Customer Services, Inc. (the “Company”) and its Subsidiaries and members of its Board of Directors as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire shares of Common Stock and to receive monetary payments based on the value of such shares pursuant to the Awards described herein.  The Plan is the successor to the Predecessor Plan.   2.             Definitions.   (a)           “Award” means, Stock Options (including Incentive Stock Options), Stock Appreciation Rights, Restricted Stock or Restricted Stock Unit awards, Performance Share or Performance Unit awards, Dividend or Dividend Equivalent Rights, Stock Awards, MIP Awards, Director Options, or other awards (“Other Incentive Awards”), that are valued in whole or in part by reference to, or are otherwise based on, Common Stock or other factors, all on a stand-alone, combination or tandem basis, as described in or granted under the Plan.   (b)           “Award Agreement” means a writing provided by the Company to each Participant setting forth the terms and conditions of each Award made under the Plan.   (c)           “Board” means the Board of Directors of the Company.   (d)           “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:   (i)            A tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the Company;   (ii)           The Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as the same shall have existed immediately prior to such merger or consolidation;   (iii)          The Company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate;   (iv)          As the result of, or in connection with, any contested election for the Board of Directors of the Company, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the   --------------------------------------------------------------------------------   foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company, or any successor thereto; or   (v)           A person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the Company, shall acquire more than 50% of the outstanding voting securities of the Company (whether, directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act.   Notwithstanding the foregoing, (A) a Change in Control will not occur for purposes of the Plan merely due to the death of Theodore G. Schwartz, or as a result of the acquisition by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the Company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (B) if the Schwartz Entities control, directly or indirectly, less than twenty-seven (27%) percent of the Company’s voting securities while it is a public company, then “33 1/3%” shall be substituted for “50%” in clauses (i) and (v) of this Section 1(d), and “66 2/3%” shall be substituted for “50%” in clause (ii) of this Section 1(d).   (e)           “Code” means the Internal Revenue Code of 1986, as amended from time to time.   (f)            “Committee” means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer the Plan.  Unless the Board otherwise determines, and such determination is reduced to writing articulating the reasons for such determination, the Committee shall at all times be comprised of not less than two members, each of whom shall qualify as (i) a “Non-Employee Director” within the meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act, (ii) an “outside director” within the meaning of Section 162(m) of the Code and the regulations thereunder (or any successor law or regulation), and (iii) an “independent director” as such term is defined or used by the rules of the exchange or system on which Common Stock is listed.   (g)           “Common Stock” means the Common Stock, $0.01 par value, of the Company.   (h)           “Company” means APAC Customer Services, Inc., a Delaware corporation, and any successor thereto.   (i)            “Director” means a member of the Board.   2 --------------------------------------------------------------------------------   (j)            “Director Plan” means the former APAC Teleservices, Inc. Amended and Restated 1995 Non-Employee Director Stock Option Plan, which plan previously was merged into the Predecessor Plan.   (k)           “Director Option” has the meaning specified in Section 6(i).   (l)            “Dividend or Dividend Equivalent Rights” has the meaning specified in Section 6(f).   (m)          “Effective Date” has the meaning specified in Section 18.   (n)           “Employee” means an employee of the Company or a Subsidiary.   (o)           “Fair Market Value” means the average of the highest and the lowest quoted selling prices on the NASDAQ Stock Market on the relevant valuation date or, if there were no sales on the valuation date, on the next preceding date on which such selling prices were recorded; provided, if Common Stock is not at any time readily tradable on a national securities exchange or other market system, “Fair Market Value” shall mean the amount determined in good faith by the Committee as the fair market value of the Common Stock of the Company.   (p)           “Incentive Stock Option” has the meaning specified in Section 6(b).   (q)           “Independent Contractor” means an independent contractor providing consulting or advisory services to the Company at any time or from time to time.   (r)            “Other Incentive Award” has the meaning specified in Section 2(a).   (s)           “MIP Award” has the meaning specified in Section 6(h).   (t)            “Non-Employee Director” means a member of the Board who is not an Employee of the Company or any Subsidiary.   (u)           “Participant” means an Employee, Non-Employee Director or Independent Contractor who has been granted an Award under the Plan, including the Predecessor Plan.   (v)           “Performance-Based Award” has the meaning specified in Section 7.   (w)          “Performance Criteria” has the meaning specified in Section 7.   (x)            “Performance Share” has the meaning specified in Section 6(d).   (y)           “Performance Unit” has the meaning specified in Section 6(e).   (z)            “Plan” means this APAC Customer Services, Inc. Incentive Stock Plan, which includes the Predecessor Plan.   3 --------------------------------------------------------------------------------   (aa)         “Plan Year” means a twelve-month period beginning with January 1 of each year.   (bb)         “Predecessor Plan” means the Company’s Second Amended and Restated 1995 Incentive Stock Plan.   (cc)         “Previously-Acquired Shares” means shares of Common Stock acquired by the Participant or any beneficiary of Participant other than pursuant to an Award under the Plan, the Predecessor Plan or any similar plan maintained by the Company, or if so acquired under the Plan, the Predecessor Plan or such other plan, and such shares of Common Stock have been held for a period of not less than six months or such shorter period as the Committee may permit (or such longer period as may be required to avoid a charge to earnings for financial reporting purposes).   (dd)         “Restriction Period” means a period of time beginning as of the date upon which an Award subject to restrictions or forfeiture provisions is made pursuant to the Plan and ending as of the date upon which the Common Stock subject to such Award is no longer restricted or subject to forfeiture provisions.   (ee)         “Restricted Share” has the meaning specified in Section 6(d).   (ff)           “Restricted Unit” has the meaning specified in Section 6(e).   (gg)         “Stock Appreciation Right” has the meaning specified in Section 6(c).   (hh)         “Stock Award” has the meaning specified in Section 6(g).   (ii)           “Stock Option” has the meaning specified in Section 6(a).   (jj)           “Subsidiary” means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of at least 50% by reason of stock ownership or otherwise.   3.             Eligibility.  Any Employee, Non-Employee Director or Independent Contractor selected by the Committee is eligible to receive an Award.  Designation of a Participant in any year shall not require the Committee to designate such person to receive an Award in any other year or, once designated, to receive the same type or amount of Awards as granted to the Participant in any year.   4.             Plan Administration.   (a)           Authority.  Except as otherwise determined by the Board, the Plan shall be administered by the Committee.  The Committee shall make determinations with respect to the participation of Employees, Non-Employee Directors and Independent Contractors in the Plan and, except as otherwise required by law or the Plan, the type and amount of Awards, the terms of Awards, including vesting schedules, price, length of relevant performance, Restriction Period, option period, dividend rights,   4 --------------------------------------------------------------------------------   post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of the Plan, and such other terms and conditions as the Committee deems appropriate.  For such purposes, the Committee may reprice or otherwise decrease the exercise price applicable to any outstanding Stock Option, cancel a Stock Option or Stock Appreciation Right when its exercise price exceeds the Fair Market Value of the underlying Common Stock in exchange for another Stock Option or Stock Appreciation Right, or other action that is treated as a repricing under generally accepted accounting principles, whether or not in connection with an adjustment contemplated by Section 11.   (b)           Determinations.   (i)            The Committee shall have authority to supply any omission, correct any defect, or reconcile any inconsistency in the Plan in such manner and to such extent as it shall deem appropriate in its sole discretion to carry the same into effect; to issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it from time to time deems proper; to establish such rules and regulations as it deems necessary for the proper administration of the Plan, to interpret and construe the provisions of the Plan and the Award Agreements; to decide all questions of fact arising in its application; to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions, and limitations; to accelerate the exercisability of any Stock Option, Incentive Stock Option or Stock Appreciation Right and the elimination of any restrictions on any Restricted Stock, Restricted Stock Unit, Performance Share or Performance Unit Award, when such action or actions would be in the best interest of the Company; and to make all other determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons.   (ii)           The Committee may act only by a majority of its members. Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of its members to execute and deliver documents on behalf of the Committee.   (iii)          To the extent deemed necessary or advisable for purposes of Section 16 of the Exchange Act or Section 162(m) of the Code, a member or members of the Committee may recuse himself or themselves from any action, in which case action taken by the majority of the remaining members shall constitute action by the Committee.   (c)           Delegation.  To the extent permitted by applicable law, the Committee may, by a resolution adopted by the Committee, authorize one or more officers of the Company to do one or more of the following:  (i) designate officers and other Employees, Non-Employee Directors, and Independent Contractors of the Company to be Participants to receive an Award under the Plan, (ii) determine the amount, terms, conditions, and form of any such Awards and (iii) take such other   5 --------------------------------------------------------------------------------   actions which the Committee is authorized to take under the Plan; provided, however, that the resolution so authorizing such Participant shall specify the total number of shares of Common Stock or the amount of cash payable under such Awards which such Participant may be so awarded; provided, further, that the Committee may not delegate to any person the authority to grant Awards to, or take other action with respect to, Participants who at the time of such Awards or action are subject to Section 16 of the Exchange Act or are “covered employees” as defined in Section 162(m) of the Code.  Further, the Committee may not authorize an officer to designate himself or herself as a recipient of any such Awards.  To the extent deemed necessary or advisable for purposes of Section 16 of the Exchange Act or otherwise, the Board may act as the Committee hereunder.   (d)           Liability; Indemnification.  No member of the Board, no member of the Committee and no Employee shall be liable for any act or failure to act hereunder, except in circumstances involving his bad faith, gross negligence or fraud, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated.  The Company shall indemnify members of the Committee and any agent of the Committee who is an Employee, against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person’s bad faith, gross negligence or willful misconduct.   5.             Stock Subject to the Plan.   (a)           Available Shares.  The stock subject to the provisions of the Plan may be shares of authorized but unissued Common Stock, treasury shares held by the Company or any Subsidiary, or shares acquired by the Company through open market purchases or otherwise.  Subject to adjustment in accordance with the provisions of Section 11, the total number of shares of Common Stock which may be issued under the Plan shall not exceed the number of shares under the Predecessor Plan heretofore authorized for issuance and not previously issued and not issued after the Effective Date (or which, after the Effective Date, become available as provided herein).  To the extent that shares of Common Stock subject to an outstanding Award or an award under the Predecessor Plan are not issued by reason of the forfeiture, termination, surrender, cancellation or expiration while unexercised of such award, by reason of the tendering or withholding of shares (by either actual delivery or by attestation) to pay all or a portion of the purchase price or to satisfy all or a portion of the tax withholding obligations relating to such an Award under the Plan or award under the Predecessor Plan, by reason of being settled in cash in lieu of Common Stock or settled in a manner such that some or all of the shares covered by the Award are not issued to a Participant, or being exchanged for an Award under the Plan that does not involve Common Stock, then such shares shall immediately again be available for issuance under the Plan.  The foregoing provisions of this Section 5(a) to the contrary notwithstanding, no shares attributable to the Director Plan may be subject to Incentive Stock Option Awards under the Plan.  The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum   6 --------------------------------------------------------------------------------   as it may deem appropriate.  Shares of Common Stock issued in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its Subsidiaries shall not reduce the number of shares of Common Stock available under the Plan.   (b)           Limitations.  Subject to Section 11, the maximum number of shares of Common Stock that may be covered by Awards granted under the Plan to any single Participant during any one Plan Year shall be 1,000,000 shares; provided, any Awards or portion of Awards that are cancelled or repriced shall continue to be counted in determining such maximum aggregate number of shares of Common Stock that may be granted to any single Participant.  If an Award is granted in tandem with a Stock Appreciation Right, such that the exercise of the Award right or Stock Appreciation Right with respect to a share of Common Stock cancels the tandem Stock Appreciation Right or Award right, respectively, with respect to such share, the tandem Award right and Stock Appreciation Right with respect to each share of Common Stock shall be counted as covering but one share of Common Stock for purposes of applying the limitations of this paragraph (b).   6.             Awards under the Plan.  As the Committee may determine, the following types of Awards may be granted under the Plan on a stand alone, combination or tandem basis:   (a)           Stock Option.  A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any Stock Option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such Award; and, provided, further, that in no event shall the term of any Stock Option extend to a date which is more than ten years after the date of grant of such Award.   (b)           Incentive Stock Option.  A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that Incentive Stock Options shall be awarded only to Participants who are Employees of the Company or one of its subsidiaries (under Section 424(f) of the Code), have an exercise price that is not less than 100% Fair Market Value of a share of Common Stock on the date of grant of such Award and a term that extends to a date that is not more than ten years after the date of grant of such Award.  An Award in the form of an Incentive Stock Option shall otherwise comply with all requirements of Section 422 of the Code or any successor Section of the Code as it may be amended from time to time.  Options granted as Incentive Stock Options that at any time fail to satisfy the requirements of Section 422 of the Code shall thereafter constitute Stock Options other than Incentive Stock Options without action by the Committee.   (c)           Stock Appreciation Right.  A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right is exercised over the Fair Market Value of a share of Common Stock on the date the   7 --------------------------------------------------------------------------------   Stock Appreciation Right was granted, payable in shares of Common Stock, in cash or a combination of Common Stock and cash, in accordance with the terms of the Award.   (d)           Restricted Shares and Performance Shares.  A transfer of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or in the case of Performance Shares subject to performance standards established pursuant to Section 7 below, for such periods of time as the Committee may determine. The terms of a Performance Share Award also may provide for payment in cash or a combination of Common Stock and cash.   (e)           Restricted Units and Performance Units.  A fixed or variable share or dollar denominated unit subject to such conditions of vesting, and time of payment, or in the case of Performance Share Units, performance standards established pursuant to Section 7 below, as the Committee may determine, which are valued at the Committee’s discretion in whole or in part by reference to, or otherwise based on, the Fair Market Value of a share of Common Stock and which may be paid in Common Stock, cash or in a combination of Common Stock and cash.   (f)            Dividend or Dividend Equivalent Right.  A right to receive dividends or their equivalent in value, equal to the amount of the dividend actually paid with respect to one share of Common Stock, which shall be payable in Common Stock, cash or in a combination of Common Stock and cash with respect to any new or previously existing Award, as the Committee shall determine.   (g)           Stock Award.  An unrestricted transfer of ownership of Common Stock.   (h)           MIP Awards.  A Stock Award, Restricted Stock Award or a Restricted Stock Unit Award, together with or without an Award of Dividend or Dividend Equivalent Rights, or a Stock Option Award, as payment for an award granted and earned under the Company’s Management Incentive Plan, as amended and restated February 8, 2005  and as may be amended thereafter from time to time (subject to shareholder approval as provided thereunder and at Section 14 hereunder).   (i)            Director Options.  As a component of a Non-Employee Director’s compensation for services as a member of the Board, a Stock Option Award (other than an Incentive Stock Option), to purchase shares of Common Stock of the Company at an exercise price equal to the Fair Market Value of Common Stock on the date of the Award, and providing such terms and conditions as determined by the Committee.  Anything in this Section 6 to the contrary notwithstanding, with respect to Director Option Awards:   (i)            No Director Option may be exercised during the first year following the date such option was granted. Thereafter, each Director Option may be exercised:   8 --------------------------------------------------------------------------------   (A)          to a maximum cumulative extent of one-third (1/3) of the total shares covered by the option on or after the first anniversary of the date the option was granted;   (B)           to a maximum cumulative extent of two-thirds (2/3) of the total shares covered by the option on or after the second anniversary of the date the option was granted; and   (C)           to a maximum cumulative extent of 100% of the total option shares on or after the third anniversary of the date the option was granted.   (ii)           Notwithstanding the above limitations, any Director Option granted under the Plan shall become fully exercisable upon the death of the Non-Employee Director while serving on the Board or upon the retirement of the Non-Employee Director.  For these purposes, “retirement” means a Non-Employee Director’s termination of service as a member of the Board on or after the date on which the Non-Employee Director’s age plus service as a member of the Board equals or exceeds 62, provided that the Non-Employee Director has attained age 50 and has served as a member of the Board for not less than six years, or at any time with the consent of the Board.   (iii)          Any Director Option may not be exercised after the earliest to occur of the following events: (A) after the fifth anniversary of the termination of the Non-Employee Director’s service as a member of the Board for any reason (and, subject to Section 15(d), then only to the extent that the Non-Employee Director could have exercised such option on the date of termination); or (B) more than ten (10) years after the date the option is granted.   (j)            Other Incentive Awards.  Other Incentive Awards which are related to or serve a similar function to those Awards set forth in this Section 6, including, but not limited to, Other Incentive Awards related to the establishment or acquisition by the Company or any Subsidiary of a new or start-up business or facility.   7.             Performance-Based Awards.  The Committee may from time to time, establish Performance Criteria with respect to an Award (a “Performance-Based Award”).  The Performance Criteria or standards for an Award shall be determined by the Committee in writing, shall be measured for achievement or satisfaction during the period in which the Committee permitted such Participant to satisfy or achieve such Performance Criteria and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated or other external or internal measure and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee, provided that such criteria or standards relate to one or more of the following:  (a) earnings before interest, taxes, depreciation and amortization, (b) revenue, (c) sales, (d) earnings per share, (e) funds from operations, (f) pretax income before allocation of corporate overhead and bonus, (g) budget, (h) cash flow, (i) net income, (j) division, group or corporate financial goals,   9 --------------------------------------------------------------------------------   (k) appreciation in or maintenance of the price of the Stock or any other publicly traded securities of the Company, (l) dividends, (m) total shareholder return, (n) return on shareholders’ equity, (o) return on assets, (p) return on investment, (q) internal rate of return, (r) attainment of strategic and operational initiatives, (s) market share, (t) operating margin, (u) profit margin, (v) gross profits, (w) earnings before interest and taxes, (x) economic value-added models, (y) comparisons with various stock market indices, (z) increase in number of customers, and (aa) reductions in costs, as determined by the Committee.  Such Performance Criteria may be particular to a line of business, Subsidiary or other unit or the Company generally, and may, but need not be, based upon a change or an increase or positive result.  In interpreting Plan provisions applicable to Performance Criteria and to Performance-Based Awards to Participants who are “covered employees” under Section 162(m) of the Code, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and the regulations thereunder.  The Committee in establishing Performance Criteria applicable to such Performance-Based Awards, and in interpreting the Plan, shall be guided by such standards, including, but not limited to providing that the Performance-Based Award shall be paid, vested or otherwise delivered solely as a function of attainment of objective Performance Criteria based on one or more of the specific factors set forth in this Section 7 established by the Committee not later than 90 days after the period of service applicable to the Award has commenced (or, if such period of service is less than one year, not later than the date on which 25% of such period has elapsed).  Pursuant to such standards, the Committee may reduce, but not increase, the amount so vested, paid or delivered.   8.             Award Agreements.  Each Award under the Plan shall be evidenced by an Award Agreement.  Delivery of an Award Agreement to each Participant shall constitute an agreement, subject to Section 9 hereof, between the Company and the Participant as to the terms and conditions of the Award; provided, that, in the event of any conflict between a provision of the Plan and any provision of an Award Agreement, the provision of the Plan shall prevail.   9.             Other Terms and Conditions.   (a)           No Assignment; Limited Transferability of Stock Options.  Except as provided below, no Award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution.  Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Stock Options (other than Incentive Stock Options) granted to a Participant to be on terms which permit transfer by such Participant to:   (i)            the spouse, children or grandchildren of the Participant (“Immediate Family Members”);   (ii)           a trust or trusts for the exclusive benefit of such Immediate Family Members; or   10 --------------------------------------------------------------------------------   (iii)          a partnership in which such Immediate Family Members are the only partners,   provided that:   (A)          there may be no consideration for any such transfer;   (B)           the Award Agreement pursuant to which such Stock Options are granted expressly provides for transferability in a manner consistent with this Section 9(a); and   (C)           subsequent transfers of transferred Stock Options shall be prohibited except those in accordance with this Section 9(a).   Following transfer, any such Stock Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Section 9(a) hereof the term “Participant” shall be deemed to refer to the transferee.  The provisions of the Stock Option relating to the period of exercisability and expiration of the Stock Option shall continue to be applied with respect to the original Participant, and the Stock Options shall be exercisable or received by the transferee only to the extent, and for the periods, set forth in said Stock Option.   (b)           Beneficiary Designation.  Each Participant under the Plan may name, from time to time, 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 death before he receives any or all of such benefit.  Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime.  In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to his estate.   (c)           Termination of Employment.  The disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant’s employment or service to the Company as an Independent Contractor shall be as determined by the Committee and set forth in the Award Agreement.   (d)           Predecessor Plan Awards.  Unless expressly provided otherwise by the Committee, references to the “Plan” set forth in any agreement representing an award granted under the Predecessor Plan prior to the Effective Date shall refer to the terms of the Predecessor Plan.   (e)           Rights as a Shareholder.  A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant or his nominee, guardian or legal representative is the holder of record; provided, however, that Participants holding Restricted Shares may exercise full voting rights with respect to those shares during the Restriction Period.  Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of   11 --------------------------------------------------------------------------------   any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company.  All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.   (f)            Dividends and Dividend Equivalents.  Dividend and Dividend Equivalent Rights may be extended to and made a part of any Award, subject to such terms, conditions and restrictions as the Committee may establish.  The Committee may also establish rules and procedures for the crediting of Dividend Equivalents for Awards.   (g)           Payments by Participants.  The Committee may determine that Awards for which a payment is due from a Participant may be payable:  (i) via personal check, bank draft, money order, certified check, or cashier’s check payable to the order of the Company or by money transfers or direct account debits; (ii)     through the delivery or deemed delivery based on attestation to the ownership of Previously Acquired Shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant, or delivery by the Participant of a written attestation of the same; or (iii) a copy of irrevocable instructions to a broker to promptly deliver to the Company the amount of proceeds from a sale of Shares equal to the exercise price.  To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms; provided, such payment pursuant to clause (iii) shall be subject to compliance with Federal Reserve Board Regulation T, federal and state securities laws and trading policies established by the Company and applicable to the Participant.   (h)           Withholding.  Except as otherwise provided by the Committee in the Award Agreement or otherwise (i) the deduction of withholding and any other taxes required by law shall be made from all amounts paid in cash, and (ii) in the case of the exercise of Stock Options or payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld in cash prior to receipt of such stock, or alternatively, to elect to have a number of shares the Fair Market Value of which equals the amount required to be withheld deducted from the shares to be received upon such exercise or payment or deliver such number of Previously-Acquired Shares of Common Stock.  In no event shall such withholding amount exceed the minimum amount required by law to be withheld.   (i)            Other Restrictions.  The Committee shall impose such other restrictions on any Awards granted pursuant to the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal or state securities laws, post-vesting or exercise holding periods, or requirements to comply with restrictive covenants, and may legend the certificates issued in connection with an Award to give appropriate notice of any such restrictions.   12 --------------------------------------------------------------------------------   10.           Amendments, Modification and Termination.   (a)           The Plan.  The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, subject to any requirement of shareholder approval imposed by applicable law, rule or regulation.  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.   (b)           Award Agreements.  The Committee may amend or modify any Award Agreement at any time, provided that if the amendment or modification adversely affects the Participant, such amendment or modification shall be by mutual agreement between the Committee and the Participant or such other persons as may then have an interest therein. In addition, and subject to shareholder approval in accordance with Section 14(c), by mutual agreement between the Committee and a Participant or such other persons as may then have an interest therein, Awards may be granted to a Participant in substitution and exchange for, and in cancellation of, any Awards previously granted to such Participant under the Plan, or any award previously granted to such Participant under any other present or future plan of the Company or any present or future plan of an entity which (i) is purchased by the Company, (ii) purchases the Company, or (iii) merges into or with the Company.   11.           Adjustment.  The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares of Common Stock set forth in the limitations in Section 5(b), the number of shares of Common Stock covered by each outstanding Award, and the price per share of Common Stock in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision, consolidation or split of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Company, or other change in corporate or capital structure; provided, however, that:   (a)           any fractional shares resulting from any such adjustment shall be eliminated;   (b)           that with respect to Awards that may be subject to Section 162(m) of the Code, such modifications and/or changes do not disqualify compensation attributable to such Awards as “performance-based compensation” under Section 162(m) of the Code; and   (c)           any adjustment with respect to an Incentive Stock Option due to a change or distribution described in this Section 11 shall comply with the rules of Section 424(a) of the Code, and in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder other than an incentive stock option for purposes of Section 422 of the Code.  The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended   13 --------------------------------------------------------------------------------   benefits of the Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spinoff, extraordinary dividend or other distribution or similar transaction.   12.           Rights as Employees, Directors or Independent Contractors.  No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, as a Director of, or as an Independent Contractor of the Company or a Subsidiary.  Further, the Company and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder.   13.           Listing of Shares and Related Matters.  If at any time the Committee shall determine that the listing, registration or qualification of the shares of Common Stock subject to any Award on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory authority, is necessary or desirable as a condition of, or in connection with, the granting of an Award or the issuance of shares of Common Stock thereunder, such Award may not be exercised, distributed or paid out, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.   14.           Shareholder Approval.   (a)           Initial Approval.  The Plan shall be approved by the shareholders of the Company at the first annual meeting following the date adopted by the Board.  Approval of the Plan by the shareholders of the Company shall be a condition to the right of each Participant to receive or retain Awards hereunder.   (b)           Reapproval.  If required by Treasury Regulation Section 1.162-27(e)(4)(vi) or any successor regulation or rule, the material terms of Performance Criteria as described in Section 7 shall be disclosed to and reapproved by the shareholders of the Company no later than the first shareholder meeting that occurs in the 5th year following the year in which the Company’s shareholders previously approved such performance goals.   (c)           Repricing.  Any amendment, revision, replacement, cancellation and regrant, or other change to an outstanding Award, not otherwise provided herein, that is determined to be a “repricing” (or word(s) of similar effect) under the rules of the exchange or system on which Common Stock is listed shall be approved by the shareholders of the Company before such “repriced” Award shall be effective.   15.           Change of Control.  Notwithstanding anything contained in the Plan or any Award Agreement to the contrary, in the event of a Change of Control, the following shall occur with respect to any and all Awards outstanding as of such Change of Control:   14 --------------------------------------------------------------------------------   (a)           To the extent any Stock Option, Incentive Stock Option or Stock Appreciation Right (including any Stock Option, Incentive Stock Option or Stock Appreciation Right granted under the Predecessor Plan) is not exercisable, it shall become exercisable as to one-half of the shares subject to the unexercisable portion of the Stock Option and one-half of the shares subject to the unexercisable portion of the Stock Appreciation Right;   (b)           Any restrictions imposed on Restricted Shares and Restricted Units shall lapse as to one-half of the Restricted Shares and one-half of the Restricted Units subject to such restrictions;   (c)           Unless otherwise specified in a Participant’s Award Agreement at time of grant, the maximum payout opportunities attainable under all outstanding Awards of Performance Units, Performance Shares and Other Incentive Awards shall be deemed to have been fully earned for the entire performance period(s) as of the effective date of the Change of Control.  The vesting of all such Awards shall be accelerated as of the effective date of the Change of Control, and in full settlement of such Awards, there shall be paid out in cash, or in the sole discretion of the Committee, shares of Common Stock with a Fair Market Value equal to the amount of such cash, to Participants within thirty (30) days following the effective date of the Change of Control the maximum of payout opportunities associated with such outstanding Awards; and   (d)           To the extent that any Director Option (including a Director Option granted under the Predecessor Plan) is not exercisable, it shall become exercisable as to all of the shares subject to the unexercisable portion of the Director Option.   16.           Governing Law.  To the extent that federal laws do not otherwise control, the Plan and all Award Agreements hereunder shall be construed in accordance with and governed by the law of the State of Illinois (without regard for its conflict of laws principles).   17.           Construction.  The descriptive headings in the Plan are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of the Plan.  The use of the word “including” in the Plan shall be by way of example rather than by limitation. 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.   18.           Effective Date and Term.  The effective date of the Plan shall be June 3, 2005 (the “Effective Date”), subject to approval by the shareholders of the Company.  No Award shall be granted after June 3, 2015; provided, however, that the terms and conditions applicable to any Award granted prior to such date may thereafter be amended or modified by mutual agreement between the Company and the Participant or such other persons as may then have an interest therein.  Also, by mutual agreement between the Company and a Participant hereunder, under the Plan or under any other present or future plan of the Company, and subject to the limitations under Section 5(b)(ii), Awards may be granted to such Participant in substitution and   15 --------------------------------------------------------------------------------   exchange for, and in cancellation of, any Awards previously granted such participant under the Plan, or any other present or future plan of the Company.   16 --------------------------------------------------------------------------------

Exhibit 10.2 INVESTMENT TECHNOLOGY GROUP, INC. RESTRICTED SHARE AGREEMENT THIS AGREEMENT, dated as of October 4, 2006 between Investment Technology Group, Inc. (the “Company”), a Delaware corporation, and Robert C. Gasser (the “Employee”). WHEREAS, the parties have entered into an Employment Agreement (the “Employment Agreement”) and Employee has this date commenced employment with the Company. WHEREAS, pursuant to the Employment Agreement, the Employee is entitled to receive a Restricted Share Award with respect to 31,250 shares of the Company’s common stock (the “Common Stock”). WHEREAS, the Company desires to grant this Restricted Share Award under the Company’s 1994 Stock Option and Long-Term Incentive Plan, as Amended and Restated (the “Plan”) in order to satisfy its obligation under the Employment Agreement, subject to stockholder approval of the performance goals set for the award. WHEREAS, the Employee agrees that this Restricted Share Award satisfies the Company’s obligation under the Employment Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, the parties hereto agree as follows. 1.             AWARD OF SHARES.  PURSUANT TO THE PROVISIONS OF THE PLAN, THE TERMS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE, THE EMPLOYEE IS HEREBY AWARDED 31,250 RESTRICTED SHARES (THE “AWARD”), WHICH NUMBER REPRESENTS 6,250 RESTRICTED SHARES FOR THE PERIOD OCTOBER 4, 2006 THROUGH DECEMBER 31, 2006 AND 25,000 RESTRICTED SHARES FOR THE 2007 CALENDAR YEAR, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, THE PLAN AND APPROVAL BY THE COMPANY’S STOCKHOLDERS OF THE PERFORMANCE GOALS SET FOR THE AWARD.  THE COMPANY SHALL SUBMIT THE PLAN AND THE PERFORMANCE GOALS SET FOR THE AWARD TO THE COMPANY’S STOCKHOLDERS FOR APPROVAL AT THE NEXT ANNUAL MEETING OF THE COMPANY’S STOCKHOLDERS FOLLOWING THE DATE OF THIS AGREEMENT.  THE AWARD IS GRANTED AS OF OCTOBER 4, 2006 (THE “DATE OF GRANT”).  CAPITALIZED TERMS USED HEREIN AND NOT DEFINED SHALL HAVE THE MEANINGS SET FORTH IN THE PLAN.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, IN THE EVENT OF ANY CONFLICT BETWEEN THIS AGREEMENT AND THE PLAN, THE PLAN SHALL CONTROL. 2.             TERMS AND CONDITIONS.  IT IS UNDERSTOOD AND AGREED THAT THE AWARD OF RESTRICTED SHARES EVIDENCED HEREBY IS SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: (A)           VESTING AND PAYMENT OF AWARD.  SUBJECT TO SECTIONS 2(B) AND 2(C) BELOW AND THE OTHER TERMS AND CONDITIONS OF THIS AGREEMENT, THE RESTRICTED SHARES SHALL VEST AND 1 -------------------------------------------------------------------------------- be paid on the dates set forth on Exhibit A, provided the performance goal set forth on Exhibit A has been achieved and the Employee has not incurred a Termination of Service as of the date the goal is achieved.  On the date the Restricted Shares vest, the Employee shall be paid one share of Common Stock for each Restricted Share that vests. (B)           TERMINATION PRIOR TO A CHANGE IN CONTROL.  NOTWITHSTANDING SECTION 2(A) ABOVE, IN THE EVENT THE EMPLOYEE INCURS A TERMINATION OF SERVICE FOR GOOD REASON (AS DEFINED IN THE EMPLOYMENT AGREEMENT) OR NOT FOR CAUSE (AS DEFINED IN THE EMPLOYMENT AGREEMENT) PRIOR TO A CHANGE IN CONTROL (AS DEFINED IN THE EMPLOYMENT AGREEMENT), THE RESTRICTED SHARES SHALL CONTINUE TO VEST AND BE PAID (AS IF THE PERFORMANCE GOAL SET FORTH IN EXHIBIT A HAS BEEN ACHIEVED) AS IF EMPLOYEE REMAINED EMPLOYED BY THE COMPANY THROUGH THE FIRST ANNIVERSARY OF THE DATE OF HIS TERMINATION OF SERVICE; PROVIDED THAT THE EMPLOYEE EXECUTES (AND DOES NOT REVOKE) A RELEASE (AS DEFINED IN THE EMPLOYMENT AGREEMENT). (C)           CHANGE IN CONTROL; DEATH OR DISABILITY.  NOTWITHSTANDING SECTION 2(A) ABOVE, THE RESTRICTED SHARES SHALL BECOME IMMEDIATELY VESTED (AS IF THE PERFORMANCE GOAL SET FORTH IN EXHIBIT A HAS BEEN ACHIEVED) AND PAYABLE IN FULL UPON (I) A CHANGE IN CONTROL, OR (II) THE EMPLOYEE’S TERMINATION OF SERVICE DUE TO DEATH OR PERMANENT DISABILITY (AS DEFINED IN THE EMPLOYMENT AGREEMENT). (D)           TERMINATION OF SERVICE; FORFEITURE OF UNVESTED AWARD.  EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 2, IN THE EVENT OF TERMINATION OF SERVICE OF THE EMPLOYEE PRIOR TO THE DATE THE AWARD OTHERWISE BECOMES VESTED, THE AWARD SHALL IMMEDIATELY BE FORFEITED BY THE EMPLOYEE AND BECOME THE PROPERTY OF THE COMPANY. (E)           CERTIFICATES.  UPON THE VESTING AND PAYMENT OF RESTRICTED SHARES PURSUANT TO SECTION 2 HEREOF AND THE SATISFACTION OF ANY WITHHOLDING TAX LIABILITY PURSUANT TO SECTION 5 HEREOF, THE CERTIFICATES EVIDENCING SUCH COMMON STOCK SHALL BE DELIVERED TO THE EMPLOYEE OR OTHER EVIDENCE OF ISSUANCE OF COMMON STOCK SHALL BE PROVIDED TO THE EMPLOYEE. (F)            RIGHTS OF A STOCKHOLDER.  PRIOR TO THE TIME A RESTRICTED SHARE IS VESTED AND PAID HEREUNDER, THE EMPLOYEE SHALL HAVE NO RIGHT TO TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE ENCUMBER SUCH RESTRICTED SHARE, NOR SHALL THE EMPLOYEE SHALL HAVE ANY OTHER RIGHTS OF A STOCKHOLDER, INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO VOTE AND TO RECEIVE DIVIDENDS (SUBJECT TO SECTION 2(A) HEREOF) AT THE TIME PAID ON SUCH RESTRICTED SHARES.  DIVIDENDS DECLARED AND PAID PRIOR TO THE TIME A RESTRICTED SHARE VESTS AND IS PAID SHALL ACCUMULATE AND BE REINVESTED IN ADDITIONAL RESTRICTED SHARES THAT VEST AND ARE PAID ACCORDING TO THE SAME SCHEDULE AS THE RESTRICTED SHARES TO WHICH THEY RELATE. (G)           NO RIGHT TO CONTINUED EMPLOYMENT.  THIS AWARD SHALL NOT CONFER UPON THE EMPLOYEE ANY RIGHT WITH RESPECT TO CONTINUANCE OF EMPLOYMENT BY THE COMPANY NOR SHALL THIS AWARD INTERFERE WITH THE RIGHT OF THE COMPANY TO TERMINATE THE EMPLOYEE’S EMPLOYMENT AT ANY TIME. (H)           TERMINATION OF SERVICE.  “TERMINATION OF SERVICE” MEANS THE TERMINATION OF THE EMPLOYEE’S EMPLOYMENT WITH THE COMPANY AND ITS SUBSIDIARIES.  AN EMPLOYEE EMPLOYED BY A SUBSIDIARY OF THE COMPANY SHALL ALSO BE DEEMED TO INCUR A 2 -------------------------------------------------------------------------------- Termination of Service if the subsidiary of the Company ceases to be such a subsidiary and the Employee does not immediately thereafter become an employee of the Company or another subsidiary of the Company.  Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its subsidiaries shall not be considered a Termination of Service. (I)            ADJUSTMENTS.  IF ANY EVENT DESCRIBED IN SECTION 5.5 OF THE PLAN OCCURS, THE COMMITTEE SHALL BE REQUIRED TO MAKE APPROPRIATE ADJUSTMENT IN ACCORDANCE WITH THE TERMS OF SECTION 5.5 3.             TRANSFER OF COMMON STOCK.  THE COMMON STOCK TO BE PAID HEREUNDER, OR ANY INTEREST THEREIN, MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED, OR TRANSFERRED OR DISPOSED OF IN ANY OTHER MANNER, IN WHOLE OR IN PART, ONLY IN COMPLIANCE WITH THE TERMS, CONDITIONS AND RESTRICTIONS AS SET FORTH IN THE GOVERNING INSTRUMENTS OF THE COMPANY, APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR ANY OTHER APPLICABLE LAWS OR REGULATIONS AND THE TERMS AND CONDITIONS HEREOF. 4.             EXPENSES OF ISSUANCE OF COMMON STOCK.  THE ISSUANCE OF STOCK CERTIFICATES HEREUNDER SHALL BE WITHOUT CHARGE TO THE EMPLOYEE.  THE COMPANY SHALL PAY, AND INDEMNIFY THE EMPLOYEE FROM AND AGAINST ANY ISSUANCE, STAMP OR DOCUMENTARY TAXES (OTHER THAN TRANSFER TAXES) OR CHARGES IMPOSED BY ANY GOVERNMENTAL BODY, AGENCY OR OFFICIAL (OTHER THAN INCOME TAXES) BY REASON OF THE ISSUANCE OF COMMON STOCK. 5.             WITHHOLDING.  NO LATER THAN THE DATE OF VESTING AND PAYMENT OF THE AWARD GRANTED HEREUNDER, THE EMPLOYEE SHALL PAY TO THE COMPANY OR MAKE ARRANGEMENTS SATISFACTORY TO THE COMMITTEE REGARDING PAYMENT OF ANY FEDERAL, STATE OR LOCAL TAXES OF ANY KIND REQUIRED BY LAW TO BE WITHHELD AT SUCH TIME WITH RESPECT TO SUCH AWARD AND THE COMPANY SHALL, TO THE EXTENT PERMITTED OR REQUIRED BY LAW, HAVE THE RIGHT TO DEDUCT FROM ANY PAYMENT OF ANY KIND OTHERWISE DUE TO THE EMPLOYEE, FEDERAL, STATE AND LOCAL TAXES OF ANY KIND REQUIRED BY LAW TO BE WITHHELD AT SUCH TIME.  THE EMPLOYEE MAY ELECT TO HAVE THE COMPANY WITHHOLD COMMON STOCK OR ANY DIVIDEND EQUIVALENTS TO PAY ANY APPLICABLE WITHHOLDING TAXES RESULTING FROM THE AWARD, IN ACCORDANCE WITH ANY RULES OR REGULATIONS OF THE COMMITTEE THEN IN EFFECT. 6.             REFERENCES.  REFERENCES HEREIN TO RIGHTS AND OBLIGATIONS OF THE EMPLOYEE SHALL APPLY, WHERE APPROPRIATE, TO THE EMPLOYEE’S LEGAL REPRESENTATIVE OR ESTATE WITHOUT REGARD TO WHETHER SPECIFIC REFERENCE TO SUCH LEGAL REPRESENTATIVE OR ESTATE IS CONTAINED IN A PARTICULAR PROVISION OF THIS AGREEMENT. 7.             NOTICES.  ANY NOTICE REQUIRED OR PERMITTED TO BE GIVEN UNDER THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN GIVEN WHEN DELIVERED PERSONALLY OR BY COURIER, OR SENT BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, DULY ADDRESSED TO THE PARTY CONCERNED AT THE ADDRESS INDICATED BELOW OR TO SUCH CHANGED ADDRESS AS SUCH PARTY MAY SUBSEQUENTLY BY SIMILAR PROCESS GIVE NOTICE OF: 3 --------------------------------------------------------------------------------   If to the Company: Investment Technology Group, Inc. 380 Madison Avenue New York, NY 10017 Attn.: General Counsel If to the Employee: At the Employee’s most recent address shown on the Company’s corporate records, or at any other address at which the Employee may specify in a notice delivered to the Company in the manner set forth herein. 8.             COSTS.  IN ANY ACTION AT LAW OR IN EQUITY TO ENFORCE ANY OF THE PROVISIONS OR RIGHTS UNDER THIS AGREEMENT, INCLUDING ANY ARBITRATION PROCEEDINGS TO ENFORCE SUCH PROVISIONS OR RIGHTS, THE UNSUCCESSFUL PARTY TO SUCH LITIGATION OR ARBITRATION, AS DETERMINED BY THE COURT IN A FINAL JUDGMENT OR DECREE, OR BY THE PANEL OF ARBITRATORS IN ITS AWARD, SHALL PAY THE SUCCESSFUL PARTY OR PARTIES ALL COSTS, EXPENSES AND REASONABLE ATTORNEYS’ FEES INCURRED BY THE SUCCESSFUL PARTY OR PARTIES (INCLUDING WITHOUT LIMITATION COSTS, EXPENSES AND FEES ON ANY APPEALS), AND IF THE SUCCESSFUL PARTY RECOVERS JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SUCH COSTS, EXPENSES AND ATTORNEYS’ FEES SHALL BE INCLUDED AS PART OF THE JUDGMENT. 9.             FURTHER ASSURANCES.  THE EMPLOYEE AGREES TO PERFORM ALL ACTS AND EXECUTE AND DELIVER ANY DOCUMENTS THAT MAY BE REASONABLY NECESSARY TO CARRY OUT THE PROVISIONS OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ALL ACTS AND DOCUMENTS RELATED TO COMPLIANCE WITH FEDERAL AND/OR STATE SECURITIES LAWS. 10.           COUNTERPARTS.  FOR CONVENIENCE, THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF IDENTICAL COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED A COMPLETE ORIGINAL IN ITSELF AND MAY BE INTRODUCED IN EVIDENCE OR USED FOR ANY OTHER PURPOSES WITHOUT THE PRODUCTION OF ANY OTHER COUNTERPARTS. 11.           GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH SECTION 10 OF THE PLAN. 12.           ENTIRE AGREEMENT.  THIS AGREEMENT, TOGETHER WITH THE PLAN, SETS FORTH THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH REFERENCE TO THE SUBJECT MATTER HEREOF, AND THERE ARE NO AGREEMENTS, UNDERSTANDINGS, WARRANTIES, OR REPRESENTATIONS, WRITTEN, EXPRESS, OR IMPLIED, BETWEEN THEM WITH RESPECT TO THE AWARD OTHER THAN AS SET FORTH HEREIN OR THEREIN, ALL PRIOR AGREEMENTS, PROMISES, REPRESENTATIONS AND UNDERSTANDINGS RELATIVE THERETO BEING HEREIN MERGED. 13.           AMENDMENT; WAIVER.  THIS AGREEMENT MAY BE AMENDED, MODIFIED, SUPERSEDED, CANCELED, RENEWED OR EXTENDED AND THE TERMS OR COVENANTS HEREOF MAY BE WAIVED ONLY BY A WRITTEN INSTRUMENT EXECUTED BY THE PARTIES HERETO OR, IN THE CASE OF A WAIVER, BY THE PARTY WAIVING COMPLIANCE.  ANY SUCH WRITTEN INSTRUMENT MUST BE APPROVED BY THE COMMITTEE TO BE EFFECTIVE AS AGAINST THE COMPANY.  THE FAILURE OF ANY 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 4 -------------------------------------------------------------------------------- the same.  No waiver by any party of the breach of any term or provision contained in this Agreement, 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 other term or covenant contained in this Agreement. 14.           SEVERABILITY.  ANY PROVISION OF THIS AGREEMENT THAT IS PROHIBITED OR UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING PROVISIONS HEREOF, AND ANY SUCH PROHIBITION OR UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION. [SIGNATURE PAGE FOLLOWS] 5 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Investment Technology Group, Inc.           By: /s/ Raymond L. Killian, Jr.     Name: Raymond L. Killian, Jr.   Title: Chairman           Employee           /s/ Robert C. Gasser     Robert C. Gasser   6 -------------------------------------------------------------------------------- Exhibit A Performance Objectives and Vesting and Payment Schedule for the Restricted Share Award If the Company’s pre-tax operating income (excluding one-time gains, non-recurring charges, and certain non-cash charges such as impairment of goodwill) for the period October 1, 2006 through September 30, 2007 equals or exceeds $     million, the Award shall be earned, subject to vesting and payment as follows: Vesting and Payment Date   Percentage of Award that Shall Vest   October 31, 2007   33 1/3%   October 4, 2008   33 1/3%   October 4, 2009   33 1/3%     provided, however, that if the performance objective is not achieved during the first four calendar quarters ending on September 30, 2007, the award shall not be “earned” and no shares shall vest and payment shall not be made with respect to the first vesting and payment date (and any subsequent vesting and payment date) until the last day of the month following the calendar quarter as of which the Company achieves aggregate pre-tax operating income (excluding one-time gains, non-recurring charges, and certain non-cash charges such as impairment of goodwill) of $     million for the preceding four consecutive calendar quarters.  If the Company does not achieve this goal by September 30, 2009, the Award shall be forfeited. 7 --------------------------------------------------------------------------------

Exhibit 10.3   NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. COMMON STOCK PURCHASE WARRANT To Purchase __________ Shares of Common Stock of   ALTEON INC.   THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the 181st day after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the fifth anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Alteon Inc., a Delaware corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock, par value $0.01 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).   Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated September 13, 2006, among the Company and the purchasers signatory thereto.   Section 2. Exercise.   a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 3 Business Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.       --------------------------------------------------------------------------------   b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.1875, subject to adjustment hereunder (the “Exercise Price”).   c) Cashless Exercise. If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:   (A) = the VWAP on the Trading Day immediately preceding the date of such election; (B) = the Exercise Price of this Warrant, as adjusted; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise. Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).   2 --------------------------------------------------------------------------------   d) Exercise Limitations.     i. Holder’s Restrictions. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, such Holder (together with such Holder’s Affiliates, and any other person or entity acting as a group together with such Holder or any of such Holder’s Affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by such Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by a Holder that the Company is not representing to such Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and such Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder together with any Affiliates) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of a Notice of Exercise shall be deemed to be each Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Beneficial Ownership Limitation provisions of this Section 2(d)(i) may be waived by such Holder, at the election of such Holder, upon not less than 61 days’ prior notice to the Company to change the Beneficial Ownership Limitation to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant, and the provisions of this Section 2(d) shall continue to apply. Upon such a change by a Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not be further waived by such Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d)(i) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.     3 --------------------------------------------------------------------------------   e) Mechanics of Exercise.   i. Authorization of Warrant Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).   ii. Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have been paid.     4 --------------------------------------------------------------------------------   iii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.   iv. Rescission Rights. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 2(e)(iv) the second Trading Day after the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.   v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise on or before the second Trading Day after the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.     5 --------------------------------------------------------------------------------   vi. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.   vii. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.   viii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.   Section 3. Certain Adjustments.   a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.     6 --------------------------------------------------------------------------------   b) [Reserved]   c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.   d) Pro Rata Distributions. If the Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.     7 --------------------------------------------------------------------------------   e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in an all cash transaction, cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.   f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.     8 --------------------------------------------------------------------------------   g) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.   h) Notice to Holders.   i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. [If the Company issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement).   ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice.     9 --------------------------------------------------------------------------------   Section 4. Transfer of Warrant.   a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.   b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.   c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.   d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.     10 --------------------------------------------------------------------------------   Section 5. Miscellaneous.   a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(e)(ii).   b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.   c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.   d) Authorized Shares.   The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.   Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.     11 --------------------------------------------------------------------------------   Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.   e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.   f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.   g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.   h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.   i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.     12 --------------------------------------------------------------------------------   j) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.   k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.   l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.   m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.   n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.   ********************     13 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.           ALTEON INC             Date: September 13, 2006 By:   /s/    -------------------------------------------------------------------------------- Name:   Title:   14 --------------------------------------------------------------------------------     NOTICE OF EXERCISE TO: ALTEON INC. (1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.   (2) Payment shall take the form of (check applicable box):   [ ] in lawful money of the United States; or   [ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).   (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:   _______________________________   The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to: _______________________________   _______________________________   _______________________________ (4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. [SIGNATURE OF HOLDER]   Name of Investing Entity: ________________________________________________________________________ Signature of Authorized Signatory of Investing Entity: _________________________________________________ Name of Authorized Signatory: ___________________________________________________________________ Title of Authorized Signatory: ____________________________________________________________________ Date: ________________________________________________________________________________________   15 --------------------------------------------------------------------------------     ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to   _______________________________________________ whose address is _______________________________________________________________. _______________________________________________________________ Dated: ______________, _______ Holder’s Signature: _____________________________ Holder’s Address: _____________________________ _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.     16 --------------------------------------------------------------------------------  

Exhibit 10.5 QUICKSILVER RESOURCES INC. INCENTIVE STOCK OPTION AGREEMENT   Participant:                                                                                      Number of Shares:                                                                       Date of Grant:                                                                                Exercise Price:                                                                              Expiration Date:                                                                           Type of Option: Incentive stock option 1. Under the terms and conditions of the Quicksilver Resources Inc. 2006 Equity Plan (the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Quicksilver Resources Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set forth above (the “Participant”) an option to purchase the number of shares of the Company’s Common Stock, par value $0.01 per share (“Common Stock”), set forth above at the price per share set forth above (the “Option”). Terms not defined in this Agreement have the meanings set forth in the Plan. 2. The Option will be for a term commencing on the Date of Grant set forth above and ending at 5:00 p.m. Central Time on the Expiration Date set forth above. During the term hereof, the Option will become vested and exercisable in accordance with the schedule set forth below (provided that in no event will the Participant be entitled to acquire a fraction of a share of Common Stock pursuant to the Option):   Portion of Option Exercisable    On and After [1/3    First Anniversary of Date of Grant] [1/3    Second Anniversary of Date of Grant] [1/3    Third Anniversary of Date of Grant] In the event of a Change in Control while the Participant is employed by the Company or a Subsidiary or in the event that the Participant terminates employment with the Company and its Subsidiaries by reason of retirement at or after the age of 62 and completion of five years of service, disability (as determined by the Committee in good faith) or death, the nonvested portion of the Option will become 100% vested and exercisable and will expire one day prior to the fifth anniversary of such retirement, disability or death. If the Participant terminates employment with the Company and its Subsidiaries for any reason other than such retirement, disability or death, the nonvested portion of the Option will be forfeited immediately and the vested portion of the Option will expire on the date that is three months after the Participant’s date of termination of employment; provided, however, that if the Participant dies within three months after the date on which he or she terminates employment (other than due to discharge for “cause”), the vested portion of the Option will expire one day prior to the fifth anniversary of such death. -------------------------------------------------------------------------------- Notwithstanding the foregoing, if the Participant is discharged by the Company or a Subsidiary for “cause” (as defined below), the right to exercise this Option will terminate immediately upon such discharge. “Cause” means willful or gross misconduct or willful failure by the Participant to perform his or her employment responsibilities in the best interests of the Company and its Subsidiaries (including, without limitation, breach by the Participant of any provision of any employment, nondisclosure, non-competition or other similar agreement between the Participant and the Company or a Subsidiary), as determined by the Company, which determination will be conclusive. The Participant will be considered to have been discharged “for cause” if the Company determines, within 30 days after the Participant’s resignation, that discharge for cause was warranted. Notwithstanding any other provision of the Plan or this Agreement to the contrary, this Option will expire and may not be exercised after the Expiration Date set forth above. 3. The exercise price for shares purchased by the Participant may be paid (i) in cash or personal check acceptable to the Company, (ii) by the transfer to the Company of shares of Common Stock having a value on the date of exercise equal to the aggregate exercise price, (iii) with the consent of the Committee, by authorizing the Company to withhold a number of shares having a value on the date of exercise equal to the aggregate exercise price or (iv) by a combination of the foregoing methods. 4. The Participant will have none of the rights of a stockholder of the Company with respect to any shares of Common Stock underlying the Option until such time that the Participant has been determined to be a stockholder of record by the Company’s transfer agent or one or more certificates of shares of Common Stock are delivered to the Participant upon due exercise of the option. Further, nothing herein will confer upon Participant any right to remain in the employ of the Company or a Subsidiary. 5. The Participant hereby accepts and agrees to be bound by all the terms and conditions of the Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no amendment will adversely affect the rights of the Participant under this Agreement without the Participant’s consent. ACCEPTED:       Signature of Participant   2

  Exhibit 10.9   NONCOMPETITION AGREEMENT This NONCOMPETITION AGREEMENT (this “Agreement”) is made and entered into as of this 30th day of June, 2006, by and between Butler International, Inc., a Maryland corporation (the “Parent”) and Edward M. Kopko (“Kopko”). References to “Parent” in this Agreement shall include all direct and indirect subsidiaries of Butler International, Inc. R E C I T A L S A.           Butler International, Inc., a Maryland corporation, Butler Service Group, Inc., a New Jersey corporation, Butler Services International, Inc., a Delaware corporation, Butler Telecom, Inc., a Delaware corporation, Butler Services, Inc., a Delaware corporation, Butler Utility Service, Inc., a Delaware corporation, Butler Publishing, Inc., a Delaware corporation, Butler International, Inc.’s Subsidiaries signatory thereto as guarantors and Levine Leichtman Capital Partners III, L.P., a California limited partnership (“Purchaser”), are all parties to that certain Securities Purchase Agreement, dated the date hereof (the “Purchase Agreement”). Terms used but not defined in this Agreement that are defined in the Purchase Agreement have the meanings set forth in the Purchase Agreement. B.           In conjunction with the transactions contemplated by the Purchase Agreement and the Investment Documents, Parent and Kopko, the Chairman and Chief Executive Officer of Butler International, Inc., each wish to enter into this Agreement. A G R E E M E N T In consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties, intending to be legally bound, agree as follows: 1.            Noncompetition Agreement. Kopko hereby covenants and agrees, for the benefit of the Parent that, for the Restricted Period (as defined below), Kopko will not, directly or indirectly, engage in, whether as principal, agent, officer, director, investor, consultant, stockholder, lender, partner, member, owner, sponsor, or otherwise, alone or in association with any other person, carry on, manage, operate, finance, sponsor, or become engaged or concerned in, or otherwise take part in, a business, anywhere in the world, similar to or in competition with any part of the business of the Parent as conducted prior to or on the date of this Agreement or as contemplated to be conducted in the future, which generally consists of providing outsourcing, project management and technical staff augmentation services (collectively, referred to as the “Business,” which definition shall not include any publishing activities of the Parent), or be employed in a competitive capacity by or render services to, or own, any share in the earnings of, or invest in the stock, bonds, or other securities of (other than less than 5% of the outstanding shares of common stock of any publicly traded company), or lend money or extend credit to, or otherwise directly or indirectly assist, any business similar to or in competition with any part of the Business, anywhere in the world. The “Restricted Period” is from the date of termination of Kopko’s employment with Parent through the third anniversary of the date Kopko is no longer an employee of the Parent. If any portion of the restricted geographic area in any jurisdiction shall be adjudicated in such jurisdiction to be invalid or unenforceable as so identified, such identification shall be deemed amended to properly reflect the largest aggregate geographic area     --------------------------------------------------------------------------------   in such jurisdiction which would be valid and enforceable under the laws of such jurisdiction; provided, however, that such invalidity or unenforceability shall apply only with respect to part or all of the restricted geographic area in the particular jurisdiction in which such adjudication is made. Kopko recognizes that the territorial and time limitations set forth in this Section 1 are reasonable, not burdensome and are properly required by law for the adequate protection of the Parent.   2. Nonsolicitation. (a)          Kopko agrees that during the Restricted Period, he shall not, either directly or indirectly, solicit, recruit or hire any of the Parent’s employees (excluding Kopko’s assistant, any clerks he may work with or employees who make less than $50,000 per year), billable consultants or billable contractors, or induce any such individuals (including Parent’s agents and representatives) to leave their employment or engagement with the Parent, or attempt to solicit, recruit or hire employees (excluding Kopko’s assistant and any clerks he may work with or employees who make less than $50,000 per year), billable consultants or billable contractors, either on his own behalf or for any other person or entity, or induce any such individuals (including Parent’s agents and representatives) to leave their employment or engagement with the Parent. Notwithstanding the foregoing, during the Restricted Period, Kopko may work with any of Parent’s employees, billable consultants, billable contractors, agents or representatives on a part time or occasional basis so long as such part time or occasional arrangement does not interfere in any way with such individual’s employment, engagement or relationship with the Parent. (b)          Kopko agrees that during the Restricted Period, he shall not, either directly or indirectly, induce, solicit or do any business which is competitive with the Business with any of the Parent’s customers that, at the time of Kopko’s termination, comprise the top 80% of the revenue of the Parent on a consolidated basis if such customers were ranked in terms of revenue produced for the Parent on a consolidated basis in the year prior to Kopko’s termination and shall not take any action to cause such customers to (i) reduce or modify such customer’s relationship with the Parent, or (ii) to enter into any relationship whereby such customer would have a relationship with any person or entity engaged in the Business. Parent covenants that, as promptly as practicable after Kopko’s termination, it will provide Kopko with a list of customers that comprise the top 80% of the revenue of the Parent on a consolidated basis if such customers were ranked in terms of revenue produced for the Parent on a consolidated basis in the year prior to Kopko’s termination.   3. Payments to Kopko. (a)          The Parent agrees that if Kopko voluntarily terminates his position as an employee of the Parent or is terminated for cause, as determined in the sole discretion of the Board of Directors of the Parent, he will be paid the sum of $500,000 per year from the time of such voluntary termination or termination for cause, as applicable, to the end of the Restricted Period. In addition, if an event described in Section 11.1(i) or 11.1(j) of the Purchase Agreement occurs (a “Bankruptcy Event”), Kopko will be paid the sum of $500,000 per year from the time of such Bankruptcy Event (and while such event continues) to the end of the Restricted Period.   2   --------------------------------------------------------------------------------   Kopko will also be entitled to any non-salary benefits provided to him as part of any severance arrangements Kopko has with the Parent. (b)          The Parent further agrees that, in the event that Kopko is terminated for any reason other than cause, as determined by the Board of Directors of the Parent, he will be paid in full under any severance arrangements Kopko has with the Parent at the time of such termination. In the event that such severance arrangements pay Kopko the sum of $500,000 per year from the time of such termination to the end of the Restricted Period, this Agreement shall remain in force and effect (and, in the event of any shortfall in such $500,000 payment, Parent shall make up such shortfall and this Agreement shall remain in force and effect).   4. Miscellaneous Provisions. 4.1         Governing Law. The validity, construction and performance of this Agreement, and any action arising out of or relating to this Agreement shall be governed by the laws of the State of Florida, without regard to the laws of the State of Florida as to choice or conflict of laws. 4.2         Severability; Construction. In the event that any of the provisions contained herein are held to be invalid, prohibited or unenforceable in any jurisdiction for any reason because of the scope, duration or area of its applicability or for other reasons, unless narrowed by construction, such provision shall for purposes of such jurisdiction only, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable (or if such language cannot be drawn narrowly enough, the court making any such determination shall have the power to modify, to the extent necessary to make such provision or provisions enforceable in such jurisdiction, such scope, duration or area or all of them, and such provision shall then be applicable in such modified form). If, notwithstanding the foregoing, any such provision would be held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, such provision, as to such jurisdiction only, shall be ineffective to the extent of such invalidity, prohibition or unenforceability, without invalidating the remaining provisions. No narrowed construction, court-modification or invalidation of any provision shall affect the construction, validity or enforceability of such provision in any other jurisdiction. 4.3         Attorneys’ Fees. If any action or proceeding is commenced by either party concerning this Agreement, the prevailing party shall recover from the losing party reasonable attorneys’ fees and costs, including those of appeal and not limited to taxable costs, incurred by the prevailing party, in addition to all other remedies to which the prevailing party may be entitled. 4.4         Interpretation. This Agreement shall be construed according to its fair meaning and not strictly for or against any party. The captions of the sections of this Agreement are for convenience only and shall not affect the construction or interpretation of any of the provisions of this Agreement. 4.5         Waiver and Amendment. This Agreement may be amended, supplemented, modified and/or rescinded only through an express written instrument signed by   3   --------------------------------------------------------------------------------   all parties or their respective successors and permitted assigns. Any party may specifically and expressly waive in writing any portion of this Agreement or any breach hereof, but only to the extent such provision is for the benefit of the waiving party, and no such waiver shall constitute a further or continuing waiver of any preceding or succeeding breach of the same or any other provision. The consent by one party to any act for which such consent was required shall not be deemed to imply consent or waiver of the necessity of obtaining such consent for the same or similar acts in the future, and no forbearance by a party to seek a remedy for noncompliance or breach by another party shall be construed as a waiver of any right or remedy with respect to such noncompliance or breach. 4.6         Assignment. Except as specifically provided otherwise in this Agreement, neither this Agreement nor any interest herein shall be assignable (voluntarily, involuntarily, by judicial process, operation of law, or otherwise), in whole or in part, by any party without the prior written consent of all other parties. Notwithstanding the foregoing, the Parent may, without the consent of Kopko, assign all of its rights and obligations under this Agreement to any of its Subsidiaries or its Affiliates or in connection with a sale of the Business of the Parent (by asset sale, stock sale, merger or otherwise) or the assignment of a security interest to any lender to the Parent. 4.7         Successors and Assigns. Each of the terms, provisions, and obligations of this Agreement shall be binding upon, shall inure to the benefit of, and shall be enforceable by the parties and their respective legal representatives, successors and permitted assigns. 4.8.        CONSENT TO JURISDICTION. WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT AS SET FORTH IN THE LAST SENTENCE, THE PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY (i) AGREE AND CONSENT TO BE SUBJECT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN THE STATE OF FLORIDA (AND IN THE ABSENCE OF FEDERAL JURISDICTION, THE PARTIES CONSENT TO BE SUBJECT TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS LOCATED IN THE STATE OF FLORIDA), (ii) AGREE NOT TO BRING ANY ACTION RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY OTHER COURT (EXCEPT TO ENFORCE THE JUDGMENT OF SUCH COURTS), AND (iii) AGREE NOT TO OBJECT TO VENUE IN SUCH COURTS OR TO CLAIM THAT SUCH FORUM IS INCONVENIENT. NOTWITHSTANDING THE FOREGOING, THE PARENT MAY SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT OR MONEY DAMAGES BY INITIATING AN ACTION IN ANY COURT IT REASONABLY BELIEVES HAS JURISDICTION WITH RESPECT TO AN ACTION TAKEN BY KOPKO IN VIOLATION HEREOF. 4.9.        WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES ITS, HIS OR HER RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LEGAL REQUIREMENTS WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND COVENANTS   4   --------------------------------------------------------------------------------   THAT NONE OF HE, SHE OR IT NOR ANY OF ITS SUBSIDIARIES WILL ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. 4.10       Termination. This Agreement shall terminate once the Parent’s obligations to the Purchaser under the Notes are paid off. 4.11       Investment Documents. The parties hereto agree that this Agreement is an Investment Document, as defined in the Purchase Agreement. 4.12       Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute a single agreement. 4.13      Entire Agreement; Amendment. This Agreement represents the entire agreement and understanding of the parties with respect to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the parties in connection therewith. This Agreement may not be altered or amended except by an agreement in writing signed by the parties to be bound.   [Signature Page Follows]   5   --------------------------------------------------------------------------------     IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first set forth above.   “PARENT”: BUTLER INTERNATIONAL, INC., a Maryland corporation By:   /s/ Mark Koscinsk                     Its:   VP - Controller                       “KOPKO”: /s/ Edward M. Kopko                         Edward M. Kopko                   [Signature Page to Noncompetition Agreement]          

EXHIBIT 10.1 AMENDMENT NO. 2 TO THE CONSULTING AGREEMENT This AMENDMENT NO. 2, dated as of January 17, 2006 (this “Amendment”), is made to that certain CONSULTING AGREEMENT, effective as of August 9, 2005 and amended by that certain Amendment No. 1 dated as of October 19, 2005 (“Amendment No. 1”) (together, the “Agreement”), by and between Xenonics Holdings, Inc., a Nevada corporation having its principal offices at 2236 Rutherford Road, Suite 123, Carlsbad, California 92008-7297 (the “Company”), and Patriot Associates LLC, a New York limited liability company having its principal offices at 111 E. 56th Street, New York, New York 10022 (the “Consultant”). Capitalized terms used but not defined herein shall have the meaning given thereto in the Agreement. W I T N E S S E T H WHEREAS, pursuant to the terms of the Agreement, the Consultant is to provide marketing advice and perform related consulting services regarding the marketing, positioning, sales strategies and sales processes of products in foreign markets as an independent contractor on behalf of the Company; WHEREAS, in return for such services the Consultant is to receive the Compensation set forth on Appendix 2 of the Agreement; WHEREAS, Appendix 2 of the Agreement also provides that the Company shall evaluate the performance of the Consultant semi-annually and determine whether any bonus compensation is appropriate to be paid to the Consultant under the Agreement; WHEREAS, the Company previously made such evaluation and pursuant to Amendment No. 1, on October 19, 2005 agreed to grant bonus compensation to the Consultant which included 187,500 shares of common stock of the Company and warrants to purchase shares of common stock that would vest and become fully exercisable after ninety (90) days based upon Consultant’s performance; WHEREAS, the Consultant accepted such bonus compensation in accordance with the provisions thereof; and WHEREAS, the Company and the Consultant wish to extend such ninety (90) day period to two hundred ten (210) days and to clarify the intent of the parties that the Company’s obligation to issue 187,500 shares of common stock is also subject to Consultant’s performance under the Consulting Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Consultant and the Company hereby agree as follows: 1. Amendment. The following amendment is made to the Agreement effective as of the date hereof: Appendix 2 of the Agreement is hereby amended by deleting the words “ninetieth (90th)” in clause (b) and replacing them with “two hundred tenth (210th)”; and 2. Clarification of Intent. The Company and the Consultant agree that the 187,500 shares of common stock the Company agreed by Amendment No. l to issue to the Consultant are subject to Consultant’s performance under the Consulting Agreement. 3. Ratification and Confirmation of the Agreement; No Other Changes. Except as modified by this Amendment, the Agreement is hereby ratified and confirmed in all respects. Nothing herein shall be held to alter, vary or otherwise affect the terms, conditions and provisions of the Agreement, other than as contemplated herein. 4. Effectiveness. This Amendment shall be effective as of the date hereof. 5. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original and both of which shall be deemed a single agreement. 6. Governing Law. This Amendment shall be subject to the provisions of the Procurement Integrity Act, The Lobby Disclosure Act of 1995, the Armed Services Procurement Act of 1947, the Defense Procurement Improvement Act of 1985 and all other applicable United States laws and regulations governing contacts and conduct with the United States Congress and covered Executive Branch Officials; and shall be subject to the laws of the State of New York. [Signature Page Follows] 1 EXECUTED as an instrument under seal as of the date first above written. XENONICS HOLDINGS, INC. By: /s/ Richard J. Naughton Name: Richard J. Naughton Title: Chief Executive Officer Fax No.: 760-438-1184 Consultant: PATRIOT ASSOCIATES LLC By: /s/ Bill White Name: Bill White Title: Senior Partner Fax No.: 212-957-3718 [Signature Page to Amendment No. 2 to the Consulting Agreement] 2

Exhibit 10.6 AGREEMENT REGARDING SUPPLEMENTAL RETIREMENT BENEFITS   This agreement is being entered into between Rick Davis (“Executive”) and Cascade Natural Gas Corporation (“Cascade”) to document their agreement with respect to supplemental retirement benefits.   A.            Executive and Cascade entered into an employment agreement date June 16, 2005 (the “Employment Agreement”).   B.            Section 4.4 of the Employment Agreement provides that Cascade will provide Executive the opportunity to participate in a supplemental deferred compensation plan that will be anticipated, using reasonable assumptions concerning the rate of investment returns, to provide Executive with replacement pay at retirement equal to 55 percent of his average base salary  at normal retirement age 65 with 15 years of service, under the Employment Agreement, after taking into account Social Security retirement benefits and any retirement benefits payable to Executive under any qualified or nonqualified retirement plan sponsored by Cascade or by Executive’s prior employer.   C.            Cascade is adopting a new executive deferred compensation plan that will credit to an account for Executive a net contribution amount as well as a rate of investment return based on elections made by Executive.   D.            The new plan will not provide a guaranteed level of retirement income because it will provide benefits based on the rate at which net contribution amounts and investment earnings are credited to Executive’s account and,  as a result, it is possible that the value of the account may provide more or less than 55 percent of Executive’s average base salary.   E.             Actuaries retained by Cascade have produced the attached schedule of net contribution amounts to be credited to Executive’s account that will reasonably be expected, based on the assumptions set out in the schedule, to provide the targeted rate of replacement pay.   In consideration of the premises, the parties agree as follows:   1.             Net contributions to the account under the deferred compensation plan that are in accordance with the attached schedule will satisfy Cascade’s obligations to Executive under section 4.4 of the Employment Agreement.   2.             Cascade shall have no liability to Executive under section 4.4 of the Employment Agreement other than to credit contributions to the Executive’s account under the plan at the rates set forth in the attached schedule during the term of Executive’s employment with Cascade.   CASCADE NATURAL GAS CORPORATION EXECUTIVE     By  /s/ Larry L. Pinnt   /s/ Rick Davis   Title Chairman         Executed: January 11, 2006 Executed: January 11, 2006   --------------------------------------------------------------------------------   Cascade Natural Gas Executive Defined Contribution Plan Benefit Projection   Input Data for Rick Davis as of October 1, 2005                     Hire Age:   52   Current Annual Base Pay (excluding bonus):   $ 240,000   Current Age:   52   Future Pay Increases:   4.00 % Retirement Age:   65   Pre-Ret DC Investment Return:   6.50 %(1) Service at Retirement:   13   Post-Ret DC Investment Return:   5.50 %(2) Assumed Bonus %:   24.5 %(4) 401(k) Annual Deferral (% of Qualified Pay):   6.00 %(3) Corporate Tax Rate:   36.5 % Assumed Future Profit Sharing Contribution:   2.00 %   Benefit Development for Rick Davis               Qualified   Prior Er                                   Plan   Qual DC   CNG       CNG   CNG       BOY   Total       Limited   (now IRA)   Match   CNG Match   Other DC   Other DC   BOY   Age   Comp   Base Pay   Comp   Acct EOY   Cont.   Acct EOY   Cont.   Acct EOY   Service   51               172,909                       52   298,800   240,000   210,000   184,148   0 (6) 0   0 (6) 0   0.25   53   310,752   249,600   215,000   196,118   6,450   6,656   12,900   13,313   1.25   54   323,182   259,584   220,000   208,866   6,600   13,900   13,200   27,800   2.25   55   336,109   269,967   225,000   222,442   6,750   21,770   13,500   43,539   3.25   56   349,554   280,766   235,000   236,901   7,050   30,460   14,100   60,920   4.25   57   363,536   291,997   240,000   252,299   7,200   39,870   14,400   79,741   5.25   58   378,077   303,677   245,000   268,699   7,350   50,047   14,700   100,094   6.25   59   393,200   315,824   250,000   286,164   7,500   61,040   15,000   122,080   7.25   60   408,928   328,457   255,000   304,765   7,650   72,902   15,300   145,805   8.25   61   425,286   341,595   265,000   324,575   7,950   85,845   15,900   171,690   9.25   62   442,297   355,259   270,000   345,672   8,100   99,784   16,200   199,569   10.25   63   459,989   369,469   275,000   368,141   8,250   114,784   16,500   229,568   11.25   64   478,388   384,248   285,000   392,070   8,550   131,069   17,100   262,137   12.25             Exec                               Gross   Exec           Corp Tax on   Total Cost of   BOY   Total   Cont   Gross   Exec Net   Exec Acct   Exec Inv   Exec Plan   Age   Comp   Percent   Cont.   Cont.(5)   EOY   Earnings   (Cont. + Tax)   51                               52   298,800   14,00 % 33,600   33,600 (8) 34,675   392   33,992   53   310,752   14,00 % 34,944   15,594   53,021   1,005   16,599   54   323,182   14,00 % 36,342   16,542   73,539   1,451   17,993   55   336,109   14.00 % 37,795   17,545   96,426   1,950   19,495   56   349,554   14.00 % 39,307   18,157   121,431   2,500   20,657   57   363,536   15.00 % 43,800   22,200   152,234   3,140   25,340   58   378,077   15.00 % 45,551   23,501   186,382   3,886   27,388   59   393,200   15.00 % 47,374   24,874   224,166   4,712   29,586   60   408,928   15.00 % 49,268   26,318   265,898   5,626   31,944   61   425,286   15.00 % 51,239   27,389   311,446   6,628   34,017   62   442,297   16.00 % 56,841   32,541   365,273   7,769   40,310   63   459,989   16.00 % 59,115   34,365   424,480   9,067   43,432   64   478,388   16.00 % 61,480   35,830   489,047   10,489   46,319     -------------------------------------------------------------------------------- (1)    a. Size of fund will limit investment options.     b. Size of fund will result in higher fees than company pension plan.     c. 8% pension plan assumption is relatively aggressive today.     d. Company has risk if defined benefit pension plan fails to meet the 8% assumption. (2) Annuity purchase interest assumption. Represents fixed Income return rate. (3) Assumes full company match. No employee contributions are counted toward the 47% of pay target. (4) Short term bonus assumption is approximately half of target. (5) Plan is graduated for larger contributions in later years. (6) First year exclusion from Cascade qualified plans.   --------------------------------------------------------------------------------   Cascade Natural Gas Executive Defined Contribution Plan Benefit Projection       Benefit   Pct of Final 3yr Avg               Age 65 Benefit Calculation for Rick Davis             Total Target Replacement Ratio Under Non Qualified Plan at Age 65               1) Final 3 Year Average Base Salary   369,658           2) 47% x Final 3 Year Average Base Salary   173,739   47.0 %                   Elements to Reach Target                         1. Social Security Benefit               1) Projected Social Security benefit beginning at age 65   36,665           2) One half of Projected Social Security benefit   18,332   5.0 %                 2. Qualified Plan Benefit               1) CNG Match Account   131,069           2) CNG Other DC Accounts   262,137           3) Annuity Factor at age 65   11.31327           4) CNG Qualified Plans annual annuity at age 65   34,756   9.4 %                 3. Prior Employer Qualified Benefits               1) Weyerhaueser single life annuity at age 65   32,488           2) DC plan account, converted to single life annuity at age 65   34,656           3) Total annuity from prior employer qualified plans   67,144   18.2 %                 4. Prior Employer Non-Qualified Benefits               1) Weyerhaueser non-qualified single life annuity at age 65   9,890   2.7 %                 5. Target Executive DC Benefit Payable in Order to Meet Retirement Objective at Age 65   43,617   11.8 %                   Proposed Executive DC Plan Design Results               1) Executive DC Plan account balance at age 65   489,047           2) Executive DC Plan annual annuity at age 65   43,228   11.7 %   --------------------------------------------------------------------------------

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  Exhibit 10.1 SOMAXON PHARMACEUTICALS, INC. EMPLOYMENT AGREEMENT      Employment Agreement (this “Agreement”) made and entered into as of November 9, 2006, between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Brian Dorsey, an individual (“Executive”). W I T N E S S E T H:      Whereas, the Company desires to employ Executive and Executive desires to accept employment with Company upon the terms and conditions hereinafter set forth;      Now, Therefore, in consideration of the premises and the mutual covenants hereinafter set forth, and intending to be legally bound hereby, it is hereby agreed as follows:           1. Position and Duties. Executive shall diligently and conscientiously devote Executive’s full business time, attention, energy, skill and diligent efforts to the business of the Company and the discharge of Executive’s duties hereunder. Executive’s duties under this Agreement shall be to serve as Vice President, Manufacturing and Program Management, with the responsibilities, rights, authority and duties customarily pertaining to such office and as may be established from time to time by or under the direction of the Board of Directors of the Company (the “Board”) or its designees. Executive shall report to the Board and the President and Chief Executive Officer of the Company. Executive shall also act as an officer and/or director and/or manager of such affiliates of the Company as may be designated by the Board from time to time, commensurate with Executive’s office, all without further compensation, other than as provided in this Agreement. As an exempt, salaried employee, Executive will be expected to work such hours as required by the nature of Executive’s work assignments.           2. Place and Term of Employment. Executive’s performance of services under this Agreement shall be rendered in San Diego County, California, subject to necessary travel requirements of Executive’s position and duties hereunder. Executive’s employment shall not be for a particular term and may be terminated by either Executive or the Company at any time, for any reason or no reason, subject to the provisions contained in Paragraph 7.           3. Compensation.                (a) Base Salary. The Company shall pay to Executive base salary compensation at an annual rate of $215,000. Following the end of the Company’s fiscal year 2007, and annually thereafter, the Board shall review Executive’s base salary in light of the performance of Executive and the Company, and may, in its sole discretion, maintain or increase (but not decrease) such base salary by an amount it determines to be appropriate. Executive’s annual base salary payable hereunder, as it may be maintained or increased from time to time, is referred to herein as “Base Salary.” Base Salary shall be paid in equal installments in accordance with the Company’s payroll practices in effect from time to time for executive officers, but in no event less frequently than monthly.                (b) Bonus Plan. The Company shall adopt a bonus program providing for annual bonus awards to Executive and the Company’s other eligible employees dependent upon, among other things, the achievement of certain performance levels by the Company, the nature, magnitude and quality of the services performed by Executive for the Company and the compensation paid for positions   --------------------------------------------------------------------------------   of comparable responsibility and authority within the Company’s industry (the “Company Employee Bonus Plan”).                (c) Option Grant. As additional consideration for the services to be rendered by Executive under this Agreement, the Company will grant to Executive stock options to purchase 33,000 shares of the Company’s common stock, subject to approval of the Board. The exercise price per share of such options will be equal to the fair market value per share on the date the options are granted. The stock options will vest over four years, with 1/4 of the shares subject to the stock options vesting on the first anniversary of the date the stock options are granted, and the remainder vesting monthly at a rate of 1/36th of such remainder on the first day of each calendar month thereafter until all shares are vested. The stock options will be granted under the Company’s 2005 Equity Incentive Award Plan (the “Option Plan”) and will be subject to the terms and conditions applicable to stock options granted under that plan, as described in that plan and the applicable stock option agreement.           4. Benefits. Executive shall be eligible to participate in all employee benefit programs of the Company offered from time to time during the term of Executive’s employment by the Company to employees or executive officers of Executive’s rank, to the extent that Executive qualifies under the eligibility provisions of the applicable plan or plans, in each case consistent with the Company’s then-current practice as approved by the Board from time to time. Except to the extent financially feasible for the Company, the foregoing shall not be construed to require the Company to establish such plans or to prevent the modification or termination of such plans once established, and no such action or failure thereof shall affect this Agreement. Executive recognizes that the Company has the right, in its sole discretion, to amend, modify or terminate its benefit plans without creating any rights in Executive.           5. Vacation. Executive shall be entitled to paid vacation and sick time (“PTO”) of up to four weeks per calendar year. Executive may roll-over unused PTO time from one calendar year to another, subject to a maximum of six weeks of accrued PTO, which is to be accrued in accordance with the Company’s PTO policy.           6. Business Expenses. The Company shall promptly reimburse Executive for Executive’s reasonable and necessary expenditures for travel, entertainment and similar items made in furtherance of Executive’s duties under this Agreement consistent with the policies of the Company as applied to all executive officers. Executive shall document and substantiate such expenditures as required by the policies of the Company as applied to all executive officers, including an itemized list of all expenses incurred, the business purposes for which such expenses were incurred, and such receipts as Executive reasonably has been able to obtain.           7. Termination of Employment.                (a) Death or Disability.                     (i) In the event of Executive’s death, Executive’s employment with the Company shall automatically terminate.                     (ii) Each of the Company and Executive shall have the right to terminate Executive’s employment in the event of Executive’s Disability. “Disability” as used in this Agreement shall have meaning set forth in Section 22(e)(3) of the Internal Revenue Code, which as of the date of this Agreement is as follows: “An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a   --------------------------------------------------------------------------------   continuous period of not less than 12 months.” A termination of Executive’s employment by either party for Disability shall be communicated to the other party by written notice, and shall be effective on the 10th day after receipt of such notice by the other party (the “Disability Effective Date”), unless Executive returns to full-time performance of Executive’s duties before the Disability Effective Date.                (b) By the Company.                     (i) The Company shall have the right to terminate Executive’s employment for Cause. “Cause” as used in this Agreement shall mean:                          (a) Executive’s breach of any of the covenants contained in Paragraphs 8, 9, and 10 of this Agreement;                          (b) Executive’s conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent and final jurisdiction for any crime involving moral turpitude or punishable by imprisonment in the jurisdiction involved;                          (c) Executive’s commission of an act of fraud, whether prior to or subsequent to the date hereof upon the Company;                          (d) Executive’s continuing repeated willful failure or refusal to perform Executive’s duties as required by this Agreement (including, without limitation, Executive’s inability to perform Executive’s duties hereunder as a result of chronic alcoholism or drug addiction and/or as a result of any failure to comply with any laws, rules or regulations of any governmental entity with respect to Executive’s employment by the Company);                          (e) Executive’s gross negligence, insubordination or material violation of any duty of loyalty to the Company or any other material misconduct on the part of Executive;                          (f) Executive’s intentional commission of any act which Executive knows (or reasonably should know) is likely to be materially detrimental to the Company’s business or goodwill; or                          (g) Executive’s material breach of any other provision of this Agreement, provided that termination of Executive’s employment pursuant to this subsection (g) shall not constitute valid termination for good cause unless Executive shall have first received written notice from the Board stating with specificity the nature of such breach and affording Executive at least twenty days to correct the breach alleged. Nothing in this Paragraph 7(b)(i) shall prevent Executive from challenging the Board’s determination that Cause exists or that Executive has failed to cure any act (or failure to act) that purportedly formed the basis for the Board’s determination, under the arbitration procedures set forth in Paragraph 19 below.                     (ii) The Company shall have the right to terminate Executive’s employment hereunder without Cause at any time.                (c) By Executive.                     (i) Executive shall have the right to terminate his employment with the Company for Good Reason (as defined below), upon 30 days’ written notice to the Board given   --------------------------------------------------------------------------------   within 60 days following the occurrence of an event constituting Good Reason; provided that the Company shall have 20 days after the date such notice has been given to the Board in which to cure the conduct specified in such notice. Executive’s continued employment during such 20-day period shall not constitute Executive’s consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.                     (ii) For purposes of this Agreement “Good Reason” shall mean:                          (a) a change in Executive’s position or responsibilities (including reporting responsibilities) that represents a substantial reduction in the position or responsibilities as in effect immediately prior thereto; the assignment to Executive of any duties or responsibilities that are materially inconsistent with such position or responsibilities; or any removal of Executive from or failure to reappoint or reelect Executive to any of such positions, except in connection with the termination of Executive’s employment for Cause, as a result of his or her Disability or death, or by Executive other than for Good Reason;                          (b) a reduction in Executive’s Base Salary other than in connection with a general reduction in wages for all employees of the Company and its parent and subsidiaries, if any;                          (c) the Company requiring Executive (without Executive’s consent) to be based at any place outside a 50-mile radius of his or her initial place of employment with the Company, except for reasonably required travel on the Company’s business;                          (d) the Company’s failure to provide Executive with compensation and benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided for under each of the Company’s material employee benefit plans, programs and practices as in effect from time to time; or                          (e) any material breach by the Company of its obligations to Executive under this Agreement.                     (iii) Executive shall have the right to terminate his or her employment hereunder without Good Reason upon 30 days’ written notice to the Company, and such termination shall not in and of itself be a breach of this Agreement.                (d) Termination Payments.                     (i) If Executive’s employment with the Company is terminated pursuant to Paragraph 7(a)(i) (i.e., death), the Company shall pay to Executive (a) his or her accrued but unpaid Base Salary through the date of termination (plus all accrued and unpaid expenses reimbursable in accordance with Paragraph 6), (b) any accrued but unused PTO, and (c) at the discretion of the Board, an annual bonus for the year in which Executive’s death occurs, prorated through the date of death, based on the Board’s good-faith estimate of the actual amount, if any, that would have been payable for such year under the Company Employee Bonus Plan (assuming Executive had remained employed by the Company through the end of such year) in accordance with Paragraph 3(b).                     (ii) If Executive’s employment with the Company is terminated pursuant to Paragraph 7(a)(ii) (i.e., Disability), the Company shall pay to Executive (a) his or her accrued but unpaid Base Salary through the date of termination (plus all accrued and unpaid expenses   --------------------------------------------------------------------------------   reimbursable in accordance with Paragraph 6), (b) any accrued but unused PTO, (c) an amount equal to Executive’s actual Base Salary (not including any bonus payable) for the 6 month period immediately prior to such termination, payable in 6 equal installments during the 6 month period following such termination, and (d) at the discretion of the Board, an annual bonus for the year in which Executive’s Disability occurs, prorated through the date of termination, based on the Board’s good-faith estimate of the actual amount, if any, that would have been payable for such year under the Company Employee Bonus Plan (assuming Executive had remained employed by the Company through the end of such year) in accordance with Paragraph 3(b).                     (iii) If Executive’s employment with the Company is voluntarily terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason), or if the Company terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or 7(b)(i), then the Company shall pay to Executive the following, which Executive acknowledges to be fair and reasonable, as consideration for the Release described in Paragraph 7(f):                          (a) Executive’s accrued but unpaid Base Salary through the date of termination (plus all accrued and unpaid expenses reimbursable in accordance with Paragraph 6);                          (b) any accrued but unused PTO;                          (c) at the discretion of the Board, an annual bonus for the year in which Executive’s employment is terminated, prorated through the date of termination, based on the Board’s good-faith estimate of the actual amount, if any, that would have been payable for such year under the Company Employee Bonus Plan (assuming Executive had remained employed by the Company through the end of such year) in accordance with Paragraph 3(b);                          (d) subject to Paragraphs 7(d)(vi) and 7(g) below, an amount equal to Executive’s actual Base Salary (not including any bonus payable) for the 6 month period immediately prior to such termination, payable in 6 equal installments during the 6 month period following such termination;                          (e) the Company shall pay all costs which the Company would otherwise have incurred to maintain all of Executive’s health, welfare and retirement benefits (either on the same or substantially equivalent terms and conditions) if Executive had continued to render services to the Company for 6 continuous months after the date of his or her termination of employment; and                          (f) notwithstanding any provision to the contrary in Executive’s options under the Option Plan or other plan (including, without limitation, the expiration dates or vesting provisions thereof) or any restricted stock agreement, (i) the unvested portion, if any, of Executive’s outstanding options shall be deemed to have vested on the date of termination with respect to the number of shares that would have vested had Executive remained employed by the Company for 12 months following such termination, and Executive shall have the lesser of (A) 180 days or (B) the maximum period permitted under Section 409A of the Code from the date of termination to exercise such options, and (ii) any restrictions with respect to any restricted shares of the Company’s capital stock that Executive then holds shall immediately lapse with respect to the number of restricted shares that would have vested had Executive remained employed by the Company for 12 months following such termination.                     (iv) If Executive’s employment with the Company is terminated by the Company pursuant to Paragraph 7(b)(i) (i.e., for Cause), or Executive voluntarily terminates his   --------------------------------------------------------------------------------   employment with the Company other than pursuant to Paragraphs 7(a) or 7(c)(i), without limiting or prejudicing any other legal or equitable rights or remedies which the Company may have upon such breach by Executive, the Company shall pay Executive his or her accrued but unpaid Base Salary and any accrued but unused PTO (plus all accrued and unpaid expenses reimbursable in accordance with Paragraph 6) through the date of termination.                     (v) In addition to the foregoing, upon the termination of Executive’s employment, Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provisions of any other benefit, compensation, incentive, medical, disability or life insurance plans, programs or agreements of the Company in effect upon such termination.                     (vi) Executive shall not be required to mitigate amounts payable under this Agreement by seeking other employment or otherwise; provided, however, if the termination giving rise to the payments described in Paragraph 7(d)(iii)(d) above results from the Executive’s voluntary termination of his employment with the Company pursuant to Paragraph 7(c)(i) (i.e., Good Reason), then during the 6 month period specified in Paragraph 7(d)(iii)(d) above, any compensation, income, or benefits earned by or paid to Executive (in cash or otherwise) by any company, business, enterprise, or other employer other than the Company (whether as an employee of, or consultant or independent contractor to, such employer, or otherwise) shall reduce the amount of severance payments payable pursuant to Paragraph 7(d)(iii)(d) on a dollar-for-dollar basis. If any payment to be made to Executive pursuant to Paragraph 7(d)(iii)(d) is delayed pursuant to Paragraph 7(g) below, and such payment is reduced pursuant to this Paragraph 7(d)(iv), the net payment that would be due to Executive absent the operation of Paragraph 7(g) shall be paid to Executive in a lump sum as soon as permitted under Paragraph 7(g) below.                     (vii) The termination payments described above shall supersede any severance program, plan or policy that may be adopted by the Company with respect to its employees generally, and the terms of this Paragraph 7(d) shall control in the event of any discrepancy with such severance program, plan or policy.                (e) Change in Control.                     (i) In the event of any Change in Control (defined below) during the term of Executive’s employment with the Company, notwithstanding any provision to the contrary in Executive’s options under the Option Plan or other plan (including, without limitation, the expiration dates or vesting provisions thereof) or any restricted stock agreement (1) (A) 50% of any unvested portion of such options shall be deemed to have vested on the date of the Change in Control and (B) the remaining unvested portion of such options shall vest on the date that is 12 months from the closing of such Change in Control, subject to Executive’s continuing service with the Company or any parent or subsidiary or successor on such date, and (2) (A) the restrictions with respect to 50% of the restricted shares of the Company’s capital stock that Executive then holds shall immediately lapse on the date of the Change in Control and (B) the restrictions with respect to any remaining restricted shares shall lapse on the date that is 12 months from the closing of such Change in Control, subject to Executive’s continuing service with the Company or any parent or subsidiary or successor on such date.                     (ii) Following a Change in Control, if Executive’s employment with the Company is voluntarily terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason), or if the Company terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or 7(b)(i), then, in addition to the application of Paragraph 7(d)(iii) to such situation, notwithstanding any provision to the contrary in Executive’s options under the Option Plan or other plan   --------------------------------------------------------------------------------   (including, without limitation, the expiration dates or vesting provisions thereof) or any restricted stock agreement, (1) any unvested portion of such options shall be deemed to have vested on the date of termination and Executive shall have the lesser of (i) 180 days or (ii) the maximum period permitted under Section 409A of the Internal Revenue Code (the “Code”)from the date of termination to exercise such options and (2) any restrictions with respect to restricted shares of the Company’s capital stock that Executive then holds shall immediately lapse on the date of termination.                     (iii) “Change in Control” means and includes each of the following:                          (a) the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent 50% or more of the combined voting power of the Company’s then outstanding voting securities, other than:                             (1) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or                             (2) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or                             (3) an acquisition of voting securities pursuant to a transaction described in subsection (c) below that would not be a Change in Control under subsection (c);           Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Paragraph 7(e)(iii)(a): an acquisition of the Company’s securities by the Company which causes the Company’s voting securities beneficially owned by a person or group to represent 50% or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of 50% or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change in Control; or                          (b) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Subparagraphs (a) or (c) of this Paragraph 7(e)(iii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or                          (c) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a   --------------------------------------------------------------------------------   merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:                             (1) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)), directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and                             (2) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or                          (d) the Company’s stockholders approve a liquidation or dissolution of the Company.           For purposes of Subparagraph 7(e)(iii)(a) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Company’s stockholders, and for purposes of Subparagraph 7(e)(iii)(c) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company’s stockholders.                     (f) Condition Precedent. If Executive’s employment with the Company is voluntarily terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason) or if the Company terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or 7(b)(i), prior to the receipt of any payments or benefits provided by Paragraphs 7(d)(iii) and 7(e)(ii) on account of the occurrence of such termination of Executive’s employment with the Company, Executive shall execute a “Release” in the form attached hereto as Exhibit A or Exhibit B, as appropriate. Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Proprietary Information and Inventions Agreement between Executive and the Company. It is understood that, in the event that Executive is at least 40 years old on the date of the termination of his or her employment with the Company, Executive has a certain period to consider whether to execute such Release, and Executive may revoke such Release within 7 business days after execution. In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent 7 business day period, Executive shall not be entitled to the aforesaid payments and benefits.                     (g) Delay of Payments. Notwithstanding anything to the contrary in this Paragraph 7, the parties acknowledge and agree that any payment to be made, or benefit provided, to Executive pursuant to this Paragraph 7 shall be delayed to the extent necessary for this Agreement and such payment or benefit to comply with Section 409A of the Code; provided that if any payment to be made to Executive is delayed pursuant to this Subparagraph 7(g), such payment or benefit shall be paid to Executive in a lump sum as soon as permitted under Section 409A of the Code. In the event the Company and Executive mutually determine that a change in applicable law following the Effective Date causes the payments to be made, or benefits to be provided, to Executive pursuant to this Paragraph 7 not   --------------------------------------------------------------------------------   to be subject to Section 409A of the Code, such payments and benefits payable thereafter to Executive shall be paid in accordance with this Paragraph 7 without reference to this Paragraph 7(g). In addition, in the event the Company and Executive mutually determine that a change in applicable law following the Effective Date causes the payments to be made, or benefits to be provided, to be payable to Executive without a delay but in another manner that complies with Section 409A of the Code, the Company and Executive agree to amend this Agreement at such time to reform the payment provisions of this Paragraph 7 to provide economic benefits to Executive that are as close as possible to those contemplated by this Paragraph 7 without reference to this Paragraph 7(g) but that still comply with Section 409A of the Code.           8. Proprietary Information and Inventions Agreement. As a condition of continued employment, Executive will be required to continue to comply with the Proprietary Information and Inventions Agreement between Executive and the Company. In Executive’s work for the Company, Executive will be expected not to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom Executive has an obligation of confidentiality. Rather, Executive will be expected to use only that information which is generally known and used by persons with training and experience comparable to Executive’s, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. Executive agrees that he or she will not bring onto Company premises any unpublished documents or property belonging to any former employer or other person to whom Executive has an obligation of confidentiality.           9. Minimum Business Hours; Non-Solicitation; etc.                (a) Nonsolicitation of Employees or Consultants. Executive agrees that for a period of one year after termination of Executive’s employment with the Company (the “Nonsolicitation Period”), Executive will not directly or indirectly induce or solicit any of the Company’s employees or consultants to leave their employment.                (b) Nonsolicitation of Customers. Executive agrees that all customers of the Company or any of its subsidiaries for which Executive has or will provide services during the term of Executive’s employment with the Company, and all prospective customers from whom Executive has solicited business while in the employ of the Company, shall be solely the customers of the Company or such subsidiary. Executive agrees that, for the Nonsolicitation Period, Executive shall neither directly nor indirectly solicit business as to products or services competitive with those of the Company or any of its subsidiaries, from any of the Company’s or any of its subsidiaries’ customers with whom Executive had contact within one year prior to Executive’s termination.                (c) Scope of Covenants. Executive agrees that the covenants contained in this Paragraph 9 are reasonable with respect to their duration, geographic area and scope. If, at the time of enforcement of this Paragraph 9, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographic area legally permissible under such circumstances will be substituted for the period, scope or area stated herein.                (d) Equitable Relief. In the event of a breach of this Paragraph 9 by Executive, the Company shall, in addition to all other remedies available to it, be entitled to equitable relief by way of an injunction and any other legal or equitable remedies.           10. Nondisparagement. Executive will not at any time during or after the term of Executive’s employment with the Company directly (or through any other person or entity) make any public statements (whether orally or in writing) which are intended to be derogatory or damaging to the   --------------------------------------------------------------------------------   Company or any of its subsidiaries, their respective businesses, activities, operations, affairs, reputations or prospects or any of their respective officers, employees, directors, partners, agents or shareholders; provided that Executive may comment generally on industry matters in response to inquiries from the press and in other public speaking engagements. The Company shall not at any time during or after the term of Executive’s employment with the Company, directly (or through any other person or entity) make any public statements (whether oral or in writing) which are intended to be derogatory or damaging concerning Executive.           11. Indemnification; Directors & Officers Insurance.                 (a) The Company shall indemnify Executive to the maximum extent permitted by law and by the charter and bylaws of Company if Executive is made a party, or threatened to be made a party, to any threatened or pending legal action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that Executive is or was an officer, director, manager, member, partner or employee of the Company, in which capacity Executive is or was serving at the Company’s request, against reasonable expenses (including reasonable attorneys’ fees), judgments, fines and settlement payments incurred by him or her in connection with such action, suit or proceeding.                 (b) The Company shall use reasonable commercial efforts to maintain directors & officers insurance for the benefit of Executive and other executive officers and directors with a level of coverage comparable to other companies in the Company’s industry at a similar stage of development.                 (c) Concurrently with entering into this Agreement, the Company and Executive will enter into an Indemnification Agreement in the form attached hereto as Exhibit C.           12. Representation of the Parties. Executive represents and warrants to the Company that Executive has the capacity to enter into this Agreement and the other agreements referred to herein, and that the execution, delivery and performance of this Agreement and such other agreements by Executive will not violate any agreement, undertaking or covenant to which Executive is party or is otherwise bound. The Company represents to Executive that it is duly formed and is validly existing under the laws of the State of Delaware, that it is fully authorized and empowered by action of its Board to enter into this Agreement and the other agreements referred to herein, and that performance of its obligations under this Agreement and such other agreements will not violate any agreement between it and any other person, firm or other entity.           13. Key Man Insurance. The Company will have the right throughout the term of Executive’s employment with the Company to obtain or increase insurance on Executive’s life in such amount as the Board determines, in the name of the Company or and for its sole benefit or otherwise, in the discretion of the Board. Upon reasonable advance notice, Executive will cooperate in any and all necessary physical examinations without expense to Executive, supply information, and sign documents, and otherwise cooperate fully with the Company as the Company may request in connection with any such insurance. Executive warrants and represents that, to Executive’s best knowledge, Executive is in good health and does not suffer from any medical condition which might interfere with the timely performance of Executive’s obligations under this Agreement. To the extent the Company elects to obtain a policy of insurance on the life of Executive, unless an alternative life insurance benefit has been established for the Company’s executive officers, including Executive, the Company shall also obtain and pay for a whole life insurance policy providing for payment of not less than the equivalent of one year’s Base Salary in benefits to Executive’s designated beneficiaries (this policy shall be in addition to any coverage provided by the Company’s group life insurance plan provided to employees generally).   --------------------------------------------------------------------------------             14. Notices. All notices given under this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) three business days after being mailed by first class certified mail, return receipt requested, postage prepaid, (c) one business day after being sent by a reputable overnight delivery service, postage or delivery charges prepaid, or (d) on the date on which a facsimile is transmitted to the parties at their respective addresses stated below. Any party may change its address for notice and the address to which copies must be sent by giving notice of the new addresses to the other parties in accordance with this Paragraph 14, except that any such change of address notice shall not be effective unless and until received.               If to the Company:                   Somaxon Pharmaceuticals, Inc.         Attn: Kenneth Cohen         3721 Valley Centre Drive, Suite 500         San Diego, CA 92130                   If to Executive:                   Brian Dorsey                                                       15. Entire Agreement, Amendments, Waivers, Etc.                   (a) No amendment or modification of this Agreement shall be effective unless set forth in a writing signed by the Company and Executive. No waiver by either party of any breach by the other party of any provision or condition of this Agreement shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time. Any waiver must be in writing and signed by the waiving party.                   (b) This Agreement, together with the Exhibits hereto and the documents referred to herein and therein, sets forth the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written understandings and agreements. There are no representations, agreements, arrangements or understandings, oral or written, among the parties relating to the subject matter hereof which are not expressly set forth herein, and no party hereto has been induced to enter into this Agreement, except by the agreements expressly contained herein.                   (c) Nothing herein contained shall be construed so as to require the commission of any act contrary to law, and wherever there is a conflict between any provision of this Agreement and any present or future statute, law, ordinance or regulation, the latter shall prevail, but in such event the provision of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it within legal requirements.                   (d) This Agreement shall inure to the benefit of and be enforceable by Executive and Executive’s heirs, executors, administrators and legal representatives, and by the Company and its successors and assigns. This Agreement and all rights hereunder are personal to Executive and shall not be assignable. 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, by operation of law or by agreement in form and substance reasonably satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to   --------------------------------------------------------------------------------   the same extent that the Company would be required to perform it if no such succession had taken place.                   (e) If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect the other provisions or application of this Agreement that can be given effect without the invalid provisions or application, and to this end the provisions of this Agreement are declared to be severable.           16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to principles of conflict of laws.           17. Taxes. All payments required to be made to Executive hereunder, whether during the term of Executive’s employment hereunder or otherwise, shall be subject to all applicable federal, state and local tax withholding laws.           18. Headings, Etc. The headings set forth herein are included solely for the purpose of identification and shall not be used for the purpose of construing the meaning of the provisions of this Agreement. Unless otherwise provided, references herein to Exhibits and Paragraphs refer to Exhibits to and Paragraphs of this Agreement.           19. Arbitration. Any dispute or controversy between Company and Executive, arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration in San Diego, California administered by the American Arbitration Association in accordance with its National Rules for the Resolution of Employment Disputes then in effect and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of Company and Executive. The Company shall pay all of the direct costs and expenses in any arbitration hereunder and the arbitrator’s fees and costs; provided, however, that the arbitrator shall have the discretion to award the prevailing party reimbursement of its, his or her reasonable attorney’s fees and costs.           20. Survival. Executive’s obligations under the provisions of Paragraphs 8, 9 and 10, as well as the provisions of Paragraphs 6, 7(d), 7(e)(ii), 11 and 15 through and including 23, shall survive the termination or expiration of this Agreement.           21. Confidentiality. The parties agree that the existence and terms of this Agreement are and shall remain confidential. The parties shall not disclose the fact of this Agreement or any of its terms or provisions to any person without the prior written consent of the other party hereto; provided, however, that nothing in this Paragraph 21 shall prohibit disclosure of such information to the extent required by law, nor prohibit disclosure of such information by Executive to any legal or financial consultant, all of whom shall first agree to be bound by the confidentiality provisions of this Paragraph 21, nor prohibit disclosure of such information within the Company in the ordinary course of its business to those persons with a need to know, as reasonably determined by the Company, or by the Company to any legal or financial consultant.   --------------------------------------------------------------------------------             22. Construction. Each party has cooperated in the drafting and preparation of this Agreement. Therefore, in any construction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter.           23. Section 409A of the Code. Subject to Subparagraph 7(g), this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Section 409A of the Code. Notwithstanding any provision of this Agreement to the contrary, the Company may adopt such amendments to this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary to comply with the requirements of Section 409A of the Code; provided that prior to taking any such action Company shall confer with Executive and take Executive’s input into account in good faith. (Signature Page Follows)   --------------------------------------------------------------------------------             In Witness Whereof, the parties have executed this Agreement as of the date first above written.                   COMPANY:                       Somaxon Pharmaceuticals, Inc.                       By      /s/ Kenneth Cohen   Name: Kenneth Cohen             Title: President and CEO                       EXECUTIVE:                       /s/ Brian Dorsey                   Brian Dorsey       --------------------------------------------------------------------------------   Exhibit A RELEASE (Individual Termination)      Certain capitalized terms used in this Release are defined in the Employment Agreement by and between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Brian Dorsey (“Executive”) dated as of the 9th day of November, 2006 (the “Agreement”) which Executive has previously executed and of which this Release is a part.      Pursuant to the Agreement, and in consideration of and as a condition precedent to the payments and benefits provided under Paragraphs 7(d)(iii) and 7(e)(ii) of the Agreement, Executive hereby furnishes the Company with this Release.      Executive hereby confirms his/her obligations under the Company’s proprietary information and inventions agreement.      On Executive’s own behalf and on behalf of Executive’s heirs, estate and beneficiaries, Executive hereby waives, releases, acquits and forever discharges the Company, and each of its Subsidiaries and affiliates, and each of their respective past or present officers, directors, agents, servants, employees, shareholders, predecessors, successors and assigns, and all persons acting by, through, under, or in concert with them, or any of them, of and from any and all suits, debts, liens, contracts, agreements, promises, claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, fixed or contingent, suspected and unsuspected, disclosed and undisclosed (“Claims”), from the beginning of time to the date hereof, including without limitation, Claims that arose as a consequence of Executive’s employment with the Company, or arising out of the termination of such employment relationship, or arising out of any act committed or omitted during or after the existence of such employment relationship, all up through and including the date on which this Release is executed, including, but not limited to, Claims which were, could have been, or could be the subject of an administrative or judicial proceeding filed by Executive or on Executive’s behalf under federal, state or local law, whether by statute, regulation, in contract or tort. This Release includes, but is not limited to: (1) Claims for intentional and negligent infliction of emotional distress; (2) tort Claims for personal injury; (3) Claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interest in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, front pay, back pay or any other form of compensation; (4) Claims for breach of contract; (5) Claims for any form of retaliation, harassment, or discrimination; (6) Claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended, the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”), the federal Employee Retirement Income Security Act of 1974, as amended, the federal Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, as amended, and the California Labor Code; and (7) all other Claims based on tort law, contract law, statutory law, common law, wrongful discharge, constructive discharge, fraud, defamation, emotional distress, pain and suffering, breach of the implied covenant of good faith and fair dealing, compensatory or punitive damages, interest, attorneys’ fees, and reinstatement or re-employment. If any court rules that Executive’s waiver of the right to file any administrative or judicial charges or complaints is ineffective, Executive agrees not to seek or accept any money damages or any other relief upon the filing of any such administrative or judicial charges or complaints.      Executive acknowledges that he/she has read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does 1 --------------------------------------------------------------------------------   not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” Executive hereby expressly waives and relinquishes all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to his/her release of any unknown Claims Executive may have against the Company.      Notwithstanding the foregoing, nothing in this Release shall constitute a release by Executive of any claims or damages based on any right Executive may have to enforce the Company’s executory obligations under the Agreement, any right Executive may have to vested or earned compensation and benefits, or Executive’s eligibility for indemnification under applicable law, Company governance documents, Executive’s indemnification agreement with the Company or under any applicable insurance policy with respect to Executive’s liability as an employee or officer of the Company.      If Executive is 40 years of age or older at the time of the termination, Executive acknowledges that he/she is knowingly and voluntarily waiving and releasing any rights he/she may have under ADEA. Executive also acknowledges that the consideration given under the Agreement for the Release is in addition to anything of value to which he/she was already entitled. Executive further acknowledges that he/she has been advised by this writing, as required by the ADEA, that: (A) his/her waiver and release do not apply to any rights or claims that may arise on or after the date he/she executes this Release; (B) Executive has the right to consult with an attorney prior to executing this Release; (C) Executive has 21 days to consider this Release (although he/she may choose to voluntarily execute this Release earlier); (D) Executive has 7 days following the execution of this Release to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the 8th day after this Release is executed by Executive, without Executive’s having given notice of revocation.      Executive further acknowledges that Executive has carefully read this Release, and knows and understands its contents and its binding legal effect. Executive acknowledges that by signing this Release, Executive does so of Executive’s own free will, and that it is Executive’s intention that Executive be legally bound by its terms.                             Brian Dorsey                       Date:                       2 --------------------------------------------------------------------------------   Exhibit B RELEASE (Group Termination)      Certain capitalized terms used in this Release are defined in the Employment Agreement by and between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Brian Dorsey (“Executive”) dated as of the 9th day of November, 2006 (the “Agreement”) which Executive has previously executed and of which this Release is a part.      Pursuant to the Agreement, and in consideration of and as a condition precedent to the payments and benefits provided under Paragraphs 7(d)(iii) and 7(e)(ii) of the Agreement, Executive hereby furnishes the Company with this Release.      Executive hereby confirms his/her obligations under the Company’s proprietary information and inventions agreement.      On Executive’s own behalf and on behalf of Executive’s heirs, estate and beneficiaries, Executive hereby waives, releases, acquits and forever discharges the Company, and each of its Subsidiaries and affiliates, and each of their respective past or present officers, directors, agents, servants, employees, shareholders, predecessors, successors and assigns, and all persons acting by, through, under, or in concert with them, or any of them, of and from any and all suits, debts, liens, contracts, agreements, promises, claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, fixed or contingent, suspected and unsuspected, disclosed and undisclosed (“Claims”), from the beginning of time to the date hereof, including without limitation, Claims that arose as a consequence of Executive’s employment with the Company, or arising out of the termination of such employment relationship, or arising out of any act committed or omitted during or after the existence of such employment relationship, all up through and including the date on which this Release is executed, including, but not limited to, Claims which were, could have been, or could be the subject of an administrative or judicial proceeding filed by Executive or on Executive’s behalf under federal, state or local law, whether by statute, regulation, in contract or tort. This Release includes, but is not limited to: (1) Claims for intentional and negligent infliction of emotional distress; (2) tort Claims for personal injury; (3) Claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interest in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, front pay, back pay or any other form of compensation; (4) Claims for breach of contract; (5) Claims for any form of retaliation, harassment, or discrimination; (6) Claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended, the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”), the federal Employee Retirement Income Security Act of 1974, as amended, the federal Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, as amended, and the California Labor Code; and (7) all other Claims based on tort law, contract law, statutory law, common law, wrongful discharge, constructive discharge, fraud, defamation, emotional distress, pain and suffering, breach of the implied covenant of good faith and fair dealing, compensatory or punitive damages, interest, attorneys’ fees, and reinstatement or re-employment. If any court rules that Executive’s waiver of the right to file any administrative or judicial charges or complaints is ineffective, Executive agrees not to seek or accept any money damages or any other relief upon the filing of any such administrative or judicial charges or complaints.      Executive acknowledges that he/she has read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does 1 --------------------------------------------------------------------------------   not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” Executive hereby expressly waives and relinquishes all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to his/her release of any unknown Claims Executive may have against the Company.      Notwithstanding the foregoing, nothing in this Release shall constitute a release by Executive of any claims or damages based on any right Executive may have to enforce the Company’s executory obligations under the Agreement, any right Executive may have to vested or earned compensation and benefits, or Executive’s eligibility for indemnification under applicable law, Company governance documents, Executive’s indemnification agreement with the Company or under any applicable insurance policy with respect to Executive’s liability as an employee or officer of the Company.      If Executive is 40 years of age or older at the time of the termination, Executive acknowledges that he/she is knowingly and voluntarily waiving and releasing any rights he/she may have under ADEA. Executive also acknowledges that the consideration given under the Agreement for the Release is in addition to anything of value to which he/she was already entitled. Executive further acknowledges that he/she has been advised by this writing, as required by the ADEA, that: (A) his/her waiver and release do not apply to any rights or claims that may arise on or after the date he/she executes this Release; (B) Executive has the right to consult with an attorney prior to executing this Release; (C) Executive has 45 days to consider this Release (although he/she may choose to voluntarily execute this Release earlier); (D) Executive has 7 days following the execution of this Release to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the 8th day after this Release is executed by Executive, without Executive’s having given notice of revocation; and (F) Executive has received with this Release a detailed list of job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.      Executive further acknowledges that Executive has carefully read this Release, and knows and understands its contents and its binding legal effect. Executive acknowledges that by signing this Release, Executive does so of Executive’s own free will, and that it is Executive’s intention that Executive be legally bound by its terms.                             Brian Dorsey                       Date:                       2 --------------------------------------------------------------------------------   Exhibit C Indemnification agreement [Attached]  

Exhibit 10.3 JUNIPER NETWORKS, INC. 2006 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Juniper Networks, Inc. 2006 Equity Incentive Plan (the “Plan”) shall have the same defined meanings in this Stock Option Agreement (the “Option Agreement”). I. NOTICE OF GRANT [Optionee’s Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:                       Grant Number             Grant Date             Exercise Price per Share   $         Total Number of Shares Granted             Total Exercise Price   $         Type of Option:   Nonstatutory Stock Option     Term/Expiration Date:   7 Years From the Grant Date     Vesting Schedule:             [Insert Vesting Schedule]         II.   AGREEMENT           1.   Grant of Option. The Board hereby grants to the Optionee (the “Optionee”) named in the Notice of Grant section of this Agreement (the “Notice of Grant”), an option (the “Option”) to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan (which is incorporated herein by reference) and this Option Agreement. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.   2.   Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement, subject to Optionee’s remaining a Director on each vesting date. (b) Post-Termination Exercise Period. Subject to any extended post-termination exercise period set forth in duly authorized written agreements by and between Optionee and the Company, if Optionee ceases to remain in Continuous Status as a Director, then this Option may be exercised, but only to the extent vested on the date of such cessation of Continuous Status as a Director, until the earlier of (i) ninety days after the date upon which Optionee ceases his or her Continuous Status as a Director, or (ii) the original seven-year Option term. (c) Method of Exercise. This option may be exercised with respect to all or any part of any vested Shares by giving the Company, E*Trade OptionsLink, or any successor third-party stock option plan administrator designated by the Company written or electronic notice of such exercise, in the form designated by the Company or the Company’s designated third-party stock option plan administrator, specifying the number of shares as to which this option is exercised and accompanied by payment of the aggregate Exercise Price as to all exercised shares. This Option shall be deemed to be exercised upon receipt by the Company, E*Trade OptionsLink or any successor third-party stock option plan administrator designated by the Company of such fully executed exercise notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with applicable laws. Assuming such compliance, for income tax purposes the exercised shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such exercised shares. (d) Payment of Exercise Price. Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash; or (ii) check; or (iii)  delivery of a properly executed exercise notice together with such other documentation as the Administrator and a broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale proceeds required to pay the exercise price.   3.   Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.   4.   Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.   5.   Tax Consequences. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. The Optionee may incur regular federal income tax liability upon exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the exercised shares on the date of exercise over their aggregate Exercise Price. (b) Disposition of Shares. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.   6.   Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. By your acknowledgment and acceptance of the terms of this Agreement, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to accepting this Agreement and fully understands all provisions of the Plan and this Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in his/her residence address.

Exhibit 10.4   CONFIDENTIAL   RESTRICTED STOCK UNIT AGREEMENT   THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) dated as of                                  (the “Date of Grant”), is between First Advantage Corporation, a Delaware corporation (“Company”) having an address at One Progress Plaza, Suite 2400, St. Petersburg, Florida 33701, and                                      (“Employee”) having an address set forth on the signature page hereof, relating to the award of units representing the Company’s Class A common stock (“Stock”) to Employee pursuant to the Other Stock-Based Awards provisions (Article XII) of Company’s 2003 Incentive Compensation Plan (as such may be amended from time to time, the “Plan”). Capitalized terms used in this Agreement without definition shall have the meaning ascribed to such terms in the Plan.   1. ISSUANCE OF RESTRICTED STOCK UNITS. Company hereby awards to Employee              Other Stock-Based Awards (the “Restricted Stock Units”). The value of each Other Stock-Based Award shall be equal to one share of Stock. The award is subject to adjustment as provided in Section 4.3 of the Plan.   2. LAPSE OF RESTRICTIONS.     a. The Restricted Stock Units shall vest and cease to be subject to the restrictions described herein (“Period of Restriction”), contingent upon the Employee’s continued employment with the Company as of the date set forth in the following schedule:   Date --------------------------------------------------------------------------------    Cumulative Percentage Unrestricted -------------------------------------------------------------------------------- One Year Anniversary from Date of Grant    33.3% Two Year Anniversary from Date of Grant    66.6% Three Year Anniversary from Date of Grant    100%   For purposes of the foregoing schedule, amounts shall be rounded down to the nearest Unit. Units no longer subject to restrictions are referred to herein as “Unrestricted Stock Units.” Except as provided in Section 2(b) hereof, in the event that Employee separates from service for any or no reason before all of the Restricted Stock Units granted hereunder become Unrestricted Stock Units, Employee shall, upon the date of such termination (the “Termination Date”) forfeit the Restricted Stock Units. For purposes of this Agreement, the Employee shall be considered to be in the employment of the Company as long as the Employee remains an employee of either the Company, or subsidiary corporation (as defined in Section 424 of the Internal Revenue Code), and separation from service shall be interpreted consistently with Section 409A of the Code. Determinations regarding any termination of employment shall be made by the Committee, and its determination shall be final.   1 --------------------------------------------------------------------------------   b. Notwithstanding Section 2(a), hereof, in the event of the Employee’s death, Disability, Retirement, or separation from service due to a Board-approved Reduction-in-Force by the Company, in any case before all of the Restricted Stock Units granted hereunder become Unrestricted Stock Units, the Restrictions on the current year unvested installment shall immediately lapse on a pro-rata basis, based on the number of whole months of Employee’s employment during the current vesting year divided by 12, and the remaining Restricted Stock Units for that installment and for the future years unvested installments shall be forfeited. In addition, the Restrictions shall lapse upon a Change of Control of the Company (as defined in the Plan) or in the event of Employee’s death.   3. RESTRICTION ON TRANSFER. Restricted Stock Units (and any interest therein) may never be directly or indirectly transferred, pledged, hypothecated, or otherwise disposed of while they remain Restricted Stock Units. The prohibition against transfer and the obligation to forfeit and surrender Restricted Stock Units to the Company upon cessation of employment for any reason (excluding death, Disability, Retirement, or separation from service due to a reduction-in-force by the Company) are referred to herein as “Forfeiture Restrictions”. The Forfeiture Restrictions shall be binding upon and enforceable against any purported transferee.   4. PAYMENT. Payment in respect of the Unrestricted Stock Units shall be made to the Employee, or his or her estate, as the case may be, in a lump sum on the date set forth in Employee’s election, provided such election was made prior to the year of the award and in a manner consistent with Section 409A of the Internal Revenue Code or, if earlier, 30 days following the Employee’s separation from service for any reason; provided, however, if Employee is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code, no payment based upon the Employee’s separation of service may be made before the date which is 6 months after the date of separation from service. If no election with respect to payment was made, payment (other than with respect to payment based upon separation from service as described in the preceding sentence) shall be made within 2 1/2 months following the date of vesting as set forth in Section 2 hereof. The Company may, in its discretion, permit a subsequent deferral election provided that (i) such election may not take effect until at least 12 months after the date the election is made, (ii) the payment with respect to which the election is made must be deferred for a period of not less than 5 years from the date such payment would otherwise have been paid, (iii) such election may not be made less than 12 months prior to the date the payment is scheduled to be paid, and (iv) such election shall comply in all other respects with Section 409A of the Code.   5. FORM OF PAYMENT. Payment may be made, in the Company’s sole discretion, in shares of Stock, in cash, or partly in shares of Stock and partly in cash. If paid in cash, the amount of any cash payment for each Unrestricted Stock Unit shall be equal to the Fair Market Value of a share of Stock on the date of Payment.   2 -------------------------------------------------------------------------------- 6. VOTING RIGHTS AND DIVIDENDS. Restricted and Unrestricted Stock Units shall not be entitled to voting rights. Restricted and Unrestricted Stock Units shall not be credited with any cash dividends paid with respect to the Stock.   7. WITHHOLDING TAXES. Employee shall be advised by the Company as to the amount of any federal, state, local or foreign income or employment taxes required to be withheld by the Company on the income resulting from the award or payment of the Restricted and Unrestricted Stock Units. Employee shall pay any taxes required to be withheld directly to the Company in accordance with the provisions of Article XVI of the Plan. Employee understands that no payment with respect to the Unrestricted Stock Units shall be made unless and until Employee shall have satisfied any obligation for withholding taxes with respect thereto.   8. EMPLOYEE’S INVESTMENT REPRESENTATIONS. Employee represents that, to the extent Stock is issued in payment for the Unrestricted Stock Units, he (a) is acquiring shares of Stock for his own account for investment, not on behalf or for the benefit of any other person, trust, estate, or business organization and has no intention of distributing such shares of Stock to others in violation of the Securities Act; (b) has no contract or arrangement with any person to sell or transfer to them Employee’s shares of Stock; (c) understands that the shares of Stock cannot be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws; (d) understands the Company may refuse to issue shares of Stock in payment for the Unrestricted Stock Units if such transfer would constitute a violation of the Forfeiture Restrictions or, in opinion of counsel satisfactory to the Company, of any applicable securities laws; and (e) understands that the Company may give related instructions to the transfer agent in accordance herewith.   9. MISCELLANEOUS. This Agreement, together with the Plan, embodies the complete agreement and understanding between the parties and supersedes and preempts any prior understandings, agreements, or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, excepting any permitted deferral election with respect hereto. This Agreement is intended to bind, inure to the benefit of and be enforceable by Employee and Company and their respective successors and assigns. In addition to any other available remedies, the parties will be entitled to specifically enforce their respective rights hereunder and obtain injunctive relief to enforce or prevent violations of the provisions hereof.   10. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.   FIRST ADVANTAGE CORPORATION, A DELAWARE CORPORATION By:     Name:     Title:     EMPLOYEE: Name:     Address:         4